<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1998
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CONVERGENT COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
COLORADO 4813 84-1337265
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification
incorporation or organization) Classification Code No.)
Number)
</TABLE>
400 INVERNESS DRIVE SOUTH, SUITE 400
ENGLEWOOD, COLORADO 80112
(303) 749-3000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
MARTIN E. FREIDEL, ESQ.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
CONVERGENT COMMUNICATIONS, INC.
400 INVERNESS DRIVE SOUTH, SUITE 400
ENGLEWOOD, COLORADO 80112
303-749-3016
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
WITH A COPY TO:
RICHARD M. RUSSO, ESQ.
GIBSON, DUNN & CRUTCHER LLP
1801 CALIFORNIA STREET, SUITE 4200
DENVER, COLORADO 80202
303-298-5715
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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. / /
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
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
13% Series B Senior Notes Due 2008... $160,000,000 100% $160,000,000 $47,200
</TABLE>
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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION
(THE "COMMISSION"), ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION--PRELIMINARY PROSPECTUS DATED MAY 29, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
OFFER TO EXCHANGE ALL OUTSTANDING
13% SENIOR NOTES DUE 2008
FOR 13% SERIES B SENIOR NOTES DUE 2008
[LOGO]
------------------------
Convergent Communications, Inc. ("Convergent Communications" or the
"Company") hereby offers, upon the terms and conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal," which, together with this Prospectus, constitutes the "Exchange
Offer") to exchange up to $160,000,000 aggregate principal amount of its 13%
Series B Senior Notes Due 2008 (the "New Notes") for a like aggregate principal
amount of the issued and outstanding 13% Senior Notes Due 2008 (the "Old Notes,"
and collectively with the New Notes, the "Notes") of which $160,000,000
aggregate principal amount is outstanding. See "The Exchange Offer."
The Company will accept for exchange any and all Old Notes that are properly
tendered in the Exchange Offer and not withdrawn on or prior to 5:00 p.m., New
York City time, on , 1998 (the "Expiration Date"), unless the Exchange
Offer is extended by the Company. Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange. However, the Exchange Offer is subject to the terms
and provisions of the Notes Registration Rights Agreement. The Company has
agreed to pay the expenses of the Exchange Offer. See "The Exchange Offer."
There will be no cash proceeds to the Company from the Exchange Offer. See "Use
of Proceeds."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "The Exchange Offer--Resales
of the New Notes" and "Plan of Distribution." The Letter of Transmittal states
that by so acknowledging and delivering a prospectus, such broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business on the
180th day following the Expiration Date, it will make this Prospectus available
to any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Old Notes were originally issued and sold on April 2, 1998 (the "Initial
Offering") to Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns
& Co. Inc., and BT Alex. Brown Incorporated (collectively, the "Initial
Purchasers") pursuant to a Purchase Agreement dated March 26, 1998 (the
"Purchase Agreement"), among the Company and the Initial Purchasers, pursuant to
which the Company sold 160,000 Units consisting of the Old Notes and Warrants to
purchase 1,728,000 shares of the Company's Common Stock (the "Units"). The
Initial Purchasers subsequently resold the Old Notes in reliance on Rule 144A
under the Securities Act. The Company and the Initial Purchasers also entered
into a Notes Registration Rights Agreement, dated April 2, 1998 (the
"Registration Rights Agreement"), pursuant to which the Company granted certain
registration rights for the benefit of the holders of the Old Notes. The New
Notes are being offered for exchange in order to satisfy certain obligations of
the Company under such Registration Rights Agreement. The New Notes will be the
obligations of the Company evidencing the same indebtedness as the Old Notes and
will be issued under and entitled to the benefits of the Indenture, dated as of
April 2, 1998 (the "Indenture"), between the Company and Norwest Bank Colorado,
N.A., as trustee (in such capacity, the "Trustee"). The form and terms of the
New Notes are identical in all material respects to the Old Notes, except that
the offer and exchange of the New Notes will be registered under the Securities
Act, and therefore such New Notes will not be subject to certain transfer
restrictions and registration rights provisions applicable to the Old Notes. See
"The Exchange Offer--Purpose and Effect."
The Notes will mature on April 1, 2008. Interest on the Notes will be
payable semiannually in arrears on April 1 and October 1 of each year,
commencing October 1, 1998. Concurrently with the closing of the Offering, the
Company deposited in the Collateral Account (as defined) an amount of cash or
U.S. Government Securities (as defined) or a combination thereof that, together
with the interest received thereon, will be sufficient to pay when due the first
six interest payments on the Notes. Holders whose Old Notes are accepted for
exchange will have the right to receive interest accrued thereon from the date
of original issuance to the date of issuance of the New Notes, such interest to
be payable with the first interest payment on the New Notes. Interest on the Old
Notes accepted for exchange will cease to accrue on the day prior to the
issuance of the New Notes. See "Description of the Notes." The New Notes are
collateralized by a first priority security interest in the Collateral Account.
The Notes are redeemable at the option of the Company, in whole or in part, at
any time on or after April 1, 2003 at the redemption prices set forth herein,
together with accrued interest, if any, to the date of redemption. In addition,
at any time prior to April 1, 2001, the Company may redeem Notes in which an
aggregate principal amount up to 35% of the Notes with the net proceeds of one
or more Public Equity Offerings (as defined) or one or more sales of Common
Stock to a Strategic Equity Investor (as defined) at a redemption price equal to
113% of the principal amount thereof, together with accrued and unpaid interest
to the date of redemption; PROVIDED that immediately after giving effect to such
redemption, at least 65% of the original aggregate principal amount of the Old
Notes originally issued remain outstanding. Upon the occurrence of a Change of
Control (as defined), each holder of Notes may require the Company to purchase
all or a portion of such holder's Notes at a purchase price in cash equal to
101% of the principal amount thereof, together with accrued and unpaid interest
thereon, if any, to the date of purchase. See "Description of the
Notes--Optional Redemption" and "--Certain Covenants."
The New Notes are senior unsecured obligations of the Company, ranking PARI
PASSU in right of payment with all future unsecured senior indebtedness of the
Company and senior in right of payment to all future obligations of the Company
expressly subordinated in right of payment to the Notes. As of March 31, 1998,
on an unconsolidated basis after giving effect to the sale of Units and the
application of the proceeds therefrom, there would have been $0.1 million of
indebtedness of the Company outstanding in addition to the Notes. Because the
Company is a holding company that conducts its business through its
subsidiaries, all existing and future indebtedness and other liabilities and
commitments of the Company's subsidiaries, including trade payables, will be
effectively senior to the Notes. The Company's subsidiaries will not be
guarantors of the Notes. As of March 31, 1998, after giving effect to the sale
of the Units and the application of the proceeds therefrom, the subsidiaries
would have had aggregate liabilities of $11.9 million. See "Description of the
Notes."
<PAGE>
SEE "RISK FACTORS," BEGINNING ON PAGE 14, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF OLD NOTES IN CONNECTION WITH THE
EXCHANGE OFFER.
---------------------
The date of this Prospectus is , 1998
<PAGE>
THE NEW NOTES HAVE NOT BEEN RECOMMENDED, APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES
WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A
FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS
TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN
EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT
THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS
OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT
IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER,
SUBSCRIBER OR CLIENT, ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF
THIS PARAGRAPH.
AVAILABLE INFORMATION
THE COMPANY HAS FILED A REGISTRATION STATEMENT ON FORM S-4 (TOGETHER WITH
ANY AMENDMENTS THERETO, THE "REGISTRATION STATEMENT") WITH THE COMMISSION UNDER
THE SECURITIES ACT WITH RESPECT TO THE NEW NOTES. THIS PROSPECTUS, WHICH
CONSTITUTES A PART OF THE REGISTRATION STATEMENT, OMITS CERTAIN INFORMATION
CONTAINED IN THE REGISTRATION STATEMENT AND REFERENCE IS MADE TO THE
REGISTRATION STATEMENT AND THE EXHIBITS AND SCHEDULES THERETO FOR FURTHER
INFORMATION WITH RESPECT TO THE COMPANY AND THE NEW NOTES OFFERED FOR EXCHANGE
HEREBY. THIS PROSPECTUS CONTAINS SUMMARIES OF THE MATERIAL TERMS AND PROVISIONS
OF CERTAIN DOCUMENTS AND IN EACH INSTANCE REFERENCE IS MADE TO THE COPY OF SUCH
DOCUMENT FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT. EACH SUCH SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY SUCH REFERENCE.
THE REGISTRATION STATEMENT MAY BE INSPECTED WITHOUT CHARGE AT THE OFFICE OF
THE COMMISSION AT 450 FIFTH STREET, N.W., WASHINGTON, D.C. 20549. COPIES OF THE
REGISTRATION STATEMENT MAY BE OBTAINED FROM THE COMMISSION AT PRESCRIBED RATES
FROM THE PUBLIC REFERENCE SECTION OF THE COMMISSION AT SUCH ADDRESS, AND AT THE
COMMISSION'S REGIONAL OFFICES LOCATED AT 7 WORLD TRADE CENTER, 13TH FLOOR, NEW
YORK, NEW YORK 10048, AND AT NORTHWESTERN ATRIUM CENTER, 500 WEST MADISON
STREET, SUITE 1400, CHICAGO, ILLINOIS 60661. IN ADDITION, REGISTRATION
STATEMENTS AND CERTAIN OTHER FILINGS MADE WITH THE COMMISSION THROUGH ITS
ELECTRONIC DATA GATHERING, ANALYSIS AND RETRIEVAL ("EDGAR") SYSTEM ARE PUBLICLY
AVAILABLE THROUGH THE COMMISSION'S SITE ON THE INTERNET'S WORLD WIDE WEB,
LOCATED AT HTTP://WWW.SEC.GOV.
------------------------
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by and information currently available to management. Such
forward-looking statements are principally contained in the sections "Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" and include without limitation the
Company's expectation and estimates as to its business following the Exchange
Offer, including the marketing of its Enterprise Network Services (as defined),
the introduction of new products and services, expansion into new markets and
future financial performance, including growth in net sales and earnings and
cash flows from operations. In addition, in those and other portions of this
Prospectus the words "anticipates," "believes," "estimates," "expects," "plans,"
"intends" and similar expressions, as they relate to the Company or its
management, are intended to specifically identify forward looking statements.
Such statements reflect the current views
<PAGE>
of the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions, including the risk factors described in this
Prospectus. In addition to factors that may be described elsewhere in this
Prospectus, the Company specifically wishes to advise readers that the factors
listed under the caption "Risk Factors" could cause actual results to differ
materially from those expressed in any forward-looking statement. Should one or
more of these risks or uncertainties materialize, or should any underlying
assumptions prove incorrect (including the assumptions used in connection with
the preparation of the Pro Forma Combined Statements of Operations), actual
results may vary materially from those described herein as anticipated,
believed, estimated or expected. The Company does not intend to update these
forward-looking statements.
------------------------
The Company has registered, applied to register or has otherwise sought
legal protection for the following trademarks, tradenames and servicemarks which
appear in this Prospectus: E-POP-TM-, Enterprise Network Carrier-TM- and
Computer-Telephony Integrated Support System-TM-. All other trademarks,
tradenames and services marks appearing in this Prospectus are the property of
their respective holders.
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and related notes appearing elsewhere in
this Prospectus. Unless the context otherwise requires, references to the
"Company" or to "Convergent Communications" are to Convergent Communications,
Inc., a Colorado corporation and its wholly owned subsidiaries. See "Glossary"
for the definition of certain other terms used in this Prospectus.
THE COMPANY
Convergent Communications, Inc. is an Enterprise Network Carrier-TM-
offering comprehensive, single-source communications services primarily to small
and medium-sized businesses.
As an Enterprise Network Carrier,-TM- the Company integrates its data and
telephony products and services into a single product offering, enabling the
Company to act as a single-source, one-stop provider of its customer's total
communications requirements. Unlike traditional telecommunications companies
that provide services from outside a customer's premise, in providing Enterprise
Network Services ("ENS"), the Company designs, buys and builds its OWN network
within the customer's premise, enabling the Company to act as an outsource
provider of any or all of the customer's communications requirements. For the
quarter ended March 31, 1998, the Company had approximately $6.5 million in
revenues, or approximately $26.0 million on an annualized basis. The Company
began offering ENS services in December 1997 and as of April 30, 1998, had
entered into long-term ENS contracts with 12 customers with an aggregate of
approximately 790 desktops. These contracts will provide the Company with
approximately $2.1 million in annual contract revenues and over their terms are
expected to produce total revenues of approximately $10.5 million.
The Company's business plan is designed to address the large and growing
market for the provision of single-source communications services to small and
medium-sized businesses. The Company believes it is the only provider of ENS
solutions, or a comparable range of outsourced communications services, to such
businesses in its target markets. The Company's ENS solution is provided under
long-term contracts (typically three to five years) which position the Company
to be the customer's exclusive provider of data networking, data transport and
telephony services. The Company believes its ENS solution provides it with
unique competitive advantages by creating the opportunity to (i) capture
virtually all of the customer's expenditures for communications services, (ii)
create long-term relationships with its customers by increasing their reliance
on and sense of partnership with the Company, (iii) capitalize on the growing
trend of outsourcing of networking services and the increasing demand for data
services, (iv) differentiate itself from providers of communications services
that do not offer integrated solutions to small and medium-sized businesses, (v)
secure stable sources of long-term, recurring revenue and (vi) achieve
significantly reduced customer turnover compared to traditional providers of
communications services.
The Company provides the following products and services:
DATA:
- DATA NETWORKING SERVICES--including the planning, design, installation and
management of networks, from simple LANs to complex WANs.
- DATA PRODUCTS--including the sale and integration of servers, routers,
data switches and desk top computers.
- DATA TRANSPORT SERVICES--including frame relay and ATM services.
- INTERNET SERVICES--including web applications, web hosting and Internet
access.
2
<PAGE>
TELEPHONY:
- VOICE SERVICES--including local and long distance services.
- VOICE PRODUCTS--including the sale and integration of key systems and
PBXs.
ENTERPRISE NETWORK SERVICES:
- ENS--the delivery under long-term contract of one or more of the Company's
data and telephony services utilizing the Company's owned network inside
the customer's premise.
The Company provides communications services to approximately 2,500
customers in eight markets, Atlanta, Dallas, Denver, Des Moines, Omaha,
Portland, Salt Lake City, and San Francisco. The Company's business plan
anticipates the rollout of services in a total of 15 markets by mid-1999 and a
total of 25 markets by the end of 2001. The Company is certified to provide
local exchange services in California, Colorado, Iowa, Oregon and Utah, and
intends to apply for certification in each of its remaining existing markets and
each of its new markets.
The Company was founded in 1995 by an experienced team of three
telecommunications executives with a combined 61 years of experience in the
industry. The Company's senior management team includes John R. Evans, Chairman
and Chief Executive Officer, formerly the Executive Vice President and Chief
Financial Officer of ICG Communications, Inc. ("ICG") from its inception in 1991
until December 1995; Keith V. Burge, President and Chief Operating Officer, who
was the founder, Chief Executive Officer and Chief Operating Officer of Fiber
Optic Technologies, Inc., a leading national network services integrator; and
Philip G. Allen, Executive Vice President, and former Vice President of Investor
Relations and Corporate Communications of ICG. The Company's senior management
team also includes 15 additional telecommunications professionals, each with
substantial expertise, leading the sales, customer care, engineering, operations
and financial divisions of the Company. As of April 30, 1998, the Company had
235 employees.
THE ENTERPRISE NETWORK OPPORTUNITY
According to the Company's market research, small and medium-sized
businesses (typically with 25 to 500 desktops) are increasingly seeking
single-source solutions to their communications requirements as a result of (i)
the bewildering array and increasing complexity of network configurations and
telephony service offerings, (ii) the need to focus on their core operations
rather than network and communications issues, (iii) rapid changes in
technology, (iv) the growing importance of the Internet in business and
commerce, (v) the cost and difficulty of maintaining in-house technical
expertise, and (vi) the potential savings associated with outsourcing their data
and communications requirements. The Company's business plan anticipates the
rollout of services in 25 cities by the end of 2001. The Company believes that
the aggregate addressable market for ENS in these cities will grow to
approximately $90 billion over the next four years, which includes $75 billion
for data networking and transport services and products and $15 billion for
telephony services. The Company believes that the size and anticipated growth of
the market for ENS, continued deregulation in the market for telecommunication
services and the absence of regulation of the market for data networking
services and certain data transport services such as Internet access have
created enormous opportunities for smaller, highly focused, innovative
communications providers like Convergent Communications to compete successfully
against ILECs, CLECs, IXCs, data integrators and other traditional providers of
communications services.
THE ENTERPRISE NETWORK
INSIDE NETWORK. The Enterprise Network is a Company-designed, owned and
managed data and telephony network located inside the customer's premise and
linked to the Company's external network
3
<PAGE>
through a single digital facility. The provision of an ENS solution begins with
an assessment of a customer's near and long-term communications requirements
emphasizing how the implementation of an enterprise network will allow the
customer to focus on core business functions while reducing its total cost of
network ownership, and culminates in the design and implementation of a
completely outsourced network solution.
OUTSIDE NETWORK. The Company's business plan includes the rapid deployment
of its Enterprise Point-of-Presence ("E-POP-TM-"). The E-POP-TM-, a
third-generation CLEC switching platform, consists of existing switching and
transmission equipment and software uniquely configured by the Company to act as
a service aggregation point for its customers and a dissemination point to
backbone providers of local, long distance, data transport and Internet
services. The Company's E-POP-TM- is designed as a scalable, distributed data
network that integrates voice and local switching platforms, enabling the
Company to add specific data and voice services as required by the customer. By
integrating voice and data through a single digital facility, using
best-in-class network components, and creating a distributed network
architecture, the E-POP-TM- results in lower costs in relation to other CLEC
networks. The Company has deployed its E-POPs-TM- in Des Moines and Denver, and
is deploying an E-POP-TM- in San Francisco.
BUSINESS STRATEGY
Convergent Communications' goal is to become the premier Enterprise Network
Carrier-TM- in its target markets by providing single-source communications
services, superior customer care and cost effective solutions to its customer's
requirements. The Company's business strategy is designed to enable it to
achieve rapid market penetration, strong growth and stable, long-term sources of
recurring revenues. The Company's strategy includes the following key elements:
SINGLE-SOURCE PROVIDER. The Company's market research indicates that there
is significant demand from small and medium-sized businesses to outsource their
entire communications requirements to a single-source provider that delivers a
full range of efficient and cost-effective solutions. While the Company's sales
efforts are directed towards its ENS solution, the Company believes that its
ability to deliver an entire range of services provides significant advantages
to its customers by reducing (i) the complexity and confusion associated with
integrating diverse networks and technologies obtained from and serviced by
multiple vendors and deployed at multiple locations, and (ii) the administrative
costs of network implementation, coordination, maintenance and monitoring.
OWN THE ENTERPRISE NETWORK. Unlike traditional telecommunications providers
which "look in" to the customer's premise, terminating their networks outside of
the customer's building, the Company designs, builds and owns the network within
the customer's premise, managing and controlling the customer's communications
infrastructure under long-term service agreements (typically three to five years
in duration). As a component of its ENS solution, the Company will either buy a
customer's existing communications equipment or install its own new equipment,
enabling the customer to redeploy its capital for use in its core business
activities. During the term of an ENS agreement, the Company effectively acts as
its customer's communications department, providing complete outsourcing for its
customer's communications requirements and increasing the customer's reliance on
and sense of partnership with the Company. The customer pays one fee for all
services included in the ENS solution, including its use of the Company-owned
infrastructure on the customer premise and the maintenance of this
infrastructure. The Company believes its ownership of the communications
equipment installed on the customer's premise, and its ability to provide
services from within the customer's premise will provide it with significant
competitive advantages over non-enterprise based service providers, including
the ability to (i) capture virtually all of the customer's expenditure for
communications services, (ii) offer superior customer care, (iii) continually
offer and provide new value-added product and service enhancements, and (iv)
achieve significantly less customer turnover than traditional communications
providers.
4
<PAGE>
"LEAD WITH DATA; FOLLOW WITH TELEPHONY; CLOSE WITH ENS." While businesses
are accustomed to reliable voice services, the Company believes that its target
customers place paramount importance on data networking and transport services
because of the impact inadequate data services can have on a customer's
operating efficiency and profitability. Once the Company gains the confidence of
its customers through the provision of data services, the Company believes that
those customers are more likely to purchase its telephone services and
ultimately its complete ENS solution. The Company believes its strategy of
leading with data, following with telephony and closing with ENS will enable it
to rapidly penetrate its target markets, secure a greater percentage of its
customers' expenditures on communications services earlier in the sales cycle,
and increase the range of communications services provided to its customers.
TARGET SMALL AND MEDIUM-SIZED BUSINESSES. The Company believes it can
achieve rapid market penetration by focusing its sales efforts on small and
medium-sized businesses (25 to 500 desktops) with high data usage requirements.
The Company believes that these businesses are highly attractive customers for
ENS because management of such companies typically lacks the time, expertise and
financial resources to adequately fulfill their own data and telephony
requirements. Geographically, the Company's target markets have been selected on
the basis of a number of factors, including the number and concentration of
small businesses, the potential for rapid market penetration and sustained
growth, and the availability of local management personnel and talent with key
technical and marketing skills. Pursuant to this strategy, the Company has
compiled demographic research on 26,000 small and medium-sized businesses
located in highly concentrated business parks in these target markets.
RAPID E-POP-TM- DEPLOYMENT. The Company's business plan includes the rapid
deployment of E-POPs-TM- in its target markets. The E-POP-TM- is a scalable,
distributed data network that integrates voice and data over a single digital
facility and common switching platform. The Company believes the rapid
deployment of E-POPs-TM- will enable it to more quickly achieve improved margins
by reducing the cost to the Company of data and voice switching and
transmission. The Company plans to deploy E-POPs-TM- in at least four of its
markets in 1998, and intends to deploy E-POPs-TM- in all of its markets
following the establishment of a sufficient base of ENS customers.
GROWTH THROUGH STRATEGIC ACQUISITIONS. In each of the Company's target
markets, a large number of small private companies provide local and
long-distance resale, telecommunications equipment and network integration
services. This creates numerous opportunities to acquire industry participants
that can provide key technical support personnel and management talent, customer
bases for potential expansion to full ENS solutions, accretions to cash flows,
and product line extensions. In addition, the Company's acquisition strategy
allows the Company to enter new markets more quickly than would otherwise be
possible. To date, the Company has completed ten acquisitions in four markets.
COMPETITIVE ADVANTAGES
The Company believes its business strategy provides it with the following
competitive advantages:
"ONE-STOP SHOPPING." The Company's market research indicates there is
significant unmet demand among its target customers for single-source
communications solutions. The Company's "one-stop shopping" enables its
customers to (i) reduce the complexity and confusion associated with integrating
diverse networks and technologies obtained from multiple vendors and deployed at
multiple locations, (ii) reduce the administrative expense of network
implementation, coordination, maintenance and monitoring and (iii) receive
customer care through a single point of contact. The Company believes that its
ability to deliver the entire range of communications services, including its
ENS solution, distinguishes it from traditional providers of networking and
telecommunications services.
LONG-TERM EXCLUSIVE RELATIONSHIPS. The Company's ENS solution is designed
to enable it to establish long-term exclusive relationships with its customers.
As its customer's ENS provider, the Company seeks to own the network on the
customer's premise, acting as the single-source provider of the customer's
5
<PAGE>
communications equipment and services, and as the primary consultant for the
customer's communications requirements. The Company believes that this ongoing
relationship fosters a greater sense of partnership between the Company and the
customer and provides the Company with the ability to offer additional services
to the customer, culminating in an ENS sale. The Company's Enterprise Network
Services are provided pursuant to long-term contracts (typically three to five
years in duration) which will provide it with a number of competitive advantages
over CLECs, ILECs and other service providers, including, among other things,
significantly lower customer turnover than traditional providers of
telecommunications services, as well as stable, long-term sources of recurring
revenue.
REDUCE CUSTOMER'S TOTAL COST OF NETWORK OWNERSHIP. The Company will reduce
the customer's total cost of network ownership by (i) purchasing the customer's
existing premise network equipment, enabling the customer to redeploy its
capital for use in its core business activities and eliminating the customer's
need for further capital expenditures on equipment, (ii) offering bundled
communication services at a lower overall cost than existing services, and (iii)
minimizing and in some cases eliminating the customer's reliance on on-site
networking expertise through the utilization of the Company's localized network
management capabilities. As a result, the Company expects to provide its
customers with higher quality service than they currently receive, while
reducing their overall cost of network ownership and operation.
SOLUTIONS-ORIENTED SALES AND CUSTOMER CARE ORGANIZATION. Based on the
results of its market research, the Company believes that providing superior
customer care requires (i) the establishment of a local sales and service
presence, (ii) the availability of a single customer interface to handle all
customer care requirements, and (iii) a highly trained, solutions-oriented sales
and customer care organization. Each employee of the Company, from its sales
executives and project managers to its engineers and field service technicians,
is trained to operate in each local market as a member of a team in devising
customer solutions and facilitating customer care. To achieve a cohesive,
solutions-oriented sales and customer care approach, and to allow the effective
use of a single customer interface, the Company has developed its proprietary
operating support system platform called the Computer-Telephony Integrated
Support System-TM- ("CTISS"). CTISS is an Oracle-based software system that
integrates both data and voice communications services on a single platform,
permitting all of the Company's customer care, sales engineering, service
management, service delivery, accounting and inventory management personnel to
provide input to and work from a single data source.
EFFICIENT CAPITAL DEPLOYMENT. The Company expects to realize significant
capital deployment efficiencies using the E-POP-TM-, a unique third-generation
CLEC switching platform. By integrating voice and data through the use of a
single digital facility, using best-in-class network components and creating a
distributed network architecture, the E-POP-TM- results in lower costs in
relation to other CLEC networks. The Company estimates that the E-POP-TM- is
approximately 30% less costly than the traditional CLEC switching platform and
will become up to 65% less costly as the E-POP-TM- architecture is further
refined. In addition, the Company believes its E-POP-TM- platform will provide
the Company with substantially greater operating flexibility, higher returns on
deployed capital and a shorter period to positive EBITDA on a market-by-market
basis than is achievable by traditional CLECs or ILECs. The Company expects to
recapture the capital cost of an E-POP-TM- in as short as 12 to 24 months after
deployment, with the initial break-even point attainable with as few as
approximately ten ENS customers with 50 desktops each. The smart elements of the
E-POP's-TM- distributed network architecture are structured to allow each of
them to be periodically "refreshed" by the Company, enabling a continual,
cost-effective and seamless expansion and upgrade of network equipment in
response to expected increases in data traffic and advances in technology.
FINANCING PLAN
The net proceeds from the sale of the Units (after funding the Collateral
Account) are being used to fund the expenditures incurred in the continuing
deployment of the Company's services in its target
6
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markets, including funding the deployment of its ENS networks, deployment of
E-POPs-TM-, continuing enhancement of its CTISS System, strategic acquisitions,
creating local customer care and sales organizations and for general corporate
purposes, including working capital and the funding of operating losses and debt
service requirements. The Company believes that these net proceeds will be
sufficient to fund the Company's aggregate capital expenditure and working
capital requirements, including operating losses, associated with its expansion
into additional markets for approximately the next two years. The amounts
actually expended by the Company for these purposes will vary significantly
depending upon a number of factors, including future revenue growth, if any,
capital expenditures and the amount of cash generated by the Company's
operations. The Company will continue to require additional capital for planned
increases in network development, capital expenditures, working capital, debt
service, and continued anticipated operating losses.
------------------------
The principal executive offices of the Company are located at 400 Inverness
Drive South, Suite 400, Englewood, Colorado 80112, its telephone number is
(303)749-3000, and its Internet website address on the world wide web is
www.converg.com.
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Securities Offered............ Up to $160.0 million principal amount of 13% Series B
Senior Notes Due 2008, which will be registered under the
Securities Act. The form and term of the New Notes are
substantially identical to the Old Notes in all material
respects, except that the New Notes will be registered
under the Securities Act, and therefore will not be subject
to certain transfer restrictions or entitled to certain
registration rights provisions applicable to the Old Notes.
The Exchange Offer............ $1,000 principal amount of New Notes in exchange for each
$1,000 principal amount of Old Notes. The New Notes are
being offered in exchange for up to $160.0 million
principal amount of Old Notes. The issuance of the New
Notes is intended to satisfy certain obligations of the
Company contained in the Registration Rights Agreement. See
"The Exchange Offer--Terms of the Exchange Offer."
Expiration Date............... The Exchange Offer will expire at 5:00 p.m., New York City
time, on , 1998, or such later date and time to which
it is extended. See "The Exchange Offer--Expiration Date;
Extensions; Amendments."
Withdrawal.................... Tenders of Old Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. See "The Exchange
Offer--Expiration Date; Extensions; Amendments."
Conditions of the Exchange
Offer....................... The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange.
However, the Exchange Offer is subject to the terms and
provisions of the Registration Rights Agreement. See "The
Exchange Offer--Conditions of the Exchange Offer."
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Procedures for Tendering Old
Notes....................... Each holder of Old Notes desiring to accept the Exchange
Offer must complete, sign and date the Letter of
Transmittal according to the instructions contained herein
and therein, and deliver (by mail or otherwise) the Letter
of Transmittal, together with the Old Notes and any other
required documents, to the Exchange Agent (as defined
herein) at the address set forth herein prior to 5:00 p.m.,
New York City time, on the Expiration Date. Any beneficial
owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank trust company or other
nominee and who wishes to tender such Old Notes in the
Exchange Offer should instruct such entity or person to
promptly tender on such beneficial owner's behalf.
Guaranteed Delivery
Procedures.................. Holders of Old Notes who wish to tender their Old Notes and
(i) whose Old Notes are not immediately available, or (ii)
who cannot deliver their Old Notes together with the Letter
of Transmittal to the Exchange Agent prior to the
Expiration Date may tender their Old Notes according to the
guaranteed delivery procedures set forth in the Letter of
Transmittal. See "The Exchange Offer--Guaranteed Delivery
Procedures."
Acceptance of Old Notes and
Delivery of New Notes....... Upon effectiveness of the Registration Statement of which
this Prospectus constitutes a part and consummation of the
Exchange Offer, the Company will accept any and all Old
Notes that are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time on the Expiration
Date. The New Notes issued pursuant to the Exchange Offer
will be delivered promptly after acceptance of the Old
Notes. See "The Exchange Offer-- Acceptance of Old Notes
for Exchange; Delivery of New Notes."
The Exchange Agent............ Norwest Bank Colorado, N.A. has agreed to serve as the
exchange agent (in such capacity, the "Exchange Agent") in
connection with the Exchange Offer. See "The Exchange
Offer--Acceptance of Old Notes for Exchange; Delivery of
New Notes."
Certain Federal Income Tax
Considerations.............. In the opinion of Gibson, Dunn & Crutcher LLP, the exchange
of Old Notes for New Notes in the Exchange Offer will have
no material federal income tax consequences to the holders
of Old Notes. See "Certain Federal Income Tax
Considerations."
Use of Proceeds............... There will be no proceeds to the Company from the exchange
pursuant to the Exchange Offer. See "Use of Proceeds."
Fees and Expenses............. All expenses incident to the Company's consummation of the
Exchange Offer and compliance with the Registration Rights
Agreement will be borne by the Company. The Company will
also pay certain transfer taxes, which may be applicable to
the Exchange Offer. See "The Exchange Offer--Fees and
Expenses."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Accrued Interest.............. The New Notes will bear interest at a rate of l3% per annum
from April 1, 1998. Holders whose Old Notes are accepted
for exchange will forego accured but unpaid interest on
such Old Notes for the period from April 1, 1998 to the
date of exchange, but will receive such interest under the
New Notes. See "Description of the Notes--Maturity,
Interest and Principal."
Resales of New Notes.......... Based on the position of the staff of the Commission as set
forth in certain interpretive letters issued to third
parties in other transactions, the Company believes that
the New Notes issued pursuant to the Exchange Offer to any
holder of Old Notes in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by a
holder (other than (i) a broker-dealer who purchased the
Old Notes directly from the Company for resale pursuant to
Rule 144A under the Securities Act or (ii) a person that is
an affiliate of the Company within the meaning of Rule 405
under the Securities Act), without further compliance with
the registration and prospectus delivery provisions of the
Securities Act, provided that such holder is acquiring the
New Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with
any person to participate, in a distribution of the New
Notes. Each broker-dealer that receives New Notes for its
own account in exchange for Old Notes, where such Old Notes
were acquired by such broker as a result of market-making
or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such
New Notes. See "The Exchange Offer--Resales of the New
Notes" and "Plan of Distribution."
Effect of Not Tendering Old
Notes for Exchange.......... Old Notes that are not tendered or that are not properly
tendered will, following the expiration of the Exchange
Offer, continue to be subject to the existing restrictions
upon transfer thereof. The Company will have no further
obligations to provide for the registration under the
Securities Act of such Old Notes.
</TABLE>
DESCRIPTION OF NEW NOTES
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the New Notes will
be registered under the Securities Act, and therefore will not be subject to
certain transfer restrictions or entitled to certain registration rights
provisions applicable to the Old Notes. The Exchange Offer shall be deemed
consummated upon the occurrence of the delivery by the Company to the Exchange
Agent of New Notes in the same aggregate principal amount as the aggregate
principal amount of Old Notes that are validly tendered by holders thereof
pursuant to the Exchange Offer. See "The Exchange Offer--Procedures for
Tendering Old Notes" and "Description of the Notes."
<TABLE>
<S> <C>
Notes Offered................. $160.0 million aggregate principal amount of 13% Series B
Senior Notes Due 2008.
Maturity Date................. April 1, 2008.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Interest...................... Interest will accrue on the New Notes at a rate of 13% per
annum payable semiannually in arrears on April 1 and
October 1 of each year, commencing October 1, 1998.
Collateral Account............ Concurrently with the closing of the sale of the Old Notes,
the Company deposited in the Collateral Account (as
defined) an amount of U.S. Government Securities
(approximately $57 million), that, together with the
proceeds from the investment thereof, will be sufficient to
pay when due each of the first six scheduled interest
payments on the New Notes, with any balance to be retained
by the Company. No interest payments have become due and
payable. The New Notes will be collateralized by a first
priority security interest in the Collateral Account. See
"Description of the Notes--Disbursement of Funds;
Collateral Account."
Ranking....................... The New Notes will be senior unsecured obligations of the
Company (except for the security interest in the Collateral
Account) ranking PARI PASSU in right of payment with all
future unsecured senior indebtedness of the Company and
senior in right of payment to all future subordinated
indebtedness of the Company. As of March 31, 1998, after
giving effect to the sale of the Units and the application
of the proceeds therefrom, there would have been
approximately $0.1 million of indebtedness of the Company
outstanding to which holders of New Notes would have been
effectively subordinated in right of payment, and the
subsidiaries would have had aggregate liabilities of
approximately $11.9 million to which holders of New Notes
would have been structurally subordinated. Because the
Company is a holding company that conducts its business
through its subsidiaries, all existing and future
indebtedness and other liabilities and commitments of the
Company's subsidiaries, including trade payables, will be
effectively senior to the New Notes. Subject to certain
limitations, the Company and its Restricted Subsidiaries
(as defined) may incur additional indebtedness in the
future, including secured indebtedness. The Company has
granted a security interest to the Trustee (as defined) for
the benefit of the holders of the New Notes in the
Collateral Account and all amounts deposited therein as
required under the Indenture (as defined). The holders of
the New Notes will have a claim on the amounts on deposit
in the Collateral Account that is prior to the claims of
other creditors of the Company. See "Risk
Factors--Substantial Indebtedness; Insufficiency of
"Restrictive Covenants;" "--Holding Company Structure;
Structural Subordination;" "--Effect of Substantial
Additional Indebtedness on Company's Ability to Repay the
Notes;" and "Description of the Notes--Ranking."
Sinking Fund.................. None.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Optional Redemption........... The New Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after April
1, 2003, at the redemption prices set forth herein, plus
accrued interest to the date of redemption. In addition, on
or prior to April 1, 2001, the Company may redeem up to 35%
of the New Notes with the net proceeds of one or more
Public Equity Offerings (as defined) or one or more sales
of Common Stock to a Strategic Equity Investor (as defined)
at a redemption price of 113% of the principal amount,
together with accrued and unpaid interest to the date of
redemption; provided that at least 65% of the aggregate
principal amount of the New Notes are outstanding
immediately after giving effect to such redemption. See
"Description of the Notes-- Optional Redemption."
Change of Control............. Following the occurrence of a Change of Control (as
defined), each holder of New Notes may require the Company
to make an offer to purchase all outstanding New Notes at a
purchase price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any,
to the date of purchase. See "Description of the
Notes--Certain Covenants."
Certain Covenants............. The indenture pursuant to which the New Notes will be
issued (the "Indenture") contains certain covenants that
restrict, among other things, the ability of the Company
and its Restricted Subsidiaries to (i) incur certain
indebtedness, (ii) pay dividends and make certain other
restricted payments, (iii) create liens, (iv) permit other
restrictions on dividends and other payments by Restricted
Subsidiaries and make certain investments in Unrestricted
Subsidiaries, (v) issue and sell capital stock of
Restricted Subsidiaries, (vi) guarantee certain
indebtedness, (vii) sell assets, (viii) enter into
transactions with Affiliates (as defined) and (ix) merge,
consolidate or transfer substantially all of the assets of
the Company. The covenants require the Company to make an
offer to purchase specified amounts of New Notes in the
event of certain asset sales. There can be no assurance
that the Company will have sufficient funds to complete any
purchase of New Notes upon such a sale of assets. See
"Description of the Notes--Certain Covenants."
Exchange Rights............... Holders of the New Notes will not be entitled to any
exchange or registration rights with respect to the New
Notes. Holders of the Old Notes are entitled to certain
exchange rights pursuant to the Registration Rights
Agreement which this Exchange Offer is intended to satisfy.
Once the Exchange Offer is consummated, the Company will
have no further obligations to register any of the Old
Notes not tendered by the holders for exchange.
</TABLE>
ABSENCE OF PUBLIC MARKET
There has been no public market for the Old Notes. The Company has been
advised by the Initial Purchasers that they presently intend to make a market in
the New Notes; however, they are not obligated
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<PAGE>
to do so and any market making may be discontinued at any time. Therefore, there
can be no assurance that an active market for the New Notes will develop or as
to the liquidity of any such market.
RISK FACTORS
See "Risk Factors" beginning on page 14 for a discussion of certain factors
that should be considered in connection with the Exchange Offer.
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following summary financial data should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in the Prospectus. The selected financial data, except the
information as of March 31, 1998 and for the three months ended March 31, 1998
and 1997, are derived from the financial statements of the Company and its
predecessor, which have been audited by Coopers & Lybrand L.L.P., independent
auditors. The data presented below as of March 31, 1998 and for the three months
ended March 31, 1998 and 1997 are derived from unaudited financial statements of
the Company included in the Registration Statement. Operating results for the
three months ended March 31, 1998 are not necessarily indicative of results that
may be expected for the full year. These unaudited financial statements have
been prepared on the same basis as the audited financial statements and, in the
opinion of management, contain all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for these periods.
<TABLE>
<CAPTION>
FOR THE
FOR THE PERIOD FOR THE
PERIOD FROM YEAR FOR THE
FOR THE YEAR ENDED JANUARY 1, INCEPTION ENDED THREE MONTHS ENDED
---------------------------- 1996 THROUGH THROUGH DECEMBER ----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 16, DECEMBER 31, 31, MARCH 31, MARCH 31,
1994 1995 1996 1996 1997 1997 1998
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (SUCCESSOR) (SUCCESSOR)(2) (SUCCESSOR) (SUCCESSOR)
------------- ------------- ------------- ------------- ----------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT
DATA(1):
Total revenues...... $ 988 $ 1,434 $ 1,496 $ 98 $ 10,210 $ 598 $ 6,523
Total cost of
revenues.......... 729 964 1,018 79 7,368 378 4,798
Selling, general and
administrative.... 477 405 554 311 10,983 1,187 6,062
Depreciation and
amortization...... 106 127 124 41 1,453 223 762
Interest expense
(income).......... 64 17 21 1 61 (105) 11
------ ------ ------ ------ ----------- ------------- -------------
Net loss............ $ (388) $ (79) $ (221) $ (334) $ (9,655) $ (1,085) $ (5,110)
------ ------ ------ ------ ----------- ------------- -------------
------ ------ ------ ------ ----------- ------------- -------------
Loss per share
(basic)(2)........ $ (0.04) $ (0.46) $ (0.07) $ (0.22)
Loss per share
(diluted)(2)...... $ (0.04) $ (0.46) $ (0.07) $ (0.22)
Weighted average
common shares
outstanding(2).... 7,775 20,922 16,375 22,992
OTHER OPERATING
DATA:
EBITDA(3)........... (218) 65 (76) (292) (8,141) (967) (4,337)
Capital
expenditures...... 140 23 36 29 2,042 196 1,929
</TABLE>
12
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<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
------------------------
ACTUAL PRO FORMA(4)
--------- -------------
<S> <C> <C>
BALANCE SHEET:
Cash and short-term investments....................................................... $ 2,915 $ 99,879
Restricted cash....................................................................... 409 57,161(5)
Property and equipment, net........................................................... 7,135 7,135
Total long-term debt.................................................................. 3,161 155,990
Shareholders' equity.................................................................. 14,310 21,197
</TABLE>
- ------------------------
(1) Effective December 17, 1996, the Company acquired Integrated Communication
Networks, L.C. ("ICN"). ICN is referred to as the "predecessor" for the
period prior to the acquisition. The Company since inception and ICN since
December 17, 1996 are referred to as the "successor."
(2) Per share data is not relevant for the Company's predecessor due to its
different capital structure and therefore is not included.
(3) As used herein, EBITDA consists of earnings before interest (net), income
taxes, depreciation, amortization and other income (expense). EBITDA is a
measure commonly used in the telecommunications industry to analyze
companies on the basis of operating performance. It is not a measure of
financial performance under GAAP and should not be considered as an
alternative to net income as a measure of performance or as an alternative
to cash flow as a measure of liquidity.
(4) Adjusted to give effect to the sale of the Units and the application of the
net proceeds therefrom. The value ascribed to the Warrants results in
additional paid-in-capital and additional debt discount that will be
amortized to interest expense using the effective interest method over the
period that the Notes are outstanding.
(5) Approximately $57 million of this amount represents that portion of the
proceeds from the issuance of the Units deposited in the Collateral Account.
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RISK FACTORS
HOLDERS OF THE OLD NOTES SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS, AS WELL AS OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS, IN
CONNECTION WITH THE EXCHANGE OFFER.
LIMITED OPERATING HISTORY, OPERATING LOSSES AND NEGATIVE CASH FLOWS. The
Company commenced active operations in January 1997. As a result, the Company is
subject to many of the risks common to developing enterprises, including
undercapitalization, cash shortages, limitations with respect to personnel,
financial and other resources and lack of sufficient customers and revenues to
be self-sustaining. The Company had revenues of $10,210,024 and $6,522,865 for
the year ended December 31, 1997 and quarter ended March 31, 1998, respectively,
and net losses of $9,654,779 and $5,110,666, respectively, for the same periods.
The Company expects to incur significant operating losses and to generate
negative cash flows during the next several years. There can be no assurance
that the Company will achieve or sustain profitability or positive cash flows
from operating activities in the future. If the Company cannot achieve operating
profitability or positive cash flows from operating activities, it may not be
able to meet its working capital requirements, which could have a material
adverse effect on the Company. In addition, the Company may not be able to make
payments on the Notes. See "--Substantial Capital Requirements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LIMITED OPERATION OF CERTAIN SERVICES. Substantially all of the Company's
revenues have been derived from data integration equipment sales and services
and voice product sales and services. Although these sources of revenues are
components of ENS, revenues from the provision of a full line of integrated ENS
solutions to individual customers have been limited and did not commence until
late 1997. In 1997, revenues from ENS were approximately $6,200, or 0.1% of
total 1997 revenues. As of April 30, 1998, the Company had entered into
long-term ENS contracts with 12 customers. These contracts will provide the
Company with approximately $2.1 million in annual contract revenues. Although
the Company intends to substantially increase its revenues from its ENS
operations, purchasers of the Units have limited historical information about
these operations upon which to base an evaluation of the Company's past or
future performance. Furthermore, it cannot be predicted whether the demand for
ENS services, particularly owning, installing and maintaining communications
networking equipment at the customer's premise, is as significant as the Company
anticipates, whether the Company can achieve its anticipated penetration of
these markets and whether it will meet its margin estimates for ENS service.
Were any of these objectives not achieved, the performance of the Company would
be materially adversely affected, and the Company could be unable to repay its
indebtedness, including the Notes.
The Company anticipates significant margin enhancement will result from
deployment of its E-POP-TM- switching platform, which incorporates a number of
independent components manufactured by other companies. The Company has only
recently deployed E-POPs-TM- in two of its markets. While all of the components
of the E-POP-TM- switching platform have established histories of successful
performance as individual products, the E-POP-TM- configuration does not have a
significant operating history. In particular, the E-POP-TM- and future
enhancements or adaptations may contain undetected design faults and "bugs"
that, despite testing by the Company, are discovered only after the E-POP-TM-
has been deployed in the Company's target markets. The failure of any component
of the E-POP-TM- could result in the interruption of service to the customers
serviced by that E-POP-TM- until necessary repairs are effected or replacement
equipment is installed. Such failures, faults or errors could cause delays or
require modifications that could have a material adverse effect on the Company's
business, financial condition, competitive position and results of operations.
SUBSTANTIAL CAPITAL REQUIREMENTS. Although the Company estimates that the
net proceeds of the sale of the Units will enable it to meet its operating
capital requirements for approximately the next two years, many factors could
cause the Company to require additional capital sooner, including, for example,
if the Company pursues a greater number of acquisitions of companies providing
communications services than is currently planned or if it chooses to enter
additional markets, enters markets earlier than currently
14
<PAGE>
anticipated, or substantially exceeds its penetration estimates. Material
shortfalls with regard to the Company's estimated operating and financial
performance could also cause the Company to require such additional capital.
There can be no assurance that following the expenditure of the proceeds of the
Initial Offering the Company will be successful in raising sufficient debt or
equity capital to fund its operations or that such funds, if available, will be
available on a timely basis or on terms that are acceptable to the Company. In
addition, capital leasing facilities, including equipment leasing arrangements,
may be unavailable to the Company or may be offered on unacceptable terms. The
Company's business plan contemplates the need for additional financing from
other sources. In the event such financing is unavailable in the amount and on
terms acceptable to the Company, the Company could be compelled to alter its
business strategy, or delay or abandon some of its future plans or expenditures
which could have a material adverse effect on the Company's financial condition
and results of operations, which in turn could adversely affect the ability of
the Company to repay its indebtedness, including the Notes. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
SUBSTANTIAL INDEBTEDNESS; RESTRICTIVE COVENANTS. As a result of the sale of
the Units, the Company is highly leveraged. At March 31, 1998, after giving
effect to the sale of the Units and the application of the net proceeds
therefrom, the Company would have had total consolidated indebtedness of $156.0
million, net of approximately $6.9 million allocated to the Warrants (or 88% of
the total capitalization of the Company) and the total liabilities of the
Company (including trade accounts payables and accrued liabilities) would have
been approximately $165.2 million. See "Capitalization." The degree to which the
Company is leveraged may adversely affect the Company's ability to finance its
future operations, to compete effectively against better capitalized companies,
to withstand downturns in its business or the economy generally, and to pursue
business opportunities that may be in the best interests of the Company and its
security holders.
The Indenture imposes operating and financial restrictions on the Company
and its subsidiaries. These restrictions affect, and in certain cases
significantly limit or prohibit, among other things, the ability of the Company
and its subsidiaries to incur additional indebtedness, create liens upon assets,
apply the proceeds from the disposal of assets, make investments, make dividend
payments and other distributions on capital stock and redeem capital stock. See
"Description of the Notes." There can be no assurance that such covenants will
not adversely affect the Company's ability to finance its future operations or
capital needs or to engage in other business activities that may be in the
interest of the Company.
HOLDING COMPANY STRUCTURE; STRUCTURAL SUBORDINATION. The Company is a
holding company with no direct operations and no assets other than cash and the
capital stock of its two subsidiaries, Convergent Communications Services, Inc.
("CCSI") and Convergent Capital Corporation ("C3"). The Company will be
dependent on the cash flow of CCSI and C3 to meet its obligations, including the
payment of interest and principal on the Notes. Each of the Company's
subsidiaries is a separate legal entity that has no obligation to pay any
amounts due pursuant to the Notes or to make any funds available therefor,
whether by dividends, loans or other payments. Because neither of the Company's
subsidiaries will guarantee the payment of the principal or interest on the
Notes, any right of the Company to receive assets of the Company's subsidiaries
upon their liquidation or reorganization (and the consequent right of holders of
the Notes to participate in the distribution or realize proceeds from those
assets) will be effectively subordinated to the claims of the creditors of the
Company's subsidiaries (including trade creditors and holders of indebtedness of
such subsidiary), except if and to the extent the Company is itself a creditor
of the Company's subsidiaries, in which case the claims of the Company would
still be effectively subordinated to any security interest in the assets of the
Company's subsidiaries held by other creditors. As of March 31, 1998, after
giving effect to the sales of the Units and the application of the proceeds
therefrom, the Company's subsidiaries would have had aggregate liabilities of
$11.9 million.
The Notes will be unsecured and will be effectively subordinated to any
future secured indebtedness of the Company to the extent of the value of the
assets securing such indebtedness. As of March 31, 1998,
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the Company had no secured indebtedness. The Indenture permits the Company or
the Company's subsidiaries to incur additional unsecured and secured
indebtedness. See "Description of the Notes." The Company expects that
indebtedness under any bank credit facility will be secured by a pledge by the
Company of 100% of the capital stock of the Company's subsidiaries and future
subsidiaries of the Company's subsidiaries and all assets held directly by the
Company's subsidiaries and their respective future subsidiaries, and will be
guaranteed by such subsidiaries. Consequently, in the event of a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding with respect to
the Company, such assets will be available to satisfy obligations of such
secured debt before any payment can be made on the Notes. In addition, to the
extent such assets would not satisfy in full such secured indebtedness, the
holders of such indebtedness will have a claim for any shortfall that is PARI
PASSU (or effectively senior if the indebtedness were issued by the Company's
subsidiaries) with the Notes. Accordingly, there may only be a limited amount of
assets available to satisfy any claims of the holders of the Notes upon an
acceleration of the Notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
EFFECT OF SUBSTANTIAL ADDITIONAL INDEBTEDNESS ON THE COMPANY'S ABILITY TO
REPAY THE NOTES. The Indenture limits, but does not prohibit, the incurrence of
additional indebtedness by the Company and its subsidiaries, and the Company and
one or more of its subsidiaries are likely to incur substantial additional
indebtedness during the next few years in order to expand the Company's
business. Also, in addition to the current equipment leasing facilities which
are secured by certain equipment and portions of the revenue streams from its
subsidiaries, the Company or one or more of its subsidiaries may establish
additional bank credit facilities which may be secured by a substantial portion
of its assets. See "Certain Indebtedness." Additional indebtedness, including
any indebtedness under a bank credit facility, may rank PARI PASSU with the
Notes, or effectively senior to the Notes, if issued by a subsidiary of the
Company or if issued on a secured basis by the Company. See "Description of the
Notes." The debt service requirements of any additional indebtedness could make
it more difficult for the Company to make principal and interest payments on the
Notes. Earnings generated by any of the Company's subsidiaries, as well as the
existing assets of such subsidiaries, will have to be used first by such
subsidiaries to fulfill their debt service requirements. See "--Holding Company
Structure; Structural Subordination."
RISK ASSOCIATED WITH IMPLEMENTATION OF GROWTH STRATEGY. Since its
inception, the Company's growth has been dependent upon successful
implementation of its business plan, including the acquisition of providers of
various data and telephony services. The expansion and development of the
Company's operations (including the acquisition of additional businesses) will
depend on, among other things, the Company's ability to assess markets,
identify, finance and complete suitable acquisitions and facilities, obtain any
required government authorizations, franchises and permits, and develop and sell
new products and services, all in a timely manner, at reasonable costs and on
satisfactory terms and conditions. The failure to quickly integrate operations
of newly acquired businesses with the Company's business and to effectively
manage the Company's anticipated rapid growth may adversely impact operating
results. The Company believes its ability to offer, market and sell these
products and services will be important to the Company's ability to meet its
long term strategic growth objectives, but that this ability is dependent on the
Company's ability to obtain the needed capital, continued favorable regulatory
and legislative environments and the acceptance of such products and services by
the Company's customers. No assurance can be given that the Company will be able
to effectively manage all aspects of the Company's expected growth.
The Company is experiencing a period of rapid expansion which management
expects will continue for the foreseeable future. This growth has increased the
operating complexity of the Company as well as the level of responsibility for
both existing and new management personnel. The Company's ability to manage its
expansion effectively will require it to continue to implement and improve its
operational and financial systems and to expand, train and manage its employee
base. The Company's inability to effectively manage its expansion could have a
material adverse effect on its business.
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DEPENDENCE UPON NETWORK INFRASTRUCTURE AND PRODUCTS AND SERVICES OF
OTHERS. The Company's success in marketing its services requires that the
Company provide superior reliability, capacity and service. Although the Company
can exercise direct control of the customer care and support it provides, many
of the services and products included in its ENS offering are provided by
others. Such services and products are subject to physical damage, power loss,
capacity limitations, software defects, breaches of security (by computer virus,
break-ins or otherwise) and other factors, certain of which have caused, and
will continue to cause, interruptions in service or reduced capacity for the
Company's customers. Such problems, although not the result of failures by the
Company, can result in dissatisfaction among its customers with the ENS solution
supplied by the Company.
In addition, the Company's initial ability to provide complete
telecommunications services to its customers will be dependent to a large extent
upon the availability of unbundled telecommunications services from others on
terms and conditions that are acceptable to the Company and its customers. There
can be no assurance that government regulations will continue to mandate the
availability of some or all of such services or that the quality or terms on
which such services are available will be acceptable to the Company or its
customers.
OBSOLESCENCE AND REMARKETING; RAPID TECHNOLOGICAL CHANGES. The Company's
ENS strategy includes purchasing customer premise equipment, including PBXs,
hardware and other data and telephony equipment, from the customer and from
third party suppliers for the benefit of the Company's customers. While some of
the equipment purchased from the Company's customers may be leased back to the
customer, much of the equipment will likely be replaced by more technologically
advanced equipment. As a result, the Company may own, or assume lease
obligations related to, equipment which may no longer be the most advanced
technological equipment available. In order to recoup costs and maintain the
Company's margins for ENS, the Company will need to remarket this equipment. The
Company believes that it can remarket the equipment to (i) other customers of
the Company not requesting the most technologically advanced equipment, (ii) the
Company's leasing vendors, which have established remarketing channels and (iii)
third parties through remarketing channels which the Company expects to develop.
However, the Company can give no assurance that it will be able to successfully
remarket obsolete or technologically less advanced equipment, and failure to do
so could have a material and adverse effect on the financial condition of the
Company.
LIMITATIONS ON REPURCHASE UPON A CHANGE OF CONTROL. In the event of a
Change of Control (as defined), each holder of the Notes will have the right, at
such holder's option, to require the Company to repurchase all or a portion of
such holder's Notes at a purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest to the date of purchase. The ability of
the Company to repurchase the Notes upon a Change of Control will be dependent
on the availability of sufficient funds and compliance with applicable
securities laws. A Change of Control may cause an acceleration of other
indebtedness, if any, of the Company, in which case such indebtedness may be
required to be repaid in full before redemption or repurchase of the Notes.
Accordingly, there can be no assurance that the Company will be able to
repurchase the Notes upon the occurrence of such events. The requirement that
the Company offer to repurchase the Notes would not necessarily afford holders
of the Notes protection in the event of a highly leveraged reorganization,
merger or similar transaction involving the Company. See "Description of the
Notes--Change of Control."
DEPENDENCE ON KEY PERSONNEL. The Company's business is managed by a small
number of key management and operating personnel, including without limitation
John R. Evans, Keith V. Burge and Philip G. Allen, the loss of whom could have a
material adverse impact on the Company's business. The Company believes that its
future success also will depend in large part on its continued ability to
attract and retain highly skilled and qualified personnel in its sales and
service areas as well as in its executive and planning functions.
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IMPACT OF THE YEAR 2000 ISSUE. The year 2000 issue is the result of
computer programs having been written using two digits rather than four to
define the applicable year, resulting in date-sensitive software having the
potential to recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. The Company has assessed its systems and believes them to be year
2000 compliant. In addition, the Company has received assurances from its major
software vendors that the products used by the Company are year 2000 compliant.
If the systems of other companies on whose services the Company depends or with
whom the Company's systems interface are not year 2000 compliant, there could be
a material adverse effect on the Company.
CONTROL BY PRINCIPAL SHAREHOLDERS. The officers and directors of the
Company beneficially own approximately 29.7% of the outstanding shares of the
Common Stock. The three founding shareholders, Messrs. Evans, Burge and Allen,
beneficially own 7,059,362 of the outstanding shares of the Common Stock
(approximately 25.6% of outstanding shares of Common Stock), and are parties to
a voting agreement pursuant to which they have agreed, along with their
respective spouses who are also beneficial owners of shares of Common Stock, to
vote their shares of Common Stock as a group. Accordingly, the Company's
officers and directors are likely to continue to exercise control or substantial
influence over the Company's affairs, business and election of members of the
Company's Board of Directors. See "Principal Shareholders."
BANKRUPTCY RISKS RELATED TO COLLATERAL ACCOUNT. The right of the Trustee
under the Indenture to foreclose upon and sell the assets in the Collateral
Account upon the occurrence of an Event of Default with respect to the Notes is
likely to be significantly impaired by applicable bankruptcy law if a bankruptcy
or reorganization case were to be commenced by or against the Company. Under
applicable bankruptcy law, secured creditors such as the holders of the Notes
are prohibited from foreclosing upon or disposing of a debtor's property without
prior bankruptcy court approval. See "Description of the Notes--Disbursement of
Funds; Collateral Account."
ABSENCE OF A PUBLIC MARKET. The New Notes are a new issue of securities.
The Company does not intend to apply for listing of the New Notes on any
securities exchange or on Nasdaq. Although the Initial Purchasers have informed
the Company that they currently intend to make a market in the New Notes, they
are not obligated to do so and any such market-making may be discontinued at any
time without notice. Accordingly, there can be no assurance as to the liquidity
or continuation of any market for the New Notes. If an active public market does
not develop, the market price and liquidity of the New Notes may be adversely
affected. In addition, the New Notes may trade at prices that may be higher or
lower than the respective initial offering price of the Old Notes depending upon
many factors, including prevailing debt interest rates, the Company's operating
results and the market for similar securities. Historically, the market for
securities such as the New Notes has been subject to disruptions that have
caused substantial volatility in the prices of similar securities. There can be
no assurance that the market for the New Notes would not be subject to similar
disruptions.
FRAUDULENT CONVEYANCE RISKS; PREFERENTIAL TRANSFER. Under applicable
provisions of the federal bankruptcy law or comparable provisions of state
fraudulent transfer law, if the Company, at the time of issuance of, or making
any payment in respect of, the Notes, (a)(i) was or was rendered insolvent
thereby, was engaged or about to engage in a business or transaction for which
its assets constituted unreasonably small capital, or intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured, and (ii) received less than reasonably equivalent value or fair
consideration for such issuance, or (b) issued the Notes or made any payment
thereunder with intent to hinder, defraud or delay any of its creditors, the
obligations of the Company under some or all of the Notes could be voided or
held to be unenforceable by a court, the obligations of the Company under the
Notes could be subordinated to claims of other creditors or the holders would be
required to return payments already received. In
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particular, if the Company were to cause a subsidiary to pay a dividend in order
to enable the Company to make payments in respect of the Notes, and such
transfer were deemed a fraudulent transfer, the holders could be required to
return the payment. In any of the foregoing cases, there could be no assurance
that the holders would ultimately recover the amounts owing under the Notes.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law applied in any such case. Generally, however, the Company or its
subsidiaries would be considered insolvent if the sum of its or their debts,
including contingent liabilities, was greater than all of its assets at a fair
valuation, if it had unreasonably small capital to conduct its business, or if
the present fair salable value of its assets were less than the amount that
would be required to pay the probable liability on its existing debts, including
contingent liabilities, as they become absolute and matured. The Company
believes that it will not be insolvent at the time of or as a result of the
Offering and that it will not engage in a business or transaction for which its
remaining assets would constitute unreasonably small capital, and the Company
did not and does not intend to incur or believe that it will incur debts beyond
its ability to pay such debts as they mature. There can be no assurance,
however, that a court passing on such questions would agree with the Company's
analysis.
COMPETITION. The data networking, data transport and telephony industries
are highly competitive, and the 1996 Act (as defined) has opened the local
telephone market to competition in all states. Although the Company does not
believe that a significant number of other companies are providing single-source
solutions for the data networking, data transport, and telephony requirements of
the Company's target customers, numerous competitors are attempting to fulfill
one or more of such requirements. Most of the Company's competitors have
financial and other resources greater than those of the Company. Many of these
competitors also have long-standing relationships with their customers and
greater name recognition than the Company. With respect to many individual
products or services it offers, the Company does not necessarily enjoy any
particular competitive advantage over other industry participants. The degree of
competition in its target markets may prevent the Company from fully realizing
its proposed business plans. In addition, the current trend toward deregulation
of the provision of telecommunications services makes it more likely that the
Company will face more intense competition in the future.
The various individual product and service components of the Company's ENS
offering are subject to substantial competition. In addition to competition from
ILECs, including the RBOCs and GTE, the Company faces competition, or
prospective competition, from new entrants to all these individual product and
service markets. These new competitors include CLECs, long distance carriers
offering local telecommunications services, fixed wireless services, and
commercial mobile radio service providers offering wireless local loop services.
In addition, the Company faces competition, and prospective competition, in the
provision of data networking and customer premises equipment (as defined). Some
of these competitors or potential competitors are or will be able to bundle the
product and service components offered by the Company, including integrating
data networking, data transport, and telephony. In particular, US West and other
RBOCs have filed petitions seeking to have the FCC deregulate immediately the
provision of packet-switched transport services, including frame relay and ATM.
See "Regulatory Environment." In addition, a continuing trend toward business
combinations and alliances in the telecommunications industry may create
significant new competitors to the Company with resources far greater than those
of the Company. See "Business--Competition."
In particular, any telecommunications carrier that offers both some local
and long-distance telecommunications services, including any RBOC permitted to
offer in-region long-distance services, will be able to offer, as a
single-source provider, both local exchange and long-distance service to
customers. Indeed, some of the companies described herein under the heading
"Business--Competition," offer facilities-based and/or resale local and
long-distance data and voice transmission services. However, to the Company's
knowledge, these companies are not offering the total one-source solution of
Enterprise Network Services, including data networking. At the current time, no
RBOC is permitted to offer in-region long-distance service. Under Section 271 of
the 1996 Act, an RBOC is prohibited from providing long-
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distance service that originates in one of its in-region states until the RBOC
has satisfied certain statutory conditions in that state and has received the
approval of the FCC. The FCC has denied all such applications to date. The
Company anticipates that a number of RBOCs will file additional applications for
in-region long distance authority in 1998, and it is possible that one or more
may be granted. In addition, on December 31, 1997, the United States District
Court in Texas held unconstitutional certain sections of the 1996 Act, including
Section 271. This decision has been stayed and has been appealed to the United
States Court of Appeals for the Fifth Circuit. If the decision is not reversed,
the three RBOCs that are parties in the case would be permitted to begin
offering in-region long distance services upon the approval of individual state
regulatory commissions.
REGULATION. The Company's data networking services are not currently
subject to federal or state regulation, but may be subject to certain local
governmental license fees. The Company's local and long-distance telephony
services, and to a lesser extent its data transport services, are subject to
federal, state, and, to some extent, local regulation. The public telephone
services provided by the Company, while expected to become a diminishing part of
the business of the Company, are also subject to federal, state, and, to some
extent, local regulation.
The FCC exercises jurisdiction over all telecommunications common carriers,
including the Company, to the extent that they provide interstate or
international communications. Each state regulatory commission retains
jurisdiction over the same carriers to the extent they provide intrastate
communications in the state. Local governments sometimes impose franchise or
licensing requirements on telecommunications carriers and regulate construction
activities involving public right-of-way. Changes to the regulations imposed by
any of these regulators could affect the Company.
While the Company believes that the current trend toward relaxed regulatory
oversight and competition will benefit the Company, the Company cannot predict
the manner in which all aspects of the 1996 Act will be implemented by the FCC
and by state regulators or the impact that such regulation will have on its
business. The FCC has issued regulations (1) limiting the ability of states to
enact prohibitions on resale of ILEC service to customers to whom an ILEC does
not offer that service at retail; (2) establishing interim default wholesale
rates for local telecommunications services; and (3) setting standards governing
the terms and prices of interconnection and access to unbundled ILEC network
elements. Many of these regulations, including the FCC's promulgation of pricing
standards, have been vacated by reviewing courts and these and other regulations
are currently the subject of judicial appeals and FCC petitions for
reconsideration. The Company's business plan depends upon LECs providing
interconnection and unbundled network elements and/or resale of local
telecommunications services. The Company cannot predict the outcome of various
rulemakings being conducted by the FCC, or of the judicial appeals therefrom,
establishing the terms upon which ILECs must offer resale of wholesale local
telecommunications services, resale of network elements, and interconnection.
The outcome of these rulemakings, judicial appeals, and subsequent FCC action
may make it more difficult or expensive for the Company or competitors to use
and combine network elements, or to resell ILEC services. Such developments
could have a material effect on the Company. The Company also cannot predict
whether other regulatory decisions and changes will enhance or lessen the
competitiveness of the Company relative to other providers of the products and
services offered by the Company. In particular, the Company cannot predict when
federal and state regulators will allow RBOCs to offer in-region long-distance
services. See "Business--Regulatory Environment." In addition, the Company
cannot predict what other costs or requirements might be imposed on the Company
by state or local governmental authorities and whether or not any additional
costs or requirements will have a material adverse effect on the Company.
POTENTIAL LIABILITY FOR INFORMATION DISSEMINATED THROUGH NETWORK. The law
relating to the liability of online service providers, private network operators
and Internet service providers for information carried on or disseminated
through the facilities of their networks is currently unsettled. The imposition
upon the Company of potential liability for materials carried on or disseminated
through its systems could require the Company to implement measures to reduce
its exposure to such liability, which may require the
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expenditure of substantial resources or the discontinuation of certain product
for service offerings. Further, the costs incurred in defending against any such
claims and the potential adverse outcomes of such claims could have a material
adverse effect on the Company's financial condition and results of operations.
CLASSIFICATION AS AN INVESTMENT COMPANY. Until the proceeds of the Offering
are deployed in the Company's business, the assets it will have invested in
interest bearing obligations will exceed the assets it has invested in its
operating activities. While the Company believes it should not be classified as
an investment company under the Investment Company Act of 1940, as amended, and
should be able to structure its activities to avoid such a classification, if it
were to be so classified, it would be subject to significant regulation and
restrictions on its activities which could have a material adverse effect on the
Company.
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THE EXCHANGE OFFER
The summary herein of certain provisions of the Notes Registration Rights
Agreement does not purport to be complete and reference is made to the
provisions of the Notes Registration Rights Agreement, which has been filed as
an exhibit to the Registration Statement of which this Prospectus constitutes a
part, and a copy of which is available upon request to the Company.
PURPOSE AND EFFECT
The Old Notes were sold by the Company to the Initial Purchasers on April 2,
1998. The Initial Purchasers subsequently resold the Old Notes in reliance on
Rule 144A under the Securities Act. The Company and the Initial Purchasers
entered into the Notes Registration Rights Agreement, pursuant to which the
Company agreed, with respect to the Old Notes and subject to the Company's
determination that the Exchange Offer is permitted under applicable law, to (i)
cause to be filed, on or prior to July 1, 1998, a registration statement with
the Commission under the Securities Act concerning the Exchange Offer, and, (ii)
use its best efforts (a) to cause such registration statement to be declared
effective by the Commission on or prior to August 30, 1998, and (b) to
consummate the Exchange Offer on or prior to September 29, 1998. The Company
will keep the Exchange Offer open for a period of not less than 20 days (or
longer if required by applicable law) after the date the notice of the Exchange
Offer is mailed to the holders of the Old Notes. This Exchange Offer is intended
to satisfy the Company's exchange offer obligations under the Registration
Rights Agreement.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Following the expiration of the Exchange Offer, holders of Old Notes not
tendered, or not properly tendered, will not have any further registration
rights and such Old Notes will continue to be subject to the existing
restrictions on transfer thereof. Accordingly, the liquidity of the market for a
holder's Old Notes could be adversely affected upon expiration of the Exchange
Offer.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange up to
$160 million aggregate principal amount of New Notes for up to $160 million
aggregate principal amount of the outstanding Old Notes. The Company will accept
for exchange any and all Old Notes that are validly tendered on or prior to 5:00
p.m., New York City time, on the Expiration Date. The Company will issue $1,000
principal amount of New Notes in exchange of each $1,000 principal amount of
outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or
all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000. Tenders of the Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date. The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange. However, the Exchange Offer is subject to
the terms and provisions of the Notes Registration Rights Agreement. See
"Conditions of the Exchange Offer."
As of the date of this Prospectus, $160 million in aggregate principal
amount of the Old Notes is outstanding, the maximum amount authorized by the
Indenture for all Notes. As of May 1, 1998, there were 19 registered holders of
the Old Notes. Only a holder of the Old Notes (or such holder's legal
representative or attorney-in-fact) may participate in the Exchange Offer. There
will be no fixed record date for determining holders of the Old Notes entitled
to participate in the Exchange Offer. The Company believes that, as of the date
of this Prospectus, no holder of Old Notes is an affiliate (as defined in Rule
405 under the Securities Act) of the Company.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as
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agent for the tendering holders of Old Notes and for the purposes of receiving
the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date,
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Expiration Date shall be , 1998 at 5:00 p.m., New York
City time, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case, the Expiration Date shall be the latest date and time to
which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer, in which event the
term "Expiration Date" shall mean the latest time and date to which the Exchange
Offer is extended, and (iii) to amend the terms of the Exchange Offer in any
manner. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendments by means of a prospectus supplement that will be distributed to the
registered holders of the Old Notes. Certain modifications of the Exchange
Offer, including but not limited to extension of the period during which the
Exchange Offer is open, may require that at least five business days remain in
the Exchange Offer.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer shall not be subject to any conditions, other than (i)
that the Exchange Offer, or the making of any exchange by a holder of Old Notes,
does not violate applicable law or any applicable interpretation of the staff of
the Commission and (ii) the tendering of Old Notes in accordance with the
Exchange Offer.
ACCRUED INTEREST
The New Notes will bear interest at a rate of 13% per annum from April 1,
1998. Holders whose Old Notes are accepted for exchange will forego accrued but
unpaid interest on such Old Notes for the period from April 1, 1998 to the date
of exchange, but will receive such interest under the New Notes. See
"Description of the Notes--Maturity, Interest and Principal."
PROCEDURES FOR TENDERING OLD NOTES
The tender of a holder's Old Notes as set forth below and the acceptance
thereof by the Company will constitute a binding agreement between the tendering
holder and the Company upon the terms and subject to the conditions set forth in
this Prospectus and in the accompanying Letter of Transmittal. Except as set
forth below, a holder who wishes to tender Old Notes for exchange pursuant to
the Exchange Offer must transmit such Old Notes, together with a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to the Exchange Agent at the address set
forth on the back cover page of this Prospectus prior to 5:00 p.m., New York
City time, on the Expiration Date. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS
OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF
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DELIVERY BY MAIL, IT IS RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE
TIMELY DELIVERY.
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of the Old Notes by causing DTC to
transfer such Old Notes into the Exchange Agent's account in accordance with
DTC's procedures for such transfer. In connection with a book-entry transfer, a
Letter of Transmittal need not be transmitted to the Exchange Agent, provided
that the book-entry transfer procedure is made in accordance with DTC's ATOP (as
defined below) procedures for transfer and such procedures are complied with
prior to 5:00 p.m., New York City time, on the Expiration Date.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system, prior to 5:00 p.m., New York City time, on the Expiration
Date, in place of sending a signed, hard copy Letter of Transmittal. DTC is
obligated to communicate those electronic instructions to the Exchange Agent by
an "Agent's Message." To tender Old Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the participant's acknowledgment of its receipt of and agreement to be
bound by the Letter of Transmittal for such Old Notes.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant hereto are tendered (i) by a registered holder of the Old Notes who has
not completed either the box entitled "Special Exchange Instructions" or the box
entitled "Special Delivery Instructions" in the Letter of Transmittal, or (ii)
by an Eligible Institution (as defined below). In the event that a signature on
a Letter of Transmittal or a notice of withdrawal, as the case may be, is
required to be guaranteed, such guarantee must be by a firm which is a member of
a registered national securities exchange or the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or otherwise be an "eligible guarantor
institution" within the meaning of Rule l7Ad-15 under the Exchange Act
(collectively, "Eligible Institutions"). If the Letter of Transmittal is signed
by a person other than the registered holder of the Old Notes, the Old Notes
surrendered for exchange must either (i) be endorsed by the registered holder,
with the signature thereon guaranteed by an Eligible Institution or (ii) be
accompanied by a bond power, in satisfactory form as determined by the Company
in its sole discretion, duly executed by the registered holder, with the
signature thereon guaranteed by an Eligible Institution. The term "registered
holder" as used herein with respect to the Old Notes means any person in whose
name the Old Notes are registered on the books of the Registrar.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
Old Notes not properly tendered and to reject any Old Notes the Company's
acceptance of which might, in the judgment of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
ties in connection with tenders of Old Notes for exchange must be cured within
such period of time as the Company shall determine. The Company will use
reasonable efforts to give notification of defects or irregularities with
respect to tenders of Old Notes for exchange but shall not incur any liability
for failure to give such notification. Tenders of the Old Notes will not be
deemed to have been made until such irregularities have been cured or waived.
24
<PAGE>
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by the
Company, proper evidence satisfactory to the Company, in its sole discretion, of
such person's authority to so act must be submitted.
Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old Notes
are registered in the name of a broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender Old Notes in the Exchange Offer should
contact such registered holder promptly and instruct such registered holder to
tender on such Beneficial Owner's behalf. If such Beneficial Owner wishes to
tender directly, such Beneficial Owner must, prior to completing and executing
the Letter of Transmittal and tendering Old Notes, make appropriate arrangements
to register ownership of the Old Notes in such Beneficial Owner's name.
Beneficial Owners should be aware that the transfer of registered ownership may
take considerable time.
By tendering, each registered holder will represent to the Company that,
among other things, (i) the New Notes to be acquired in connection with the
Exchange Offer by the holder and each Beneficial Owner of the Old Notes are
being acquired by the holder and each Beneficial Owner in the ordinary course of
business of the holder and each Beneficial Owner, (ii) the holder and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in a
distribution of the New Notes, (iii) the holder and each Beneficial Owner
acknowledge and agree that any person participating in the Exchange Offer for
the purpose of distributing the New Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the New Notes acquired by such person and cannot
rely on the position of the staff of the Commission set forth in no-action
letters that are discussed herein under "Resales of the New Notes," (iv) that if
the holder is a broker-dealer that acquired Old Notes as a result of
market-making or other trading activities, it will deliver a prospectus in
connection with any resale of New Notes acquired in the Exchange Offer, (v) the
holder and each Beneficial Owner understand that a secondary resale transaction
described in clause (iii) above should be covered by an effective registration
statement containing the selling security holder information required by item
507 of Regulation S-K of the Commission, and (vi) neither the holder nor any
Beneficial Owner is an "affiliate," as defined under Rule 405 of the Securities
Act, of the Company except as otherwise disclosed to the Company in writing. In
connection with a book-entry transfer, each participant will confirm that it
makes the representations and warranties contained in the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes or any other
documents required by the Letter of Transmittal to the Exchange Agent prior to
the Expiration Date (or complete the procedure for book-entry transfer on a
timely basis), may tender their Old Notes according to the guaranteed delivery
procedures set forth in the Letter of Transmittal. Pursuant to such procedures,
(i) such tender must be made by or through an Eligible Institution and a Notice
of Guaranteed Delivery (as defined in the Letter of Transmittal) must be signed
by such Holder, (ii) on or prior to the Expiration Date, the Exchange Agent must
have received from the Holder and the Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail
or hand delivery) setting forth the name and address of the Holder, the
certificate number or numbers of the tendered Old Notes, and the principal
amount of tendered Old Notes, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after the
date of delivery of the Notice of Guaranteed Delivery, the tendered Old Notes, a
duly executed Letter of Transmittal and any other required documents will be
deposited by the Eligible Institution with the Exchange Agent; and (iii) such
properly completed and executed documents required by the Letter of Transmittal
and the tendered Old Notes in proper form for transfer (or
25
<PAGE>
confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC) must be received by the Exchange Agent within five New
York Stock Exchange trading days after the Expiration Date. Any Holder who
wishes to tender Old Notes pursuant to the guaranteed delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery and Letter of Transmittal relating to such Old Notes prior
to 5:00 p.m., New York City time, on the Expiration Date. DTC participants may
also submit the Notice of Guaranteed Delivery through ATOP.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all the conditions to the Exchange Offer, the
Company will accept any and all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date.
The New Notes issued pursuant to the Exchange Offer will be delivered promptly
after acceptance of the Old Notes. For purposes of the Exchange Offer, the
Company shall be deemed to have accepted validly tendered Old Notes, when, as,
and if the Company has given oral or written notice thereof to the Exchange
Agent.
In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents (or of confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC);
provided, however, that the Company reserves the absolute right to waive any
defects or irregularities in the tender or conditions of the Exchange Offer. If
any tendered Old Notes are not accepted for any reason, such unaccepted Old
Notes will be returned without expense to the tendering Holder thereof as
promptly as practicable after the expiration or termination of the Exchange
Offer.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn by delivery of a written notice
(or for DTC participants, transmission of notice through ATOP) to the Exchange
Agent, at its address set forth on the back cover page of this Prospectus, at
any time prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn including the certificate number or numbers, if any, and
principal amount of such Old Notes, as applicable), (iii) be signed by the
Holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by a bond power in the name of the person
withdrawing the tender, in satisfactory form as determined by the Company in its
sole discretion, duly executed by the registered holder, with the signature
thereon guaranteed by an Eligible Institution together with the other documents
required upon transfer by the Indenture, and (iv) specify the name in which such
Old Notes are to be re-registered, if different from the Depositor, pursuant to
such documents of transfer. Any questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, in its sole discretion. The Old Notes so withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the Exchange
Offer. Any Old Notes which have been tendered for exchange but which are
withdrawn will be returned to the Holder thereof without cost to such Holder as
soon as practicable after withdrawal. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "The Exchange
Offer--Procedures for Tendering Old Notes" at any time on or prior to the
Expiration Date.
THE EXCHANGE AGENT; ASSISTANCE
Norwest Bank Colorado N.A. is the Exchange Agent. All tendered Old Notes,
executed Letters of Transmittal and other related documents should be directed
to the Exchange Agent. Questions and
26
<PAGE>
requests for assistance and requests for additional copies of the Prospectus,
the Letter of Transmittal and other related documents should be addressed to the
Exchange Agent as follows:
BY REGISTERED MAIL OR CERTIFIED MAIL:
Norwest Banks
Corporate Trust Section
P.O. Box 1517
Minneapolis, MN 55480-1517
BY OVERNIGHT COURIER:
Norwest Banks
Corporate Trust Section
NorthStar East Building
Sixth and Marquette Avenues
Minneapolis, MN 55479-0113
BY FACSIMILE (ELIGIBLE INSTITUTIONS ONLY):
(612) 667-4972
TO CONFIRM BY TELEPHONE OR FOR INFORMATION CALL:
Amy E. Buck
Vice President
(303) 863-6477
FEES AND EXPENSES
All expenses incident to the Company's consummation of the Exchange Offer
and compliance with the Registration Rights Agreement will be borne by the
Company, including, without limitation: (i) all applicable Securities and
Exchange Commission, stock exchange or National Association of Securities
Dealers, Inc. ("NASD") registration and filing fees; (ii) all fees and expenses
incurred in connection with compliance with state securities or blue sky laws
(including reasonable fees and disbursements of one counsel for holders that are
Initial Purchasers in connection with blue sky qualifications of any of the New
Notes) and compliance with the rules of the NASD; (iii) all applicable expenses
incurred by the Company preparing or assisting in preparing, word processing,
printing and distributing any registration statement, any prospectus and any
amendments or supplements thereto, and in preparing or assisting in preparing
any other documents relating to the performance of and compliance with the
Registration Rights Agreement; (iv) all rating agency fees, if any; and (v) the
fees and disbursements of counsel for the Company.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or dealers of others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss will be recognized
27
<PAGE>
by the Company for accounting purposes. The expenses of the Exchange Offer will
be amortized over the term of the New Notes.
RESALES OF THE NEW NOTES
Based on the position of the staff of the Commission as set forth in certain
interpretive letters issued to third parties in other transactions, the Company
believes that the New Notes issued pursuant to the Exchange Offer to any holder
of Old Notes in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by such holder (other than (i) a broker-dealer who
purchased Old Notes directly from the Company for resale pursuant to Rule 144A
under the Securities Act or any other available exemption under the Securities
Act, or (ii) a person that is an affiliate of the Company within the meaning of
Rule 405 under the Securities Act) without further compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such holder is acquiring the New Notes in the ordinary course of business
and is not participating, and has no arrangement or understanding with any
person to participate, in the distribution of the New Notes. However, the
Company has not sought its own interpretive letter and there can be no assurance
that the Commission would make a similar determination with respect to the
Exchange Offer. The Company and holders of Old Notes are not entitled to rely on
interpretive advice provided by the staff of other persons, which advice was
based on the facts and conditions represented in such letters. However, the
Exchange Offer is being conducted in a manner intended to be consistent with the
facts and conditions represented in such letters. If any holder acquires New
Notes in the Exchange Offer for the purpose of distributing or participating in
a distribution of the New Notes, such holder cannot rely on the position of the
staff of the Commission enunciated in Morgan Stanley & Co. Incorporated
(available June 5, 1991) and Exxon Capital Holdings Corporation (available May
13, 1989), or interpreted in the Commission's letter to Shearman and Sterling
(available July 2, 1993), or similar no-action or interpretive letters and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction, unless an
exemption from registration is otherwise available. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
It is expected that the New Notes will be freely transferable by the holders
thereof, subject to the limitations described in the immediately preceding
paragraph. Sales of New Notes acquired in the Exchange Offer by holders who are
"affiliates" of the Company within the meaning of the Securities Act will be
subject to certain limitations on resale under Rule 144 of the Securities Act
(if applicable). Such persons will only be entitled to sell New Notes in
compliance with the volume limitations set forth in Rule 144, and sales of New
Notes by affiliates will be subject to certain Rule 144 requirements as to the
manner of sale, notice and the availability of current public information
regarding the Company. The foregoing is a summary only of Rule 144 as it may
apply to affiliates of the Company. Any such persons must consult their own
legal counsel for advice as to any restrictions that might apply to the resale
of their New Notes.
USE OF PROCEEDS
There will be no cash proceeds payable to the Company from the issuance of
the New Notes pursuant to the Exchange Offer.
28
<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of the Company as of
March 31, 1998, on an actual and pro forma basis to reflect the sale of the
Units and the application of the proceeds therefrom. The information set forth
below should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------
ACTUAL PRO FORMA
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and Short-term Investments........................................................... $ 2,915 $ 99,879
---------- -----------
---------- -----------
Restricted Cash(1)........................................................................ 409 57,161
---------- -----------
---------- -----------
Long-term Debt:
Current Portion of Long-term Debt(2).................................................... 1,910 1,897
Long-term Debt, net of Current Portion(2)............................................... 1,251 154,093
---------- -----------
Total Debt................................................................................ 3,161 155,990
Shareholders' Equity:
Preferred Stock, no par value
1,000,000 shares authorized; no shares issued......................................... -- --
Common Stock, no par value
50,000,000 shares authorized; 27,152,148 shares issued(3)............................. 25,549 25,549
Warrants(4)............................................................................... 3,996 10,883
Unrealized Gain (Loss) on Investments..................................................... 41 41
Unearned Compensation..................................................................... (177) (177)
Accumulated Deficit....................................................................... (15,099) (15,099)
---------- -----------
Total Shareholders' Equity................................................................ 14,310 21,197
---------- -----------
Total Capitalization...................................................................... $ 17,471 $ 177,187
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Approximately $57 million of this amount represents that portion of the
proceeds from the issuance of the Units deposited in the Collateral Account.
(2) Approximately $285,000 of proceeds of the sale of the Units was used to pay
a note payable of which $13,000 was included in Current Portion of Long-term
Debt at March 31, 1998.
(3) Does not include: (i) 4,864,500 shares of Common Stock issuable upon
exercise of outstanding stock options as of March 31, 1998, at exercise
prices between $1.00 per share and $5.00 per share; (ii) 8,661,064 shares of
Common Stock issuable upon exercise of outstanding warrants at exercise
prices between $1.20 and $7.50 per share; or (iii) 1,728,000 shares of
Common Stock issuable upon exercise of the Warrants which were part of the
Units.
(4) The value ascribed to the Warrants results in additional debt discount that
will be amortized to interest expense using the effective interest method
over the period that the Notes are outstanding.
29
<PAGE>
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following summary financial data should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in the Prospectus. The selected financial data, except the
information as of March 31, 1998 and for the three months ended March 31, 1998
and 1997 and the Balance Sheet data as of December 31, 1994, are derived from
the financial statements of the Company and its predecessor, which have been
audited by Coopers & Lybrand L.L.P., independent auditors. The Balance Sheet
data as of December 31, 1994, has been derived from the unaudited financial
statements of such predecessor. The data presented below as of March 31, 1998
and for the three months ended March 31, 1998 and 1997 are derived from
unaudited financial statements of the Company included in the Registration
Statement. Operating results for the three months ended March 31, 1998 are not
necessarily indicative of results that may be expected for the full year. These
unaudited financial statements have been prepared on the same basis as the
audited financial statements and, in the opinion of management, contain all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for these
periods.
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE
FOR THE YEAR FOR THE YEAR JANUARY 1, FROM INCEPTION THREE MONTHS ENDED
ENDED ENDED 1996 THROUGH THROUGH FOR THE YEAR ------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 16, DECEMBER 31, ENDED DECEMBER MARCH 31, MARCH 31,
1994 1995 1996 1996 31, 1997 1997 1998
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (SUCCESSOR) (SUCCESSOR)(2) (SUCCESSOR) (SUCCESSOR)
------------ ------------ -------------- -------------- -------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE NUMBERS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA(1):
Data and voice product
revenue..................... $ -- $ -- $ -- $ -- $ 7,415 $ 233 $ 4,716
Data and voice service
revenue..................... 988 1,434 1,496 98 2,795 365 1,807
------ ------ ------ ------ ------- ----------- -----------
Total revenues.......... 988 1,434 1,496 98 10,210 598 6,523
Cost of data and voice
products.................... -- -- -- -- 6,090 121 3,882
Cost of data and voice
services.................... 729 964 1,018 79 1,278 257 916
------ ------ ------ ------ ------- ----------- -----------
Total cost of
revenues.............. 729 964 1,018 79 7,368 378 4,798
------ ------ ------ ------ ------- ----------- -----------
Selling, general and
administrative.............. 477 405 554 311 10,983 1,187 6,062
Depreciation and
amortization................ 106 127 124 41 1,453 223 762
------ ------ ------ ------ ------- ----------- -----------
583 532 678 352 12,436 1,410 6,824
Interest expense (income) and
other....................... 64 17 21 1 61 (105) 11
------ ------ ------ ------ ------- ----------- -----------
Net loss...................... $ (388 ) $ (79 ) $ (221 ) $ (334) $ (9,655) $ (1,085) $ (5,110)
------ ------ ------ ------ ------- ----------- -----------
------ ------ ------ ------ ------- ----------- -----------
Net loss per share
(basic)(3).................. $ (0.04) $ (0.46) $ (0.07) $ (0.22)
------ ------- ----------- -----------
------ ------- ----------- -----------
Net loss per share
(diluted)(3)................ $ (0.04) $ (0.46) $ (0.07) $ (0.22)
------ ------- ----------- -----------
------ ------- ----------- -----------
Weighted average shares
outstanding (basic)(3)...... 7,775 20,922 16,375 22,992
------ ------- ----------- -----------
------ ------- ----------- -----------
Weighted average shares
outstanding (diluted)(3).... 7,775 20,922 16,375 22,992
------ ------- ----------- -----------
------ ------- ----------- -----------
OTHER OPERATING DATA:
EBITDA(4)................... (218 ) 65 (76 ) (292) (8,141) (967) (4,337)
Capital expenditures........ 140 23 36 29 2,042 196 1,929
Ratio of earnings to fixed
charges(5)................ -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
AS OF AS OF AS OF DECEMBER MARCH 31, 1998
DECEMBER 31, DECEMBER 31, DECEMBER 31, 31, 1997 ----------------------
1994 (PREDE- 1995 (PREDE- 1996 (SUCCES- (SUCCES- PRO FORMA
CESSOR) CESSOR) SOR) SOR) ACTUAL (6)
------------- ------------- ------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:(1)
Working capital............. $ 219 $ (10) $ 1,890 $ 5,334 (2,823) 104,553
Property and equipment,
net....................... 414 553 1,923 4,838 7,135 7,135
Total assets................ 1,012 797 9,887 24,922 26,661 186,377
Total liabilities........... 529 580 1,902 6,194 12,351 165,180
Shareholders' equity........ 483 217 7,985 18,728 14,310 21,197
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
30
<PAGE>
- ------------------------------
(1) Effective December 17, 1996, the Company acquired Integrated Communication
Networks, L.C. (ICN). ICN is referred to as the "predecessor" for the period
prior to the acquisition. The Company since inception and ICN since December
17, 1996 are referred to as the "successor."
(2) The Company has made a number of acquisitions during 1997 which contributed
to the significant increase in Results of Operations from the year ended
December 31, 1996 to the year ended December 31, 1997.
(3) Per share data is not relevant for the Company's predecessor due to its
different capital structure and therefore is not included.
(4) As used herein, EBITDA consists of earnings before interest (net), income
taxes, depreciation, amortization and other income (expense). EBITDA is a
measure commonly used in the telecommunications industry to analyze
companies on the basis of operating performance. It is not a measure of
financial performance under GAAP and should not be considered as an
alternative to net income as a measure of performance or as an alternative
to cash flow as a measure of liquidity.
(5) In calculating the ratio of earnings to fixed charges, "earnings" consist of
net loss before income tax expense and fixed charges. Fixed charges consist
of net interest expense, including such portion of rental expense that is
attributed to interest. For the periods ended December 31, 1996 and 1997 and
the three months ended March 31, 1997 and 1998, earnings were inadequate to
cover fixed charges by $0.3 million, $9.7 million, $1.1 million and $5.2
million, respectively.
(6) Pro-forma to reflect the effects of the sale of the Units as if it occurred
on March 31, 1998.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
THE RESULTS HEREIN ARE NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED
IN ANY FUTURE PERIODS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS BASED
ON CURRENT EXPECTATIONS WHICH INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS
AND THE TIMING OF CERTAIN EVENTS MAY DIFFER SIGNIFICANTLY FROM THOSE PROJECTED
IN SUCH FORWARD-LOOKING STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE
SET FORTH IN THE SECTION ENTITLED "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
The Company was founded in 1995 by an experienced team of three data and
telephony executives with 61 combined years of experience in the industry. As of
April 30, 1998, the Company had 235 employees and operated in eight
markets--Atlanta, Dallas, Denver, Des Moines, Omaha, Portland, Salt Lake City
and San Francisco. The Company believes that it is the only company providing
ENS solutions, or a comparable range of communications outsourcing services to
small and medium-sized businesses in each of its existing and new markets. The
Company has taken a number of steps to implement its business plan, including:
(i) establishing fully operational offices, providing direct sales, technical
support and customer care in its eight markets; (ii) developing and testing its
E-POP-TM- switching architecture for 1998 deployment; (iii) completing ten
acquisitions, adding sales and technical personnel, new products and services
and increasing customer base in the Company's target markets; (iv) assembling a
support services management team of telecommunications experts; (v) developing
and implementing its CTISS customer support software platform; and (vi)
developing and testing its Englewood, Colorado customer care center, which
provides additional support to local distributed customer care centers in each
of the Company's markets. The Company is authorized to provide resold
international telecommunications services and interstate long-distance and
operator services. The Company is also authorized to provide intra-state long-
distance services in Colorado, Iowa and Utah, and is certified to provide local
exchange services in California, Colorado, Oregon, Iowa and Utah.
The Company provides one or more of its array of communications services to
approximately 2,500 customers. Historically, the Company's primary sources of
revenues have been sales of data products and integration, and consistent with
its "lead with data" strategy, the Company expects that until it establishes a
significant base of ENS customers, the majority of its revenues will continue to
be derived from these sources. For the quarter ending March 31, 1998, the
Company had approximately $6.5 million in revenues, or approximately $26.0
million on an annualized basis. In December 1997, the Company entered into
contracts with its first ENS customers. As of April 30, 1998, the Company had
entered into multi-year contracts with 12 ENS customers with an aggregate of
approximately 790 desktops. These contracts provide the Company with
approximately $2.1 million in annual contract revenues and over their terms are
expected to produce total revenues of approximately $10.5 million.
ACQUISITIONS. Since its inception, the Company's growth has been dependent
upon successful implementation of its business plan, including the acquisition
of providers of various communications services. In April 1997, the Company
acquired Communication Services of Iowa, Inc. enabling it to provide voice
equipment support for the Des Moines, Iowa market. In September 1997, the
Company acquired A.T.T.ex Corporation and Vital Integration Solutions, Inc., a
telephony service company and a data network integration company, respectively,
in Des Moines, Iowa. In October 1997, the Company acquired certain assets of an
Internet service provider in Portland, Oregon, enabling the Company to offer a
full range of Internet services, including Internet access, Web hosting,
maintenance, and site design. In December 1997, the Company acquired the data
network integration assets of Sigmacom Corporation of Denver, Colorado. In
February 1998, the Company acquired Telephone Communications Corporation of
Vail, Colorado, a long distance switchless reseller providing 1+, 0+, 800/888,
and calling card services and Network Computer Solutions of Greenwood Village,
Colorado, a network integration services provider. In
32
<PAGE>
May 1998, the Company acquired Communications Services of Colorado, Inc.,
another long distance switchless reseller providing 1+, 0+, 800/888, and calling
card services, and also acquired H,H & H Communications Technologies, Inc., a
Texas voice equipment provider.
MARKET EXPANSION. The Company's business plan anticipates the rollout of
services in 25 cities by the end of 2001. Phase I of the business plan is
expected to be fully implemented by mid-1999 and consists of the commencement of
operations in 15 cities, the Company's eight current markets, Atlanta, Dallas,
Denver, Des Moines, Omaha, Portland, Salt Lake City, and San Francisco, plus
Boise, Chicago, Los Angeles, Minneapolis, Phoenix, Sacramento, and Seattle.
Phase II includes expansion of operations to 10 additional cities. The Company
believes that the aggregate addressable market for ENS in these 25 cities will
grow to approximately $90 billion over the next four years, which includes $75
billion for data services and products and $15 billion for telephony services
(calculated by assuming $70 a month for voice product and services per desktop
and $3,500 annual revenues for data product and services per desktop). The
Company identifies opportunities in markets which demonstrate the following
characteristics: (i) a density of small and medium-sized businesses, (ii) an
opportunity to efficiently deploy its E-POP-TM- and ENS network assets, and
(iii) a sufficient pool of local management talent possessing critical technical
and marketing expertise. Based on its evaluation of these and other factors, the
Company determines whether entering new markets and further deploying network
assets can be achieved on an attractive economic basis.
The Company's entry into new markets generally results in negative cash flow
until an adequate customer base and revenue stream have been established. In
addition to capital expenditures, the Company incurs direct operating costs for
items such as salaries, sales commissions, marketing, management information
systems and other general and administrative expenses upon commencement of
operations in a new market. The amounts and timing of these expenditures and
costs are subject to a variety of factors which may vary greatly by geographic
market. The Company expects its net losses to increase as it continues to
establish its presence in new markets. As its customer base grows, however, the
Company believes that revenues will increase at a higher rate than operating
expenses, which should result in positive contributions to cash flow. In each
new market the Company expects to reach positive EBITDA before corporate
allocations, within 24 months after entering the market .
REVENUES. The Company's revenues are derived from data services (including
frame relay, data network support and monitoring, Internet access and web
hosting support); voice services (including local, long distance, public
telephones, voice network support and monitoring); ENS services (including one
or more of the foregoing together with the Company's ownership of network
assets); data products and integration (including value added resale of data
network equipment, together with related implementation, consulting and design
services) and voice products and integration (including value added resale of
voice network equipment together with related implementation, consulting and
design services). For the three months ended March 31, 1998, revenues were
approximately $6.5 million of which data and voice products contributed
approximately $4.7 million, or 72% of revenues; data and voice services added
approximately $1.7 million, or 26% of revenues; and ENS revenues were
approximately $116,000 or 2% of revenues.
In connection with its strategy of "leading with data, following with
telephony, and closing with ENS," the Company plans to increase its revenues in
1998 primarily through the sale of data services and products, providing a
platform to increase ENS sales in future years. The Company currently provides
ENS services to 12 customers under long-term contracts, and expects ENS sales to
represent a significantly larger portion of its revenues in future years. The
Company records revenues from ENS sales only in situations in which the Company
owns any data or telephony equipment at the customer's location or has
management control of the customer's network.
COST OF REVENUES. The Company's principal cost of revenues is for data and
voice products, which consist of the cost of data and voice equipment purchased
by the Company for valued-added resale. Cost
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of revenues for data and voice services includes labor, leased line facilities
charges and related capacity charges. Cost of revenues for ENS includes all of
the foregoing costs associated with data and voice services. As the Company
begins to offer local exchange services, leased line capacity costs and access
charges are expected to increase because the Company plans to obtain access to a
greater number of ILEC facilities through leased lines in order to reach end
users who cannot otherwise be connected to the Company's network on economically
attractive terms. As the Company expands its long distance offerings, additional
costs for wholesale access on third-party networks will continue to grow.
With respect to ENS sales, the Company's strategy is to own all the
communications assets deployed at a customer's premise. These assets are
expected to be financed through a combination of the use of the proceeds of the
Offering and capital leasing facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. These expenses include
corporate expenses and management salaries, sales and marketing expenses,
benefits, occupancy costs, and administrative expenses.
Selling expenses include commissions paid in connection with the Company's
sales programs. The Company plans to add additional sales personnel as it enters
new markets and expands its existing markets. Marketing and advertising expenses
are expected to increase as the Company further implements its business plan.
Marketing expenses consist of the costs of marketing the Company's products and
services and include corporate salaries, travel expenses, trade show expenses,
consulting fees and promotional costs. In addition, the Company's marketing
expenses include direct costs related to customer acquisition, such as
telemarketing, direct mailings, brochures, and targeted advertising and
promotional campaigns.
General and administrative expenses consist primarily of salaries and
related expenses of management and support services personnel, professional fees
and general corporate and administrative expenses. General and administrative
expenses cover a broad range of the Company's operations, including corporate
functions such as executive administration, finance, legal, human resources and
facilities as well as significant costs associated with the development, support
and expected growth of the Company's CTISS software platform. Selling, general
and administrative expenses are expected to increase as the Company continues to
recruit experienced personnel to implement its business strategy, and as the
Company adds management personnel to support expansion of its business
operations.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses include depreciation of property and equipment, including both assets
deployed at customer sites and for the Company's internal use. Generally,
depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which for property, plant and equipment range from
two to five years, and for other assets, including intangibles, range from five
to ten years. The Company expects depreciation and amortization expenses to
increase substantially as capital expenditures increase in connection with
capital deployment strategies and as a result of increased goodwill amortization
resulting from future acquisitions.
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RESULTS OF OPERATIONS
The table below summarizes the Company's revenues, cost of revenues and
gross margin by source:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------------- ----------------------------------------------
1996 1997 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Data services (1)................ $ -- -- $ 585,385 5.7% $ -- -- $ 808,015 12.4%
Voice services (2)............... 57,754 59.1% 2,203,182 21.6% 364,780 61.0% 882,667 13.5%
ENS (3).......................... -- -- 6,210 0.1% -- -- 116,391 1.8%
Data products (4)................ 39,987 40.9% 6,656,813 65.2% 84,206 14.0% 4,462,299 68.4%
Voice products (5)............... -- -- 758,434 7.4% 149,362 25.0% 253,493 3.9%
--------- ---------- ---------- ----------
Total revenues............... 97,741 100% 10,210,024 100% 598,348 100% 6,522,865 100%
Cost of Revenues
Data services.................... -- -- 51,365 0.7% -- -- 361,284 7.5%
Voice services................... 40,015 50.4% 1,223,957 16.6% 257,345 68.0% 499,267 10.4%
ENS.............................. -- -- 2,944 0.0% -- -- 55,016 1.2%
Data products.................... 39,444 49.6% 5,600,109 76.0% 73,126 19.3% 3,721,910 77.6%
Voice products................... -- -- 490,134 6.7% 47,905 12.7% 160,547 3.3%
--------- ---------- ---------- ----------
Total cost of revenues......... 79,459 100.0% 7,368,509 100.0% 378,376 100.0% 4,798,024 100.0%
Selling, general and
administrative................. 310,558 10,982,769 1,187,564 6,061,845
Depreciation and amortization.... 40,698 1,453,019 223,260 762,439
Interest (expense) income and
other.......................... (884) (60,506) 105,473 (11,223)
--------- ---------- ---------- ----------
Net Income......................... $(333,858) $(9,654,779) $(1,085,379) $(5,110,666)
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
EBITDA (6)......................... $(292,276) $(8,141,254) $ (967,592) $(4,337,004)
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
</TABLE>
- ------------------------------
(1) Data services include frame relay, Internet access and hosting, data network
monitoring and support, and data network planning, design and installation.
(2) Voice services include local telephone service, long distance service,
public telephone service, voice network monitoring and support, and voice
network planning, design and installation.
(3) Enterprise Network Services include all the previously mentioned services
and the use of the Company-owned data network and voice network equipment.
(4) Data products include the value-added resale of data network equipment.
(5) Voice products include the value-added resale of voice network equipment.
(6) As used herein, EBITDA consists of earnings before interest (net), income
taxes, depreciation, amortization and other income (expense). EBITDA is a
measure commonly used in the telecommunications industry to analyze
companies on the basis of operating performance. It is not a measure of
financial performance under GAAP and should not be considered as an
alternative to net income as a measure of performance or as an alternative
to cash flow as a measure of liquidity.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
REVENUES. Revenues increased to $6.5 million for the three months ended
March 31, 1998, from $0.6 million for the three months ended March 31, 1997.
Revenues for the first quarter of 1998 consisted of $4.7 million in sales of
data systems integration products and voice products, $1.7 million in data and
voice service revenues, and $0.1 million in ENS contracts. This is in contrast
to revenues generated for the three months ended March 31, 1997 which consisted
primarily of $0.4 million in voice services revenues and $0.2 million from the
sale of data and voice equipment.
COST OF REVENUES. Cost of revenues increased to $4.8 million for the three
months ended March 31, 1998 from $0.4 million for the three months ended March
31, 1997. Cost of revenues as a percentage of revenues was 74% for the three
months ended March 31, 1998, compared to 63% for the three months ended March
31, 1997. The increase in the cost of revenues as a percentage of revenues is
due to an
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increase in sales of data and voice products which have a lower margin than
sales of data and voice services. The increase cost of revenues is attributable
to costs associated with increased sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling general, and
administrative expenses increased to $6.1 million for the three months ended
March 31, 1998 from $1.2 million for the three months ended March 31, 1997. This
increase was primarily attributable to the Company expanding its operations from
one to eight markets, completing seven acquisitions, and building a support
services organization required to support field operations. The support services
organization accounted for approximately $3.4 million, or 56% of expenses for
the three months ended March 31, 1998. The number of employees at March 31, 1998
was 201 compared to 30 at March 31, 1997.
EBITDA. EBITDA loss increased to $4.3 million for the three months ended
March 31, 1998 from $1.0 million for the three months ended March 31, 1997. This
increase was primarily attributable to the increase in selling, general and
administrative expenses discussed above.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased to $0.8 million for the three months ended March 31, 1998 from
$0.2 million for the three months ended March 31, 1997. This increase was
attributable to the Company expanding its operations from one to eight markets,
increased amortization of goodwill as a result of seven acquisitions completed
in the last twelve months, and the expansion of the Company's network to support
ENS customers.
INTEREST AND OTHER EXPENSE. Interest and other expense increased to
approximately $11,223 for the three months ended March 31, 1998 from
approximately $105,500 of income for the three months ended March 31, 1997. The
interest expense stemming from additional indebtedness of the equipment leasing
facility with Sun Financial Group, Inc. more than offset interest income.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES. Revenues increased to $10.2 million for 1997 from $97,741 in 1996
as a result of a full year of operations and several acquisitions. Revenues in
1996 were the result of the acquisition of ICN in December of that year.
Revenues in 1997 consisted of $7.4 million in sales of data systems integration
products and voice products, and an additional $2.8 million in data and voice
and service revenues, while 1996 revenues consisted solely of voice services
from ICN's public telephone operations. Revenues from companies acquired in 1997
was $2.9 million. During 1997, the Company expanded its operations from one to
eight markets and completed five acquisitions.
COST OF REVENUES. Cost of revenues increased to $7.4 million for 1997, from
$79,459 in 1996. Cost of revenues as a percentage of revenues was 72% in 1997,
compared to 81% in 1996. Cost of revenues as a percentage of revenues declined
in 1997 as a result of a change in the Company's service and product offerings
from public telephone services in 1996 to sales of other data and voice products
and services in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general, and
administrative expenses increased to $11.0 million for 1997 from $310,558 in
1996. This increase was primarily attributable to the Company expanding its
operations from one to eight markets, completing five acquisitions, and building
a support services organization required to support field operations. This
increase was also attributable to stock compensation expense of approximately
$200,000. The support services organization accounted for approximately $7.3
million, or 68% of the total 1997 increase in selling, general and
administrative expenses. The number of employees at December 31, 1996 was 22 and
increased to 165 employees at December 31, 1997.
EBITDA. EBITDA loss increased to $8.1 million for 1997 from $292,276 in
1996, representing an increased loss of $7.8 million. This increase was
attributable to the increase in selling, general and administrative expenses
discussed above.
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<PAGE>
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased to $1.5 million for 1997 from $40,698 in 1996. This increase
was attributable to the Company expanding its operations from one to eight
markets, implementation of the CTISS system, and increased amortization of
goodwill as a result of five acquisitions completed in 1997.
INTEREST AND OTHER EXPENSE. Interest and other expense increased to $60,506
for 1997 from $884 in 1996. This increase was attributable to the additional
indebtedness of the equipment leasing facility with Sun Financial Group, Inc.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Management believes comparison of financial data for the years ended
December 31, 1996 and December 31, 1995 is not meaningful because the Company,
prior to the acquisition of ICN in December 1996, had no revenues or operations
and was in a developmental stage. The Company also believes that the financial
data from such prior years would not be indicative of the future performance or
results of operations of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects that it will require a substantial amount of capital to
fund its expansion into additional target markets, including funding the
development of its ENS networks (which includes providing its customers with all
necessary hardware, software, transmission facilities and management services),
deploying E-POPs-TM-, creating local customer care and sales organizations,
continuing to develop its CTISS system, making strategic acquisitions and
funding operating losses and debt service requirements. Sources of funding for
the Company's financing requirements may include vendor financing, bank loans
and public offerings or private placements of equity and/or debt securities.
There can be no assurance that additional financing will be available to the
Company or, if available, that financing can be obtained on a timely basis and
on acceptable terms. The failure to obtain such financing on acceptable terms
could have a material adverse effect on the Company. See "Risk
Factors--Substantial Capital Requirements."
Prior to the sale of the Units, the Company funded its operations primarily
through cash from the private placement of units consisting of Common Stock and
warrants to purchase Common Stock. The Company's private placements generated
net proceeds of $17.3 million and $4.4 million for the years ended December 31,
1997 and 1996, respectively. As of March 31, 1998, the Company had cash and
short-term investments of $2.9 million. The Company's operating activities
utilized cash of approximately $2.4 million for the three months ended March 31,
1998, compared to $0.9 million for the three months ended March 31, 1997.
In April 1998, the Company completed the sale of the Units in which $160
million was raised to fund ongoing operations and capital expenditures.
Immediately following the consummation of the offering, the Company had
approximately $101 million in cash and short-term investments and approximately
$57 million in restricted cash. The restricted cash will be used to pay interest
payments on the Notes through April, 2001. The Company's cash and short-term
investments are expected to provide sufficient liquidity to meet the Company's
capital requirements for approximately the next two years. However, there can be
no assurance that the Company will not require additional financing within that
time frame. The Company also continues to evaluate acquisitions and investments
in light of the Company's long range plans. Such acquisitions and investments,
if realized, could require expenditure of a material portion of the Company's
financial resources and would accelerate the need for raising additional capital
in the future.
The Company signed an agreement with Comdisco, Inc. in November 1997 for a
multi-year $50.0 million credit facility to provide "best-in-class" technology
equipment financing to the Company, of which $10.0 million is currently
available and the remainder of which will become available if and when certain
conditions are satisfied. See "Certain Indebtedness." The Comdisco facility will
be used to finance
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<PAGE>
equipment installed at a customer's premise as part of an ENS sale. Under the
Comdisco facility, C3, a financing subsidiary of the Company, can enter into a
capital lease with Comdisco with respect to a given piece of equipment
constituting part of an ENS sale. C3 would then sublease the piece of equipment
to CCSI, the Company's operating subsidiary, which would install the equipment
on the customer's premise. The monthly fee paid by the ENS customer includes an
amount to fund CCSI's lease obligation to C3.
The Company has an agreement with Sun Financial Group, Inc. under which the
Company has borrowed $2.2 million to finance the Company's development of the
CTISS system and other internal capital needs. The Company also has a $0.8
million "inventory floorplan" facility with NationsCredit Commercial Corporation
and is currently operating under an overline which allows borrowing up to $2.8
million. In addition, the Company is currently negotiating an increase to a $5
million combined floorplan and accounts receivable revolving line of credit
facility.
The Company incurred net losses of $5.1 million and $1.1 million for the
three months ended March 31, 1998 and 1997, respectively. Accordingly, no
provision for current federal or state income taxes has been made to the
financial statements. At March 31, 1998, the Company and its subsidiaries had
net operating loss carryforwards for federal income tax purposes of
approximately $9.1 million. These losses begin to expire in 2011 for federal
income tax purposes. A full valuation allowance has been recorded against the
deferred tax assets at December 31, 1997 and March 31, 1998 as the
recoverability of such deferred tax assets is not considered to be more likely
than not due to the Company's continuing losses.
RECENTLY ADOPTED ACCOUNTING STANDARDS
Effective January 1, 1998 the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting and display of comprehensive
income and its components. Comprehensive income generally includes changes in
separately reported components of equity along with net income.
Effective January 1, 1998 the Company adopted SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information." This statement will
not affect the results of operations, financial position or cash flows of the
Company and has no effect on the financial statements as previously presented.
IMPACT OF THE YEAR 2000
The Company has assessed its systems and believes them to be year 2000
compliant. In addition, the Company has received assurance from its major
software vendors that the products used by the Company are year 2000 compliant.
If the systems of other companies on whose services the Company depends or with
whom the Company's systems interface are not year 2000 compliant, there could be
a material adverse effect on the Company.
EFFECTS OF INFLATION
Management does not believe that its business is impacted by inflation to a
significantly different extent than is the general economy. However, there can
be no assurances that inflation will not have a material effect on the Company's
operations in the future.
38
<PAGE>
BUSINESS
INTRODUCTION
Convergent Communications, Inc. is an Enterprise Network Carrier-TM-
offering comprehensive, single-source communications services primarily to small
and medium-sized businesses.
As an Enterprise Network Carrier,-TM- the Company integrates its data and
telephony products and services into a single product offering, enabling the
Company to act as a single-source, one-stop provider of its customer's total
communications requirements. Unlike traditional telecommunications companies
that provide services from outside a customer's premise, in providing Enterprise
Network Services ("ENS"), the Company designs, buys and builds its own network
within the customer's premise, enabling the Company to act as an outsource
provider of any or all of the customer's communications requirements. For the
quarter ended March 31, 1998, the Company had $6.5 million in revenues, or $26.0
million on an annualized basis. The Company began offering ENS services in
December 1997 and as of April 30, 1998, had entered into long-term ENS contracts
with 12 customers with an aggregate of approximately 790 desktops. These
contracts will provide the Company with approximately $2.1 million in annual
contract revenues, and over their terms are expected to produce total revenues
of approximately $10.5 million.
The Company's business plan is designed to address the large and growing
market for the provision of single-source communications services to small and
medium-sized businesses. The Company believes it is the only provider of ENS
solutions, or a comparable range of outsourced communications services, to such
businesses in its target markets. The Company's ENS solution is provided under
long-term contracts (typically three to five years) which position the Company
to be the customer's exclusive provider of data networking, data transport and
telephony services. The Company believes its ENS solution provides it with
unique competitive advantages by creating the opportunity to (i) capture
virtually all of the customer's expenditures for communications services, (ii)
create long-term relationships with its customers by increasing their reliance
on and sense of partnership with the Company, (iii) capitalize on the growing
trend of outsourcing of networking services and the increasing demand for data
services, (iv) differentiate itself from providers of communications services
that do not offer integrated solutions to small and medium-sized businesses, (v)
secure stable sources of long-term, recurring revenue and (vi) achieve
significantly reduced customer turnover compared to traditional providers of
communications services.
The Company provides the following products and services:
DATA:
- Data networking services--including the planning, design, installation and
management of networks, from simple LANs to complex WANs.
- Data products--including the sale and integration of servers, routers,
data switches and desk top computers.
- Data transport services--including frame relay and ATM services.
- Internet services--including web applications, web hosting and Internet
access.
TELEPHONY:
- Voice services--including local and long distance services.
- Voice products--including the sale and integration of key systems and
PBXs.
ENTERPRISE NETWORK SERVICES:
- ENS--the delivery under long-term contract of one or more of the Company's
data and telephony services utilizing the Company's owned network inside
the customer's premise.
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The Company provides communications services to approximately 2,500
customers in eight markets, Atlanta, Dallas, Denver, Des Moines, Omaha,
Portland, Salt Lake City, and San Francisco. The Company's business plan
anticipates the rollout of services in a total of 15 markets by mid-1999 and a
total of 25 markets by the end of 2001. The Company is certified to provide
local exchange services in California, Colorado, Iowa, Oregon and Utah, and
intends to apply for certification in each of its remaining existing markets and
each of its new markets.
The Company was founded in 1995 by an experienced team of three
telecommunications executives with a combined 61 years of experience in the
industry. The Company's senior management team includes John R. Evans, Chairman
and Chief Executive Officer, formerly the Executive Vice President and Chief
Financial Officer of ICG Communications, Inc. ("ICG") from its inception in 1991
until December 1995; Keith V. Burge, President and Chief Operating Officer, who
was the founder, Chief Executive Officer and Chief Operating Officer of Fiber
Optic Technologies, Inc., a leading national network services integrator; and
Philip G. Allen, Executive Vice President, and former Vice President of Investor
Relations and Corporate Communications of ICG. The Company's senior management
team also includes 15 additional telecommunications professionals, each with
substantial expertise, leading the sales, customer care, engineering, operations
and financial divisions of the Company. The Company had 235 employees as of
April 30, 1998.
THE ENTERPRISE NETWORK OPPORTUNITY
According to the Company's market research, small and medium-sized
businesses (typically with 25 to 500 desktops) are increasingly seeking
single-source solutions to their communications requirements as a result of (i)
the bewildering array and increasing complexity of network configurations and
telephony service offerings, (ii) the need to focus on their core operations
rather than network and communications issues, (iii) rapid changes in
technology, (iv) the growing importance of the Internet in business and
commerce, (v) the cost and difficulty of maintaining in-house technical
expertise, and (vi) the potential savings associated with outsourcing their data
and communications requirements. The Company's business plan anticipates the
rollout of services in 25 cities by the end of 2001. The Company believes that
the aggregate addressable market for ENS in these cities will grow to
approximately $90 billion over the next four years, which includes $75 billion
for data networking and transport services and products and $15 billion for
telephony services. The Company believes that the size and anticipated growth of
the market for ENS, continued deregulation in the market for telecommunication
services and the absence of regulation of the market for data networking
services and certain data transport services such as Internet access have
created enormous opportunities for smaller, highly focused, innovative
communications providers like Convergent to compete successfully against ILECs,
CLECs, IXCs, data integrators and other traditional providers of communications
services.
BUSINESS STRATEGY
Convergent Communications' goal is to become the premier Enterprise Network
Carrier-TM- in its target markets by providing single-source communications
services, superior customer care and cost effective solutions to its customer's
requirements. The Company's business strategy is designed to enable it to
achieve rapid market penetration, strong growth and stable, long-term sources of
recurring revenues. The Company's strategy includes the following key elements:
SINGLE-SOURCE PROVIDER. The Company's market research indicates that there
is significant demand from small and medium-sized businesses to outsource their
entire communications requirements to a single-source provider that delivers a
full range of efficient and cost-effective solutions. While the Company's sales
efforts are directed towards its ENS solution, the Company believes that its
ability to deliver an entire range of services provides significant advantages
to its customers by reducing (i) the complexity and confusion associated with
integrating diverse networks and technologies obtained from and
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serviced by multiple vendors and deployed at multiple locations, and (ii) the
administrative costs of network implementation, coordination, maintenance and
monitoring.
OWN THE ENTERPRISE NETWORK. Unlike traditional telecommunications providers
which "look in" to the customer's premise, terminating their networks outside of
the customer's building, the Company designs, builds and owns the network within
the customer's premise, managing and controlling the customer's communications
infrastructure under long-term service agreements (typically three to five years
in duration). As a component of its ENS solution, the Company will either buy a
customer's existing communications equipment or install its own new equipment,
enabling the customer to redeploy its capital for use in its core business
activities. During the term of an ENS agreement, the Company effectively acts as
its customer's communications department, providing complete outsourcing for its
customer's communications requirements and increasing the customer's reliance on
and sense of partnership with the Company. The customer pays one fee for all
services included in the ENS solution, including its use of the Company-owned
infrastructure on the customer premise and the maintenance of this
infrastructure. The Company believes its ownership of the communications
equipment installed on the customer's premise, and its ability to provide
services from within the customer's premise will provide it with significant
competitive advantages over non-enterprise based service providers, including
the ability to (i) capture virtually all of the customer's expenditure for
communications services, (ii) offer superior customer care, (iii) continually
offer and provide new value-added product and service enhancements, and (iv)
achieve significantly less customer turnover than traditional communications
providers.
"LEAD WITH DATA; FOLLOW WITH TELEPHONY; CLOSE WITH ENS." While businesses
are accustomed to reliable voice services, the Company believes that its target
customers place paramount importance on data networking and transport services
because of the impact inadequate data services can have on a customer's
operating efficiency and profitability. Once the Company gains the confidence of
its customers through the provision of data services, the Company believes that
those customers are more likely to purchase its telephone services and
ultimately its complete ENS solution. The Company believes its strategy of
leading with data, following with telephony and closing with ENS will enable it
to rapidly penetrate its target markets, secure a greater percentage of its
customers' expenditures on communications services earlier in the sales cycle,
and increase the range of communications services provided to its customers.
TARGET SMALL AND MEDIUM-SIZED BUSINESSES. The Company believes it can
achieve rapid market penetration by focusing its sales efforts on small and
medium-sized businesses (25 to 500 desktops) with high data usage requirements.
The Company believes that these businesses are highly attractive customers for
ENS because management of such companies typically lacks the time, expertise and
financial resources to adequately fulfill their own data and telephony
requirements. Geographically, the Company's target markets have been selected on
the basis of a number of factors, including the number and concentration of
small businesses, the potential for rapid market penetration and sustained
growth, and the availability of local management personnel and talent with key
technical and marketing skills. Pursuant to this strategy, the Company has
compiled demographic research on 26,000 small and medium-sized businesses
located in highly concentrated business parks in these target markets.
RAPID E-POP-TM- DEPLOYMENT. The Company's business plan includes the rapid
deployment of E-POPs-TM- in its target markets. The E-POP-TM- is a scalable,
distributed data network that integrates voice and data over a single digital
facility and common switching platform. The Company believes the rapid
deployment of E-POPs-TM- will enable it to more quickly achieve improved margins
by reducing the cost to the Company of data and voice switching and
transmission. The Company plans to deploy E-POPs-TM- in at least four of its
markets in 1998, and intends to deploy E-POPs-TM- in all of its markets
following the establishment of a sufficient base of ENS customers.
GROWTH THROUGH STRATEGIC ACQUISITIONS. In each of the Company's target
markets, a large number of small private companies provide local and
long-distance resale, telecommunications equipment and network integration
services. This creates numerous opportunities to acquire industry participants
that can
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provide key technical support personnel and management talent, customer bases
for potential expansion to full ENS solutions, accretions to cash flows, and
product line extensions. In addition, the Company's acquisition strategy allows
the Company to enter new markets more quickly than would otherwise be possible.
To date, the Company has completed ten acquisitions in four markets.
COMPETITIVE ADVANTAGES
The Company believes its business strategy provides it with the following
competitive advantages:
"ONE-STOP SHOPPING." The Company's market research indicates there is
significant unmet demand among its target customers for single-source
communications solutions. The Company's "one-stop shopping" enables its
customers to (i) reduce the complexity and confusion associated with integrating
diverse networks and technologies obtained from multiple vendors and deployed at
multiple locations, (ii) reduce the administrative expense of network
implementation, coordination, maintenance and monitoring and (iii) receive
customer care through a single point of contact. The Company believes that its
ability to deliver the entire range of communications services, including its
ENS solution, distinguishes it from traditional providers of networking and
telecommunications services.
LONG-TERM EXCLUSIVE RELATIONSHIPS. The Company's ENS solution is designed
to enable it to establish long-term exclusive relationships with its customers.
As its customer's ENS provider, the Company seeks to own the network on the
customer's premise, acting as the single-source provider of the customer's
communications equipment and services, and as the primary consultant for the
customer's communications requirements. The Company believes that this ongoing
relationship fosters a greater sense of partnership between the Company and the
customer and provides the Company with the ability to offer additional services
to the customer, culminating in an ENS sale. The Company's Enterprise Network
Services are provided pursuant to long-term contracts (typically three to five
years in duration) which will provide it with a number of competitive advantages
over CLECs, ILECs and other service providers, including, among other things,
significantly lower customer turnover than traditional providers of
telecommunications services, as well as stable, long-term sources of recurring
revenue.
REDUCE CUSTOMER'S TOTAL COST OF NETWORK OWNERSHIP. The Company will reduce
the customer's total cost of network ownership by (i) purchasing the customer's
existing premise network equipment, enabling the customer to redeploy its
capital for use in its core business activities and eliminating the customer's
need for further capital expenditures on equipment, (ii) offering bundled
communication services at a lower overall cost than existing services, and (iii)
minimizing and in some cases eliminating the customer's reliance on on-site
networking expertise through the utilization of the Company's localized network
management capabilities. As a result, the Company expects to provide its
customers with higher quality service than they currently receive, while
reducing their overall cost of network ownership and operation.
SOLUTIONS-ORIENTED SALES AND CUSTOMER CARE ORGANIZATION. Based on the
results of its market research, the Company believes that providing superior
customer care requires (i) the establishment of a local sales and service
presence, (ii) the availability of a single customer interface to handle all
customer care requirements, and (iii) a highly trained, solutions-oriented sales
and customer care organization. Each employee of the Company, from its sales
executives and project managers to its engineers and field service technicians,
is trained to operate in each local market as a member of a team in devising
customer solutions and facilitating customer care. To achieve a cohesive,
solutions-oriented sales and customer care approach, and to allow the effective
use of a single customer interface, the Company has developed its proprietary
operating support system platform called the Computer-Telephony Integrated
Support System-TM- ("CTISS"). CTISS is an Oracle-based software system that
integrates both data and voice communications services on a single platform,
permitting all of the Company's customer care, sales engineering, service
management, service delivery, accounting and inventory management personnel to
provide input to and work from a single data source.
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EFFICIENT CAPITAL DEPLOYMENT. The Company expects to realize significant
capital deployment efficiencies using the E-POP-TM-, a unique third-generation
CLEC switching platform. By integrating voice and data through the use of a
single digital facility, using best-in-class network components and creating a
distributed network architecture, the E-POP-TM- results in lower costs in
relation to other CLEC networks. The Company estimates that the E-POP-TM- is
approximately 30% less costly than the traditional CLEC switching platform and
will become up to 65% less costly as the E-POP-TM- architecture is further
refined. In addition, the Company believes its E-POP-TM- platform will provide
the Company with substantially greater operating flexibility, higher returns on
deployed capital and a shorter period to positive EBITDA on a market-by-market
basis than is achievable by traditional CLECs or ILECs. The Company expects to
recapture the capital cost of an E-POP-TM- in as short as 12 to 24 months after
deployment, with the initial break-even point attainable with as few as
approximately ten ENS customers with 50 desktops each. The smart elements of the
E-POP's-TM- distributed network architecture are structured to allow each of
them to be periodically "refreshed" by the Company, enabling a continual,
cost-effective and seamless expansion and upgrade of network equipment in
response to expected increases in data traffic and advances in technology.
THE ENTERPRISE NETWORK
INSIDE NETWORK. The Enterprise Network is a Company-designed, owned and
managed data and telephony network located inside the customer's premise and
linked to the Company's external network through a single digital facility. The
provision of an ENS solution begins with an assessment of a customer's near and
long-term communications requirements emphasizing how the implementation of an
enterprise network will allow the customer to focus on core business functions
while reducing its total cost of network ownership, and culminates in the design
and implementation of a completely outsourced network solution.
OUTSIDE NETWORK. The Company's business plan includes the rapid deployment
of its Enterprise Point-of-Presence ("E-POP-TM-"). The E-POP-TM-, a
third-generation CLEC switching platform, consists of existing switching and
transmission equipment and software uniquely configured by the Company to act as
a service aggregation point for its customers and a dissemination point to
backbone providers of local, long distance, data transport and Internet
services. The Company's E-POP-TM- is designed as a scalable, distributed data
network that integrates voice and local switching platforms, enabling the
Company to add specific data and voice services as required by the customer. By
integrating voice and data through a single digital facility, using
best-in-class network components, and creating a distributed network
architecture, the E-POP-TM- results in lower costs in relation to other CLEC
networks. The Company has deployed its E-POPs-TM- in Des Moines and Denver, and
is deploying an E-POP-TM- in San Francisco.
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Following is a graphic representation of the E-POP-TM-:
[LOGO]
PRODUCTS AND SERVICES
The Company's products and services are designed to: (i) address the broad
range of its customer's communications requirements, and (ii) support the
Company's ultimate sales objective of providing a complete ENS solution. Data
products and services comprises the largest portion of the Company's revenues in
1997, with telephony products and services enabling the Company to provide for
the addition of a comprehensive solution to its customer's networking and
communication requirements. The Company offers a complete range of
communications equipment and services, both on a bundled and on an unbundled
basis.
DATA NETWORKING AND TRANSPORT
CUSTOMER PREMISE EQUIPMENT (DATA AND VOICE). The Company supplies a wide
range of data communications equipment and software, including servers, bridges,
routers, multiplexers, switches and other equipment used to support premise
networks, and to connect those networks to the WAN and to the Company's
E-POP-TM-. Data equipment is generally sold as a part of a systems integration
contract, or installed as part of the Company's enterprise network, in which
case the customer pays for the equipment through its ENS service agreement. The
Company also supplies PBX and key systems and support to its customers. This
equipment includes phones, call management software and switching systems. In
addition, the Company provides voice processing including unified messaging
systems and the integration of voice with electronic mail (e-mail) and facsimile
services, and designs, installs, maintains and upgrades voice networks.
WIDE AREA DATA NETWORKING. The Company provides frame relay transmission
and switching for computer data (including digitized voice) for customers with
local or national needs. The provision of frame relay services, supported by ATM
technology, enhances the business strategy of the Company by allowing the
Company to anticipate increasing customer demand. Frame relay and ATM technology
also require the installation of new equipment at the customer's premise, which
provides the Company with an opportunity
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to introduce its other products and services, including data equipment sales,
network management and monitoring services and ultimately ENS.
SYSTEM INTEGRATION AND CONSULTING. The Company designs, installs, maintains
and upgrades data and voice networks, as well as providing consulting and
network integration services. The Company analyzes a customer's requirements,
designs a network, and purchases, installs, certifies, maintains, monitors and
upgrades such networks on behalf of a customer. In addition, the Company charges
a fee for designing a customer's enterprise network and for developing a
long-range technology plan which identifies the present and future tools the
customer will need to meet profitability targets and other business objectives,
including a reduction in total cost of network ownership and operation.
NETWORK MONITORING. The Company offers remote monitoring of both its
customers' networks and its enterprise network from a local facility 9 hours a
day, 5 days a week, and backup monitoring from the Company's network operations
center in Englewood, Colorado 24 hours a day, 7 days a week. Such network
monitoring facilitates regular reports on the network, early detection of
possible problems, and provides valuable information to the Company's sales
organization which is used to anticipate its customers' future communications
service requirements.
INTERNET SERVICES. The Company currently offers Internet access through
third-party Internet service providers. In addition, the Company offers web
hosting on its own servers, providing the hardware necessary for its customers
to establish Internet and Intranet web pages, as well as web application
development which customers can use to develop high-level strategic applications
such as e-commerce. The Company anticipates ultimately offering Internet and
Intranet access to ENS customers through dedicated access to the Company's
E-POP-TM-.
TELEPHONY
LOCAL TELEPHONE SERVICES. These services include establishing connections
between the customer's telephone equipment and the local telephone network in a
given city and the operation of public telephones in Iowa. In addition to
providing standard dial tone (access), the Company provides associated call
processing features, such as caller identification, call waiting, call
forwarding, call screening or voice mail, as well as other special services,
such as higher-speed data connections.
LONG DISTANCE. The Company offers long-distance as a reseller of services
from nationally recognized long distance carriers. Services offered include
basic 1+ long distance access, 0+, 800/888 and calling card services, as well as
ancillary services such as operator access and directory assistance. The Company
is currently operating as a switchless reseller, but anticipates eventually
moving a portion of the resold long distance traffic onto its own E-POP-TM-
switching infrastructure through its single digital facility between the
E-POP-TM- and its customers.
ENS
ENS involves the delivery under long-term contract by the Company of one or
more of its data and telephony services utilizing the Company's owned network
inside the customer's premise. In a complete ENS solution, the Company provides
a comprehensive single-source solution to all of its customer's communications
requirements. See "--Introduction," "--Business Strategy--Own the Enterprise
Network," and "--The Enterprise Network Opportunity."
SALES AND MARKETING
The Company's marketing strategy emphasizes the provision of single-source
communications services primarily to small and medium-sized businesses. The
Company's direct sales force is trained in the methodology of solution-based
selling, with the sale of ENS solutions as the primary goal of the sale process.
Sales leads are provided by an internal lead-generation process that coordinates
local market data
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and identifies key executives, partners and owners of small and medium-sized
businesses for direct local contact. The Company's local presence is enhanced by
advertising, publicity and direct mail. The Company has also developed a CD-ROM
designed to describe and help sell its ENS directly to chief executive officers
and chief information officers. The Company's marketing efforts focus on
"leading with data", "following with telephony" and "closing with ENS."
Consequently, the Company often establishes its expertise with customers as a
data networking specialist and then attempts to expand its relationship into the
provision of a full ENS solution.
The Company's local sales force in each market is managed by a Director of
Sales. A significant portion of the compensation of the sales force is tied to
annual goal and quota programs that are developed as part of the Company's
annual budgeting process. Sales force incentives are based on gross margin
targets rather than pure revenue, and the local sales force can earn more than
their goals and quotas by selling bundled and ENS solutions at combined
higher-than-average targeted margins.
Once a potential ENS customer is identified either from existing or newly
acquired limited service customers or from leads developed by the Company's
sales force, the Company offers to perform a "total cost of ownership" analysis
. This evaluation, while designed to culminate in the sale of a full ENS
solution, is done for a fee and, even if not successful in securing an ENS
contract, may result in the sale to customers of components of ENS, including
equipment sales and other fee generating activities and services.
The total cost of ownership analysis requires an extensive, quantitative
evaluation of all direct and indirect costs incurred by a business in supporting
its communications systems. As part of this consultation, the Company's sales
staff helps the customer quantify the real costs of owning and operating its
data communications systems, taking into account such factors as equipment
depreciation, personnel costs, wide area networking costs, maintenance and
upgrade costs, software costs, hardware costs and connectivity requirements.
This analysis also focuses on the ability of a customer's subsystems to support
its stated business objectives.
Once this evaluation is completed, using data supplied by the customer and
decision support software developed by the Company, the potential ENS purchaser
receives a written analysis. This analysis details the amount of money the
customer spends in support of its data networking and telephony systems and
illustrates how the Company can help the customer, by cutting the customer's
costs, improving the quality of services and enhancing its ability to realize
its business objectives.
Upon completion of a sale, the Company's local support group will begin
providing direct, local customer care and support from the Company's local
operations office. Migration to a full, outsourced ENS solution is not only the
goal of each sale, but also is the goal of each interaction with the customer.
Thus, a record of all contacts with the customer and all opportunities for
additional sales is maintained via CTISS with additional sales opportunities
coming from the tracking of various service offerings that are either due for
renewal or thought to be attractive to the customer as add-ons. CTISS acts as a
bridge between the technical and sales groups, allowing the customer's changing
communications needs to be monitored by the sales group which generates
continuing sales leads.
CUSTOMER CARE
Based on the results of its market research, the Company believes that
providing superior customer care requires (i) the establishment of a local sales
and service presence, (ii) the availability of a single customer interface to
handle all customer care requirements and (iii) a highly trained,
solutions-oriented sales and customer care organization. The Company maintains
highly integrated sales and customer care support functions, with customer care
specialists trained in all aspects of the Company's service and support
offerings working in fully functional local sales and customer care centers in
each city where the Company has operations. Each employee of the Company, from
the Company's sales executives and project managers to its engineers and field
service technicians, is trained to operate in each local market as a member of a
team in devising customer solutions and facilitating customer care.
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The Company differentiates its customer care program from those of other
providers of data and telephony services in the following manner:
IMMEDIATE ACTION. Unlike other data providers that utilize help desks and
frequently advise customers that someone will call them back within a specified
amount of time, Convergent employees are specialists who will begin trouble
shooting immediately to resolve the problem and, if possible, resolution will
occur while the specialist is on the phone with the customer. The local customer
care centers are staffed 9 hours a day, 5 days a week to handle the anticipated
workload, and the Englewood, Colorado customer care center provides rollover
support during peak usage and off hours.
SINGLE POINT OF CONTACT. Customers of other data and telephone providers
are often required to call two or more separate companies or trouble reporting
offices to receive adequate assistance. Convergent customers call a single 1-800
trouble reporting number for assistance in solving the full range of potential
problems. In addition, while other providers of telecommunications services are
forced to staff help lines with separate specialists who often have limited,
specific training in areas such as data, voice or Internet, the Company's
trained specialists are trained in all aspects of communication services,
enabling them to assist customers in solving multiple problems across multiple
services.
The Company not only provides the training required for each customer care
specialist to become technically proficient, but provides extensive customer
care training to each employee of the Company who has customer contact as well,
allowing the Company to provide premier customer care in every aspect of its
operations. This integrated approach allows the Company to pursue its goal of
best-in-care service starting with the initial customer contact and continuing
throughout the life of the account. The Company's customer care procedures are
extensively documented so that the level of care is consistent in each market.
COMPUTER-TELEPHONY INTEGRATED SUPPORT SYSTEM-TM- ("CTISS")
The Company has developed its proprietary Computer-Telephony Integrated
Support System-TM- ("CTISS"), a software system designed to support the
Company's customer care program. CTISS is an Oracle-based platform of commercial
software applications. Software modules are seamlessly integrated through
Oracle's object-oriented and relational databases, allowing the Company's sales
engineering, service management, service delivery, accounting and inventory
management personnel to all work from the same core set of customer data points:
the "customer record." CTISS is tightly integrated with the Company's financial
information system which enables detailed management data for project and
line-of-business profitability analyses. CTISS also lends itself to Web-enabled
applications which the Company anticipates will make CTISS accessible through
the Company's Intranet, and through the Internet.
CTISS consists of seven functional models: customer record, sales
engineering, service delivery, inventory management, service management, billing
and financials. CTISS also will include a data exchange gateway with strategic
partners and will permit interfacing with network elements.
ACQUISITIONS
There are a large number of small private companies providing local and
long-distance resale, telecommunications equipment, telecommunications service
and data system integration services in the Company's target markets. The
Company believes the acquisition of certain of these companies can provide it
with additional end-user customer accounts, potential candidates for expansion
to full ENS offerings, new products and services, as well as local sales,
service and technical support, enabling the Company to execute its business plan
more rapidly. Acquisitions have been the primary means by which the Company has
entered new markets and introduced new products. The Company's acquisitions to
date are as follows:
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INTEGRATED COMMUNICATION NETWORKS, L.C. In December 1996, the Company
acquired Integrated Communication Networks, L.C. ("ICN"), a public telephone
service provider in Des Moines, Iowa. The purchase price consisted of $2,232,300
in cash and the issuance of 3,500,000 shares of Common Stock. ICN was the
Company's first strategic acquisition which established it in the marketplace,
provided a telephony offering platform, initiated a strategic relationship with
Iowa Network Services ("INS"), and established a launching platform for
additional acquisitions in the Iowa area, specifically CSI, A.T.T.ex, and Vital.
COMMUNICATION SERVICES OF IOWA, INC. In April 1997, the Company acquired
Communication Services of Iowa, Inc. ("CSI"), an Iowa reseller of telephony
keyboard PBX telephone equipment to businesses. The purchase price consisted of
$100,000 cash, the issuance of a $100,000 one-year note at 8% and the issuance
of 50,000 shares of Common Stock. Through the CSI acquisition, the Company
established a strategic vendor relationship with Intertel Integrated Systems,
Inc. ("Intertel"), a major PBX and key-system manufacturer for small to
medium-sized businesses. CSI's relationship with Intertel and other
manufacturers such as Lucent and Nortel have helped the Company develop its
telephony product and services offering, which will be mirrored in other
markets.
A.T.T.EX CORPORATION. In September 1997, the Company acquired A.T.T.ex
Corporation ("A.T.T.ex") of Des Moines, Iowa, a telecommunications service
company providing direct telephony service support to corporate customers. The
purchase price consisted of $450,000 in cash and the issuance of 75,000 shares
of Common Stock, together with an "earn out" clause entitling the seller to up
to an additional 25,000 shares of Common Stock over a period of five years.
A.T.T.ex provided the Company with telephony technical services capability, such
as moves, adds, and changes, a highly profitable product offering which
complements the CSI acquisition.
VITAL INTEGRATION SOLUTIONS, INC. In September 1997, the Company acquired
Vital Integration Solutions, Inc. ("Vital") of Des Moines, Iowa and Omaha,
Nebraska, a full service integration solutions provider, specializing in
comprehensive information management and networking solutions. Vital provides
its customers with the hardware, software, and integration services necessary to
build information systems and networks. The purchase price consisted of $500,000
in cash and the issuance of 750,000 shares of Common Stock.
BIG PLANET, INC. In October 1997, the Company acquired certain assets of
Big Planet, Inc., ("Big Planet") of Portland, Oregon, which provides Internet
services, including Internet access, Web hosting, maintenance, and site design.
The purchase price for such assets consisted of $250,000 in cash and the
assumption by the Company of certain trade payables of Big Planet. This
acquisition accelerated the Company's Internet product offering and brought a
talent base to the Company which can be deployed in other markets.
SIGMACOM CORPORATION. In December 1997, the Company acquired the data
integration assets of Sigmacom Corporation ("Sigmacom") of Denver, Colorado, a
leading systems integrator for corporate audio, video and data communications
providing state-of-the-art systems that combine telecommunications and computer
network technologies. Sigmacom is also developing Internet application software
for financial institutions such as credit unions. In addition to the data
integration assets, the Company received a 17.9% investment position in
Sigmacom's software development business. The purchase price consisted of
$875,000 in cash and a warrant to purchase 50,000 shares of Common Stock, and
may include an additional $600,000 in cash and the issuance of an additional
118,000 shares of the Common Stock if Sigmacom meets certain defined operating
performance criteria. The Sigmacom acquisition added additional technicians and
technical sales people to the Denver market. Sigmacom had a systems integration
and data communications business which was integrated into the Company's Denver
operations.
TELEPHONE COMMUNICATIONS CORPORATION. In February 1998, the Company
acquired the assets and certain liabilities of Telephone Communications
Corporation ("TCC") of Vail, Colorado. TCC is a long distance switchless
reseller providing 1+, 0+, 800/888, and calling card services to several
Colorado cities.
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The purchase price consisted of $400,000 in cash and the issuance of a $200,000
one-year note at 8% and 10,000 shares of Common Stock. The Company also assumed
debt in the amount of approximately $287,000 which will be paid down in equal
monthly installments through December 31, 1998. This acquisition immediately
launched the Company's long distance product offering by providing it with
necessary carrier identification codes and a calling card platform capability to
enhance the Company's full suite of telephony products.
NETWORK COMPUTER SOLUTIONS, L.L.C. In February 1998, the Company acquired
the assets and liabilities of Network Computer Solutions ("NCS") of Greenwood
Village, Colorado. NCS provides network integration services. The purchase price
consisted of $500,000 in cash, and the issuance of 100,000 shares of Common
Stock. The NCS acquisition added additional technicians and technical sales
people to the Denver market. NCS had an established systems integration and data
communications business which was integrated directly into the Company's Denver
operations.
COMMUNICATION SERVICES OF COLORADO, INC. In May 1998, the Company completed
a merger with Communication Services of Colorado ("CSC") of Englewood, Colorado.
CSC is a long distance switchless reseller providing 1+, 0+, 800/888, and
calling card services. The purchase price consisted of $475,000 cash and the
issuance of a $530,000 one-year note at 8%. The acquisition of CSC, combined
with the acquisition of TCC, is designed to further enhance the Company's long
distance product offering.
H,H & H COMMUNICATIONS TECHNOLOGIES, INC. In May 1998, the Company
completed the acquisition of the assets of H,H & H Communications Technologies,
Inc., a voice equipment provider in Texas. The purchase price consisted of
$200,000 in cash and the issuance of 30,000 shares of Common Stock. Through the
CTI acquisition, the Company further developed its vendor relationship with
Lucent Technologies, Inc. CTI's relationship with Lucent has helped the Company
develop its voice product and service offerings in the Dallas market.
STRATEGIC RELATIONSHIP
The Company has an exclusive engineering and consulting agreement with
Services-oriented Open Network Technologies, Inc. ("SONeTech") for engineering
services relating to the architecture of the E-POP-TM- network strategy. The
Company issued 375,000 shares of Common Stock in exchange for a 10% equity
interest in SONeTech and an exclusive engineering and consulting agreement. The
Company will be entitled to reacquire a portion of the Common Stock under
certain circumstances if SONeTech does not meet certain obligations to the
Company. The Company has a right to acquire an additional 35% equity interest in
SONeTech.
COMPETITION
The telecommunications industry is highly competitive, and with the passage
of the 1996 Act (as defined), which has opened the local telephone market to
competition in all states, the Company expects that it will face substantial and
growing competition from a number of providers of data networking, data
transport, and telephony services. Although the Company does not believe that a
significant number of other companies are providing ENS solutions, or a
comparable range of integrated data networking, data transport, and telephony
outsourcing services, to small and medium-sized businesses in its target
markets, the Company faces intense competition in each individual service
element of its ENS solution. These competitors include ILECs (including the
RBOCs and GTE), CLECs, long distance carriers (such as AT&T Corporation, MCI
Communications, Inc., and Sprint), fixed wireless services (such as WinStar
Communications, Inc., Advanced Radio Telecommunications, Inc., and BizTel,
Inc.), commercial mobile radio service providers offering wireless local loop
services, and data integrators and providers of network services and customer
premise equipment. With respect to many individual products and services it
offers,
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the Company does not necessarily enjoy any particular competitive advantage over
other industry participants. Such competition may prevent the Company from fully
realizing its proposed business operations and plans.
Some of these competitors or potential competitors are or will be able to
bundle the same types of product and service components offered by the Company.
In particular, any telecommunications carrier that offers both some local and
long-distance telecommunications services, including any RBOC permitted to offer
in-region long-distance services, will be able to offer, as a single source
provider, both local exchange and long-distance service to customers. At the
current time, no RBOC is permitted to offer in-region long-distance services.
Under Section 271 of the 1996 Act, an RBOC is prohibited from providing
long-distance service that originates in one of its in-region states until the
RBOC has satisfied certain statutory conditions in that state and has received
the approval of the FCC. The FCC has denied all such applications to date. The
Company anticipates that a number of RBOCs will file additional applications for
in-region long-distance authority in 1998, and it is possible that one or more
may be granted. In addition, on December 31, 1997, the United States District
Court in Texas held unconstitutional certain sections of the 1996 Act, including
Section 271. This decision has been stayed and has been appealed to the United
States Court of Appeals for the Fifth Circuit. If the decision is not reversed,
the three RBOCs that are parties in the case would be permitted to begin
offering in-region long-distance services upon the approval of individual state
regulatory commissions. Finally, US West and other RBOCs have filed petitions
seeking to have the FCC deregulate immediately the provision of packet-switched
transport services, including frame relay and ATM. See " Regulatory
Environment."
To the extent that competitors begin bundling components of the Enterprise
Network Services (including data networking and the provision of customer
premises equipment) into their own product offerings, the Company will face
additional competition as a "one-source" provider of services. Most of the
Company's existing and potential competitors with respect to elements of the
Company's ENS solution have financial and other resources far greater than those
of the Company, have long-standing relationships with their customers and have
greater name recognition than the Company. In addition, a continuing trend
toward business combinations and alliances in the telecommunications industry
may create significant new competitors with resources far greater than those of
the Company. The Company cannot predict whether or not any such additional
competition will have a material adverse effect on the Company's business and
operations.
REGULATORY ENVIRONMENT
Various components of the Company's Enterprise Network Services are subject
to varying degrees of federal, state, and local regulation.
The Company's provision of data networking services is not currently subject
to federal or state regulation. The Company's local and long-distance telephony
services, and to a lesser extent its data transport services, are subject to
federal, state and, to some extent, local regulation.
The FCC exercises jurisdiction over all telecommunications common carriers,
including the Company, to the extent that they provide interstate or
international communications. Each state regulatory commission retains
jurisdiction over the same carriers to the extent they provide intrastate
communications in that state. Local governments sometimes impose franchise or
licensing requirements on telecommunications carriers and regulate construction
activities involving public rights of way.
FEDERAL LEGISLATION. The 1996 Act became law on February 8, 1996, a
comprehensive federal telecommunications statute affecting all aspects of the
telecommunications industry. The 1996 Act establishes a national policy that
promotes competition in telecommunications services, including local exchange
service. The 1996 Act did not change the regulatory environment governing the
Company's provision of data products and networking services, which are still
not subject to federal or state government regulation.
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The 1996 Act requires that local and state barriers to entry into the local
exchange market be removed and establishes broad uniform standards under which
the FCC and the state commissions are to implement local competition and
co-carrier arrangements in the local exchange market. The 1996 Act also imposes
significant obligations on the RBOCs and other ILECs, including the obligation
to interconnect their networks with the networks of competitors. Each ILEC is
required not only to open its network but also to "unbundle" the network. The
FCC issued regulations in August 1996 defining a minimum set of elements which
must be unbundled, and each state may augment this list. States have begun and,
in a number of cases, completed regulatory proceedings to determine the pricing
of these unbundled network elements and services, and the results of these
proceedings (and any ensuing judicial appeals) will determine whether it is
economically attractive for the Company to use these elements.
The RBOCs have an added incentive to open their local exchange networks to
facilities-based competition because Section 271 of the 1996 Act provides for
the removal of the current ban on RBOC provision of in-region interLATA toll
service. This ban will be removed only after the RBOC demonstrates to the FCC,
which must consult with the Department of Justice and the relevant state
commissions, that the RBOC has (1) met the requirements of the 1996 Act's
14-point competitive checklist and (2) entered into an approved interconnection
agreement with one or more unaffiliated, facilities-based competitors in some
portion of the state pursuant to which such competitors provide both business
and residential service (or that by a date certain no such competitors have
"requested" interconnection as defined in the 1996 Act). To date the FCC has
denied each such application filed. The Company anticipates that a number of
RBOCs will file additional applications in 1998. In addition, on December 31,
1997, as result of a lawsuit brought by SBC Communications, Inc., Bell Atlantic,
and US West, the United States District Court in Texas held unconstitutional
certain sections of the 1996 Act, including Section 271. The District Court has
stayed its order and the decision has been appealed to the United States Court
of Appeals for the Fifth Circuit.
The 1996 Act permits the Company, as a telecommunications carrier with less
than 5% of nationwide presubscribed access lines, to offer single-source
combined packages of local and long distance services on an unrestricted basis.
In contrast, AT&T, MCI, and Sprint may not bundle their long distance services
with local services resold from the incumbent RBOC in any state until the
earlier of (i) February 8, 1999 or (ii) the date the RBOC is authorized under
Section 271 to enter the interLATA long-distance market in that state.
Section 706 of the 1996 Act gives the FCC the right to forebear from
regulating a market if the FCC concludes that such forbearance is necessary to
encourage the rapid deployment of advanced telecommunications capability.
Section 706 has not been used to date, but in January 1998 Bell Atlantic filed a
petition under Section 706 seeking to have the FCC deregulate entirely the
provision of packet-switched telecommunications services. Similar petitions were
filed later by the Alliance for Public Technology and US West, and other ILECs
are expected to file similar petitions in the near future. If these petitions
are granted, RBOCs would be free to provide a bundled package of intrastate and
interstate data and Internet services similar to what the Company presently
offers. The effect of such an FCC decision on the Company's finances and
competitive position could be material.
The 1996 Act also prohibits state and local statutory and regulatory
barriers to entry to the provision of telecommunications services, thus
accelerating the process of creating a competitive environment in all markets.
Such preemption of state laws barring local competition and the relaxation of
regulatory restraints should enhance the Company's ability to expand its service
offerings. At the same time, the 1996 Act will also substantially increase the
competition the Company will face in its various markets.
FEDERAL REGULATION. The FCC has issued regulations implementing the changes
prescribed by the 1996 Act. These regulations affect the cost and availability
of certain services offered by the Company as part of its one-source ENS
solution.
51
<PAGE>
The FCC has issued various regulations affecting local exchange service,
which is one component of the Company's Enterprise Network Services. The FCC has
issued regulations (1) limiting the ability of states to enact prohibitions on
resale of ILEC service to customers to whom an ILEC does not offer that service
at retail; (2) establishing interim default wholesale rates for local
telecommunications services; and (3) setting standards governing the terms and
prices of interconnection and access to unbundled ILEC network elements. These
regulations are currently the subject of judicial appeals and FCC petitions for
reconsideration. In particular, the U.S. Court of Appeals for the Eighth Circuit
has vacated FCC rules that (1) govern the pricing of local telecommunications
services and unbundled network elements, (2) permit a telecommunications carrier
to demand any term of an ILEC's interconnection contract with another carrier,
and (3) obligate ILECs to provide combinations of network elements, rather than
provide them individually. The U.S. Supreme Court has accepted these decisions
of the Eighth Circuit for review. The Company cannot predict the outcome of the
various court proceedings or any subsequent action by the FCC, although the
outcome of such proceedings could favorably or unfavorably materially affect the
Company's operations. Indeed, the outcome of these judicial appeals may
comparatively advantage the Company.
PUBLIC TELEPHONES. Public telephone service providers are subject to
federal, state and, to some extent, local regulation. Section 276 of the 1996
Act, and the regulations promulgated thereunder and in related proceedings,
impose requirements that public telephone service providers be compensated by
long-distance carriers for 800/888 and access code calls and that ILECs
eliminate subsidies to their public telephone operations. The per-call
compensation rate to be paid by long-distance carriers for 800/888 and access
code calls remains the subject of judicial appeals and reconsideration by the
FCC, and the amount of compensation that the Company will be paid for 800/888
and access code calls that were made after November 7, 1996, is uncertain.
OPERATOR SERVICE PROVIDER. As part of its Enterprise Network Services, the
Company offers 0+ services to callers from public telephones and other
locations. In addition to federal and state regulations governing common
carriers and long-distance services, the Company, as a provider of 0+ calling,
is regulated at the federal and state level as an operator service provider.
Operator service providers are required to disclose their prices to callers and
must file with the FCC informational tariffs containing detailed and specific
information concerning their rates.
STATE REGULATION. Certain of the Company's resold local and long-distance
services are classified as intrastate and therefore subject to state regulation.
In most states in which the Company plans to do business, the Company will be
required to obtain a certificate of public convenience and necessity and
operating authority for the provision of local telephony services. In addition,
the Company may be required to file tariffs setting forth the terms, conditions,
and prices for services which are classified as intrastate, particularly local
exchange service. In some states, the Company's tariff can list a range of
prices for particular services, and in others, such prices can be set on an
individual customer basis. The Company will not be subject to price caps or to
rate of return regulation in any state in which it currently provides services,
or in those states in which the Company intends to provide services.
All states in which the Company has filed applications for local authority
have rules and regulations in place allowing local competition. In addition to
certification by various state commissions, the Company needs interconnection
arrangements with the ILEC in each service area. In some states (for example,
California), these arrangements are tariffed. In others, the Company must enter
into an interconnection agreement with the ILEC. These agreements are negotiated
by the parties, subject to arbitration by the state commission if agreement
cannot be reached. If one or more such agreements have been negotiated by other
parties and approved by the state commission, a new entrant can elect to opt
into an existing agreement in whole. The Company has elected to do this in every
case, and expects to be able to continue to do so as it enters new markets. This
reduces regulatory costs and expedites the procedure.
52
<PAGE>
LOCAL AUTHORIZATIONS AND FEES. In certain locations, the Company may be
required to obtain local franchises, licenses, or other operating rights. In
some of the areas where the Company will provide networking services, the
Company may pay license or franchise fees based on a percentage of gross
revenues or on a per linear foot basis. The Company has no immediate plans for
any construction which would entail local permits, right-of-way agreements, or
fees. Some local governments do impose usage taxes on long-distance or other
telecommunications services. To the extent that such taxes are imposed on the
Company, they are also imposed on all competitors, and are passed through to the
customer.
REGULATORY STATUS OF THE COMPANY
The Company is authorized by the FCC to provide resold international
services pursuant to Section 214 of the Communications Act of 1934, as amended.
In addition, the Company is authorized to provide interstate long-distance and
operator services.
The Company is certified to provide local exchange services in California,
Colorado, Oregon, Iowa and Utah, and intends to pursue certification in each of
its other markets. This certification will allow the Company to purchase
unbundled network elements from the ILEC in these markets and to combine these
elements with Company-owned or leased facilities to provide full-service
telecommunications services to the Company's customers.
The Company is also authorized to provide intrastate long distance service
in Colorado, Iowa and Utah.
In addition, the Company has interconnection agreements in place in Iowa,
Utah and Colorado, and an agreement is pending in Oregon. No agreement is
required in California.
EMPLOYEES
As of April 30, 1998, the Company had 235 full-time employees. The employees
are not unionized.
OFFICE FACILITIES
The Company's facilities are all leased, and are located as follows:
<TABLE>
<CAPTION>
SIZE (SQ.
LOCATION FT) LEASE EXPIRATION
- ----------------------------------------------------------------------------- ----------- ----------------------
<S> <C> <C>
Englewood, Colorado.......................................................... 28,488 April 30, 2003
Englewood, Colorado.......................................................... 16,700 February 28, 2002
Englewood, Colorado.......................................................... 3,758 May 30, 2001
Englewood, Colorado.......................................................... 1,830 April 30, 2001
Vail, Colorado............................................................... 1,350 February 28, 2000
Des Moines, Iowa............................................................. 14,310 April 30, 2003
Salt Lake City, Utah......................................................... 4,743 June 30, 2002
San Francisco, California.................................................... 5,416 June 5, 2002
Omaha, Nebraska.............................................................. 2,465 August 31, 1999
Atlanta, Georgia............................................................. 9,758 December 21, 2002
Dallas, Texas................................................................ 11,142 December 31, 2002
Portland, Oregon............................................................. 5,900 April 30, 2002
</TABLE>
- ------------------------
LEGAL PROCEEDINGS
The Company is not currently involved in any legal proceedings.
53
<PAGE>
MANAGEMENT
The following table sets forth the names and ages of the executive officers
and directors of the Company, the principal offices and positions with the
Company held by each person and the date such person became a director or
executive officer. Each director serves a one year term and until the director's
successor is elected or until the director's death, resignation or removal.
<TABLE>
<CAPTION>
OFFICER
AND/OR
DIRECTOR
NAMES OF EXECUTIVE OFFICERS AND DIRECTORS AGE SINCE POSITION
- ----------------------------------------- --- ----------- -------------------------------------------------------
<S> <C> <C> <C>
John R. Evans(1)(2)...................... 43 1995 Chief Executive Officer, Chairman and Director
Keith V. Burge(2)........................ 43 1995 President, Chief Operating Officer and Director
Philip G. Allen.......................... 51 1995 Executive Vice President, Secretary and Director
Roger W. Christoph(1)(2)................. 37 1997 Director
Roland E. Casati(2)...................... 67 1997 Director
Richard G. Tomlinson, Ph.D.(1)........... 62 1997 Director
Executive Vice President, General Counsel and Assistant
Martin E. Freidel........................ 35 1997 Secretary
John J. Phibbs........................... 36 1997 Chief Financial Officer and Treasurer
</TABLE>
- ------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
JOHN R. EVANS, Chief Executive Officer since December 1995. Mr. Evans served
as the Chief Financial Officer and Executive Vice President of ICG
Communications, Inc. ("ICG") from its inception until December 1995. During his
five-year tenure, ICG's revenues grew from approximately $600,000 in 1991 to an
annualized rate of more than $140 million at the end of 1995. He also was ICG's
principal financial spokesperson in successful efforts of raising more than $500
million in public and private financings during this period. Mr. Evans was
primarily responsible for ICG's acquisition and development of core network
investments prior to public recognition of the emerging CLEC opportunities. Mr.
Evans has also held various senior accounting and treasury management positions
with Northern Telecom Canada Ltd., including strategic financial planning,
analysis and budgeting, and held various audit and management information
systems positions during six years with Coopers & Lybrand.
KEITH V. BURGE, President and Chief Operating Officer since December 1995.
Mr. Burge has nineteen years of data communications experience. He was the
founder, Chief Executive Officer and Chief Operating Officer of Fiber Optic
Technologies, Inc. ("FOTI"), a leading national network services integrator
specializing in the design, implementation and support of high-speed data
communication infrastructures, which was formed in 1986. While at FOTI, Mr.
Burge was responsible for formulating and executing a disciplined plan that
allowed FOTI to realize 90% annualized growth, culminating in revenues of $65
million in 1995 and 550 employees in thirteen offices throughout the western
United States. During his nine year tenure, Mr. Burge supervised FOTI's
implementation of more than 10,500 LAN and WAN infrastructures for companies
such as Exxon Corporation, The Boeing Company, Amoco Corporation, International
Business Machines, Weyerhaeuser, MCI Communications Corporation, The Dow
Chemical Company and Hewlett-Packard Company. In 1994, Mr. Burge directed an
initiative to execute a Network Desktop Outsourcing program that successfully
placed 140 full-time network engineers and technicians onsite at Intel
Corporation's Portland, Oregon campus, assisting and supporting 8,000 network
users. Prior to founding FOTI, Mr. Burge was employed by Digital Equipment
Corporation for nine years, where, from 1983 to 1986, he was a senior sales
executive.
54
<PAGE>
PHILIP G. ALLEN, Executive Vice President, Secretary and a Director since
December 1995. Mr. Allen was most recently Vice President of Investor Relations
and Corporate Communications for ICG Communications, Inc. Prior to joining ICG
in 1992, Mr. Allen was President of Allen & Company Business Communications, a
communications company specializing in business development and the design and
production of marketing materials in the communications field. His customers
included U S West, Inc., AT&T and MCI. Mr. Allen was also an advisor to senior
management at what is now Ameritech and U S West from 1976 to 1986, where he
worked in various media relations, public policy and executive support areas.
ROGER W. CHRISTOPH, a Director since January 17, 1997. Mr. Christoph is a
Managing Partner of Keystone Capital Partners LLC, a Chicago-based venture
capital and private equity firm and is also a Managing Partner of Keystone
Investment Advisors LLC, a registered investment advisor and broker-dealer
providing asset management services to private customers. Mr. Christoph founded
and was President and CEO of Shepherd Financial Group, Inc., a private-customer
brokerage firm, prior to its sale. Earlier in his career, he was a Principal at
Christoph Securities, Inc., a private family-owned brokerage firm. Mr. Christoph
began his career as a financial consultant at PaineWebber, Inc. Mr. Christoph
has invested and raised growth capital for several privately owned and publicly
traded companies including: Boston Chicken, GST Telecommunications, ICG,
Neomedia Technologies, Stambaugh Hardware Co., and Universal Display Corp. Mr.
Christoph is a director of Christoph Securities, Inc., Stambaugh Hardware Co.,
Keystone Capital Partners and Keystone Investment Advisors.
ROLAND E. CASATI, a Director since January 17, 1997. Mr. Casati has
developed in excess of three million square feet of high-quality office
buildings in and around Chicago, Illinois, during the past 35 years. For the
last 15 years, Mr. Casati has been a venture capitalist, having been a start-up
investor in Callaway Golf and Zeigler Coal Holding Co., where he serves as a
director.
RICHARD G. TOMLINSON, Ph.D., a Director since June 28, 1997. Dr. Tomlinson
is the President of Connecticut Research, Inc. ("CRI"), a management consulting
company founded in 1986 which serves the telecommunications, electric utility
and computer industries. Since 1989, CRI has published a widely referenced
annual overview report on the competitive telecommunications industry (now
jointly produced with Chicago-based New Paradigm Resources Group, Inc.). He has
published numerous marketing studies, venture analyses and technical papers, is
a contributing author for several books and holds five patents. Prior to
founding CRI, he was the Vice President for Strategic Planning of United
Technologies Communications Co. Inc., a subsidiary of United Technologies
Corporation ("UTC"). His career at UTC spanned 20 years, including 16 years at
the UTC Research Laboratory where he held the position of Senior Principal
Scientist.
MARTIN E. FREIDEL, Executive Vice President, General Counsel and Assistant
Secretary since September 1997. Prior to joining the Company, Mr. Freidel served
as Special Counsel to the law firm of Miller & Welch, LLC in Denver, Colorado,
where he also acted as Associate General Counsel to the Company. From December
1992 until December 1996, Mr. Freidel was Vice President and General Counsel of
ICG. Prior to joining ICG, Mr. Freidel served as Vice President--Regulatory for
LDDS Communications, Inc. (now WorldCom) ("LDDS") and Vice President and General
Counsel for MidAmerican Technologies, Inc., MidAmerican Communications, Inc. and
Republic Telecom Services, Inc., which were purchased by LDDS in 1991. Mr.
Freidel holds a Juris Doctor degree from the Creighton University School of Law
and a BSBA from Creighton University.
JOHN J. PHIBBS, Chief Financial Officer of the Company since March 1998. Mr.
Phibbs previously served as Vice President of Finance and Administration since
joining the Company in March 1997. Prior to joining the Company, Mr. Phibbs held
various financial positions from 1991 through February 1997 with ICG
Communications, Inc. Most recently, Mr. Phibbs held the position of Vice
President--Accounting and previously, Vice President--Financial Planning and
Analysis. From 1985 to 1991, Mr. Phibbs was employed in various financial
positions at Lockheed Martin Corporation and McDonnell Douglas Corporation.
55
<PAGE>
DIRECTOR COMPENSATION
Directors of the Company are reimbursed for certain reasonable expenses
incurred in attending Board or committee meetings. In addition, non-employee
Directors are compensated at the rate of $1,000 per day for on-site meetings of
the Board or its committees and $250 for teleconference meetings. Non-employee
Directors are also compensated with stock options to purchase 5,000 shares of
Common Stock per quarter for each quarter served as a Director of the Company.
AUDIT COMMITTEE
The Company's Board of Directors currently has an Audit Committee that
monitors the corporate financial reporting and the internal and external audits
of the Company, reviews and approves material accounting policy changes,
monitors internal accounting controls, recommends engagements of independent
auditors, reviews related-party transactions and performs other duties as
prescribed by the Board of Directors. The Audit Committee currently consists of
Messrs. Evans, Christoph and Tomlinson.
COMPENSATION COMMITTEE
The Company's Board of Directors currently has a Compensation Committee that
reviews and approves the compensation and benefits to be provided to the
executive officers of the Company. In addition, the Compensation Committee
administers the Company's 1996 and 1997 Incentive and Non-Statutory Stock Option
Plans and the 1998 Stock Option Plan. The Compensation Committee currently
consists of Messrs. Evans, Burge, Casati and Christoph.
56
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation earned by
the Company's Chief Executive Officer and the other highest paid executive
officers (collectively, the "Named Officers") for the Company.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION --------------------------
SECURITIES
----------------------- OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR(1) SALARY COMPENSATION OPTIONS(2) COMPENSATION
- ------------------------------------------------- ----------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
John R. Evans ................................... 1996 $ 6,250 -- 200,000 --
Chairman and Chief Executive Officer 1997 $ 150,000 $ 12,781(3) $ 7,500(4)
Keith V. Burge .................................. 1996 $ 5,417 -- 200,000 --
President and Chief Operating Officer 1997 $ 130,000 $ 8,625(3) $ 7,022(4)
Philip G. Allen ................................. 1996 $ 4,167 -- 200,000 --
Executive Vice President and Secretary 1997 $ 100,000 $ 12,172(3) $ 5,735(4)
Bruce Boland(5) ................................. 1996 $ 5,208 -- 100,000 $ 6,668(4)
Former Executive Vice President Corporate 1997 $ 125,000 $ 6,900(3) -- --
Development
John J. Phibbs .................................. 1996 -- -- -- --
Chief Financial Officer and Treasurer 1997 $ 95,833(6) $ 13,425(3) 300,000 $ 5,175(4)
Martin E. Freidel ............................... 1996 -- -- -- --
Executive Vice President, General Counsel and 1997 $ 36,939(7) $ 2,199(3) 300,000 $ 1,875(4)
Asst. Secretary
</TABLE>
- ------------------------
(1) During 1995 and 1996, the Company was in its initial formation stages and
the executive officers did not receive compensation for their services until
December 16, 1996.
(2) Amounts listed are options granted. Options vest with respect to twenty
percent (20%) of the shares of Common Stock on each anniversary of the date
of grant.
(3) Includes automobile allowance and other fringe benefit payments, and a bonus
of $8,425 for Mr. Phibbs.
(4) Includes contributions to the Company's 401(k) Plan.
(5) Mr. Boland resigned from the Company on February 18, 1998. As a result of
his resignation, options to purchase 60,000 shares of Common Stock were
cancelled.
(6) Mr. Phibbs' base salary is $130,000 per year. His employment commenced on
March 3, 1997.
(7) Mr. Freidel's base salary is $125,000 per year. Mr. Freidel's employment
commenced on September 15, 1997.
57
<PAGE>
OPTION GRANTS TABLE
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES PERCENT OF APPRECIATION FOR OPTION
UNDERLYING TOTAL OPTIONS EXERCISE TERM(2)
OPTIONS GRANTED TO PRICE PER EXPIRATION ------------------------
NAME YEAR GRANTED (1) EMPLOYEES SHARE DATE 5% 10%
- ------------------------------ --------- ----------- ------------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
John R. Evans................. 1996 200,000 23.3 $ 1.10 12/15/2001 $ 35,000 $ 102,000
1997 -- -- -- -- -- --
Keith V. Burge................ 1996 200,000 23.3 $ 1.10 12/15/2001 $ 35,000 $ 102,000
1997 -- -- -- -- -- --
Philip G. Allen............... 1996 200,000 23.3 $ 1.10 12/15/2001 $ 35,000 $ 102,000
1997 -- -- -- -- -- --
Bruce Boland(3)............... 1996 100,000 11.6 $ 1.10 12/15/2001 $ 18,000 $ 51,000
1997 -- -- -- --
John J. Phibbs................ 1996 -- -- -- --
1997 300,000 7.9 $ 1.00 3/3/2007 $ 189,000 $ 478,000
Martin E. Freidel............. 1996 -- -- -- -- -- --
1997 300,000 7.9 $ 2.50 9/15/2007 $ 472,000 $ 1,195,000
</TABLE>
- ------------------------
(1) Options vest with respect to 20% of the shares on each anniversary of the
date of grant.
(2) Amounts reflect assumed risks of appreciation set forth in the Commissions'
executive compensation disclosure requirements and do not reflect the
Company's beliefs as to the amount, if any, the fair market value of the
Company's Common Stock may appreciate. Amounts are rounded to the nearest
$1,000.
(3) Mr. Boland resigned from the Company on February 18, 1998. As a result of
his resignation, options to purchase 60,000 shares of Common Stock were
cancelled.
AGGREGATED OPTION FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
INCLUDING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT FISCAL
AT FISCAL YEAR-END YEAR-END
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- -------------------------------------------------- ---------------------------- --------------------------------
<S> <C> <C>
John R. Evans..................................... 40,000/200,000 $76,000/380,000
Keith V. Burge.................................... 40,000/200,000 $76,000/380,000
Philip G. Allen................................... 40,000/200,000 $76,000/380,000
Bruce Boland(2)................................... 20,000/100,000 $38,000/190,000
John J. Phibbs.................................... 0/300,000 $0/600,000
Martin E. Freidel................................. 0/300,000 $0/150,000
</TABLE>
- ------------------------
(1) Assumes a fair market value of the Common Stock of the Company at December
31, 1997, of $3.00 per share.
(2) Mr. Boland resigned from the Company on February 18, 1998. As a result of
his resignation, options to purchase 60,000 shares of Common Stock were
cancelled.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with John R. Evans, Keith V. Burge,
Philip G. Allen, John J. Phibbs and Martin E. Freidel.
58
<PAGE>
Each of Messrs. Evans', Burge's and Allen's employment agreement, as
amended, was originally executed effective December 15, 1996 and provides for an
initial term of five (5) years. Thereafter, each of the employment agreements
continues from year to year. Mr. Evans, Mr. Burge and Mr. Allen currently
receive annual base salaries of $200,000, $180,000 and $150,000, respectively.
In addition, each of Messrs. Evans, Burge and Allen receives a car allowance,
benefit package and an incentive bonus of up to 100% of their respective base
salaries for Messrs. Evans and Burge, and up to 50% of his base salary for Mr.
Allen. In the event of termination by the Corporation without cause, or by the
employee, for certain events, including changes in control, the employee is
entitled to continue to receive his salary and accrued bonus for a period of
twenty-four (24) months, as well as the immediate vesting of all options granted
to the employee. In addition, each of Messrs. Evans, Burge and Allan is subject
to non-compete, non-interference and confidentiality provisions for a period of
twenty-four (24) months following the termination of their respective employment
agreement. Any disputes involving the employee's employment or his respective
employment agreement are subject to certain arbitration provisions contained in
the agreements.
Mr. Phibbs' employment agreement, as amended, is effective as of March 3,
1997 and provides for a term of four years. Mr. Phibbs receives an annual base
salary of $130,000. In addition, Mr. Phibbs receives a car allowance, benefit
package and an incentive bonus of up to 50% of his base salary. The incentive
bonus is determined by the Compensation Committee of the Board of Directors. In
the event of termination by the Company without cause, or by the employee upon
the occurrence of certain events, including changes in control, Mr. Phibbs is
entitled to continue to receive his salary for a period of 12 months. Any
disputes involving the Mr. Phibbs' employment or his employment agreement is
subject to certain arbitration provisions contained in the agreement.
Mr. Freidel's employment agreement is effective as of September 15, 1997 and
provides for an initial term of five years. Thereafter, the employment agreement
continues from year to year. Mr. Freidel receives an annual base salary of
$125,000. In addition, Mr. Freidel receives a car allowance, benefit package and
an incentive bonus of up to 100% of his base salary. The incentive bonus is
determined by the Compensation Committee of the Board of Directors. In the event
of termination by the Company without cause, or by the employee upon the
occurrence of certain events, including changes in control, Mr. Freidel is
entitled to continue to receive his salary and accrued bonus for a period of 24
months, as well as the immediate vesting of all options granted to Mr. Freidel.
Any disputes involving Mr. Freidel's employment or his employment agreement is
subject to certain arbitration provisions contained in the agreement.
STOCK INCENTIVE PLANS
The Company has adopted the 1996 and the 1997 Incentive and Non-Statutory
Option Plans and the 1998 Stock Option Plan (collectively "Plans") which
authorize the Company to grant incentive stock options within the meaning of
Section 422A of the Internal Revenue Code of 1986, as amended, and to grant
nonstatutory stock options. The Plans relate to a total of 6,400,000 shares of
Common Stock. Options to purchase 2,295,000 shares of the Common Stock under the
1996 Plan, 1,019,000 shares under the 1997 Plan and 2,008,000 shares of the
Company's Common Stock under the 1998 Plan, at exercise prices between $1.00 per
share and $5.50 per share are outstanding. Approximately 99% of the employees of
the Company hold options to acquire shares. A total of 601,000 of the
outstanding options are presently exercisable and all employee options vest 20%
annually over five years from the date of grant.
The Plans require that the exercise prices of options granted must be at
least equal to the fair market value of a share of Common Stock on the date of
grant, with a maximum term of ten years, provided that if an employee owns more
than 10% of the Company's outstanding Common Stock, then the exercise price of
an incentive option must be at least 110% of the fair market value of a share of
the Company's Common Stock on the date of grant, and the maximum term of such
option may be no longer than five years. The aggregate fair market value of
Common Stock, determined at the time the option is granted, for which incentive
stock options become exercisable by an employee during any calendar year is
limited to $100,000.
59
<PAGE>
The Plans are to be administered by the Company's Board of Directors or a
committee thereof which determines the terms of options granted, including the
exercise price, the number of shares of Common Stock subject to the option, and
the terms and conditions of exercise. No option granted under the Plans is
transferable by the optionee other than by will or the laws of descent and
distribution, and each option is exercisable during the lifetime of the optionee
only by such optionee.
The Company presently believes that in 1998 an amount of Common Stock equal
to approximately 15% of the fully diluted shares of the Common Stock of the
Company will be reserved as Options for employees so that the Company is better
able to attract and retain highly competent employees.
401(K) PLAN
The Company adopted an employee benefit 401(k) plan (the "401(k) Plan") for
all employees, effective March 1, 1997. Under the 401(k) Plan, employees may
voluntarily elect to have up to 15% of their salaries (subject to the maximum
amount allowed under Federal law) deducted from earnings and placed in the
401(k) Plan, to be invested among several alternatives selected by the employee.
The Company may elect to match the employee's contributions up to 6% by
depositing Common Stock into the 401(k) Plan. Such contributions are made on a
quarterly basis and the number of shares of Common Stock issued is determined
with reference to the value of the Common Stock at the end of each quarter, as
determined by an independent valuation. Shares of the Common Stock are fully
vested when issued under the 401(k) Plan. With respect to the fiscal year ended
December 31, 1997, the Company issued 83,340 shares of Common Stock under the
401(k) Plan.
INCENTIVE COMPENSATION PLAN
The Company adopted an Incentive Compensation Plan in March, 1997 whereby
each employee is eligible to receive in the second quarter of each year a
payment based in part upon the employee's performance during the preceding 12
months as measured against predetermined objectives and in part upon the
performance of the Company during the same period. For director-level employees
and above, 50% of the employee's incentive compensation must be taken in the
form of shares of the Company's Common Stock, receipt of which may be deferred
pursuant to the Company's Deferred Compensation Plan. No payments were made
pursuant to the Incentive Compensation Plan during 1997.
DEFERRED COMPENSATION PLAN
The Company has adopted a Deferred Compensation Plan to which director-level
employees and above may elect to contribute excess 401(k) Plan contributions and
non-cash compensation such as shares of the Company's Common Stock earned
pursuant to the Incentive Compensation Plan.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of May 29, 1998, by (i) each of the Company's
directors, and named officers, (ii) each person who is known to the Company to
own beneficially more than 5% of the outstanding Common Stock and the address of
each such person and (iii) all of the Company's officers and directors as a
group.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK PERCENT
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED OWNED(1)
- -------------------------------------------------------------------------- ----------------- -------------------
<S> <C> <C>
Philip G. Allen(2)(3) .................................................... 2,533,432 9.16%
400 Inverness Drive South, Suite 400
Englewood, CO 80112
Keith V. Burge(2)(4) ..................................................... 2,488,794 9.00%
400 Inverness Drive South, Suite 400
Englewood, CO 80112
John R. Evans(2)(5) ...................................................... 2,292,136 8.29%
400 Inverness Drive South, Suite 400
Englewood, CO 80112
Roland E. Casati(6) ...................................................... 1,155,000 4.13%
Roger W. Christoph(7) .................................................... 873,000 3.10%
Dr. Richard G. Tomlinson(8) .............................................. 80,000 *
John J. Phibbs(9) ........................................................ 69,909 *
Martin E. Freidel(10) .................................................... 131,998 *
First Continental Group, L.C. ........................................... 2,430,000 8.82%
5731 Greendale Road, Box 429
Johnston, Iowa 50131
All Officers and Directors as a group (9 persons) ........................ 9,628,901 33.09%
</TABLE>
- ------------------------
* Less than 1%
(1) Based on 27,564,616 shares of Common Stock issued and outstanding as of May
29, 1998. Percentage ownership is calculated by dividing (i) the sum of the
number of shares owned by such stockholders plus the number of shares such
stockholder would receive upon exercise of options or warrants exercisable
within sixty (60) days of the date hereof ("Conversion Shares"), by (ii)
the total number shares of Common Stock outstanding plus such stockholder's
Conversion Shares.
(2) Shares of Common Stock now owned or hereafter acquired by Messrs. Evans,
Burge and Allen and their wives are subject to a voting agreement pursuant
to which all shares of Common Stock owned directly or indirectly by the
parties (including shares held in trust for Mr. Evan's children over which
shares Mr. Allen, as trustee, has sole voting power) will be voted together
as the parties agree by a simple majority of the parties to the voting
agreement. Each party to the voting agreement could be deemed to
beneficially own all the shares of Common Stock owned by the other parties
to such agreement due to such voting provision. As the Company believes
that it more accurately reflects ownership of the Company's Common Stock,
this table does not reflect shares that may be deemed to be beneficially
owned by any person solely by virtue of the voting agreement.
(3) Includes 200,000 shares of Common Stock held in trust for the benefit of
Mr. Evans' children and over which shares Mr. Allen, as trustee, has sole
voting power, 500,000 shares of Common Stock held by Mr. Allen's wife,
options to purchase 40,000 shares Common Stock, warrants to purchase 45,000
shares of Common Stock, 3,048 shares of Common Stock held in the Company's
401(k) Plan, and 15,384 shares held in the Company's Deferred Compensation
Plan.
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(4) Includes 500,000 shares of Common Stock held by Mr. Burge's wife, options
to purchase 40,000 shares Common Stock, warrants to purchase 45,000 shares
of Common Stock, 3,794 shares of Common Stock held in the Company's 401(k)
Plan, and 20,000 shares held in the Company's Deferred Compensation Plan.
(5) Includes 500,000 shares of Common Stock held by Mr. Evans' wife's, options
to purchase 40,000 shares of Common Stock, warrants for 45,000 shares of
Common Stock, 4,060 shares of Common Stock held in the Company' 401(k)
Plan, and 23,076 shares held in the Company's Deferred Compensation Plan.
(6) Includes 30,000 options and warrants to purchase 375,000 shares of Common
Stock.
(7) Includes 30,000 options and warrants to purchase 573,000 shares of Common
Stock.
(8) Includes 20,000 options and warrants to purchase 20,000 shares of Common
Stock.
(9) Includes options to purchase 60,000 shares of Common Stock, 2,538 shares of
Common Stock held in the Company's 401(k) Plan and 7,371 shares of Common
Stock held in the Company's Deferred Compensation Plan.
(10) Includes 40,000 shares of Common Stock held by Freidel Development
International, LLC ("FDI"), for which Mr. Freidel has voting power,
warrants to purchase 1,800 shares of Common Stock, warrants to purchase
20,000 shares of Common Stock held by FDI, options to purchase 60,000
shares of Common Stock, 577 shares of Common Stock held in the Company's
401(k) plan, and 6,021 shares of Common Stock held in the Company's
Deferred Compensation Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1996, the Company issued 2,500,000 shares of Common Stock each to its
three founders, Messrs. Evans, Burge and Allen, for $150,000 each. Messrs.
Evans, Burge and Allen also each paid $50,000 to purchase 50,000 shares of
Common Stock and warrants to purchase 25,000 shares of Common Stock for $50,000
each in the Company's initial private placement offering.
As part of the Company's second private placement in 1997, Messrs. Evans,
Burge, Allen, Tomlinson and Freidel each paid $100,000 to purchase 40,000 shares
of Common Stock and warrants to purchase 20,000 shares of Common Stock.
Roger Christoph, a Director of the Company, provides financial advisory
services to the Company from time to time. An aggregate of $1,750 has been paid
to Mr. Christoph for such services. In addition, Mr. Christoph was a Principal
and owner of Shepherd Financial Group which received compensation totaling
approximately $1.5 million and the issuance of 438,000 warrants to purchase
Common Stock in exchange for placement agent services provided to the Company in
the Company's 1996 and 1997 private placements of Common Stock. Mr. Christoph
was also a Principal and owner of Shepherd Capital Group which was paid
approximately $0.5 million for financial advisory services provided to the
Company during 1997.
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CERTAIN INDEBTEDNESS
COMDISCO FACILITY
In November 1997, the Company entered into a three year, $50.0 million
Program Agreement with Comdisco, Inc. ("Comdisco"), a computer and
telecommunications equipment leasing and financing company. The Program
Agreement provides for lease financing of equipment to be used by the Company in
the provision of ENS and other services. Under the Program Agreement, the
Company's wholly owned subsidiary, C3, entered into a Master Lease Agreement
(the "Master Lease") with Comdisco. Pursuant to the Master Lease, C3 can either
(i) lease equipment from Comdisco's inventory or (ii) issue purchase orders to
third-party vendors on behalf of Comdisco and lease the purchased equipment from
Comdisco. The leased equipment is then leased to the Company's operating
subsidiary, CCSI, which provides the equipment to its customers under its ENS
contracts. Comdisco receives a first perfected security interest in the
receivables from the customer.
There is currently $10.0 million available for lease to the Company under
the Program Agreement. The availability of additional amounts depends on whether
the Company satisfies certain conditions. Specifically, $10.0 million will
continue to be available after July 1, 1998 if the Company achieves a Recurring
Revenue Run Rate (as defined therein) of $3.0 million per year and an Aggregate
Run Rate (as defined therein) of $10.0 million per year, and obtains a 10%
Letter of Credit (as equipment is leased) calculated as a percentage of
equipment costs. An additional $20.0 million (for a total of $30.0 million) will
be available after July 1, 1998 if the Company obtains funding of at least $20.0
million in equity securities and achieves a Recurring Revenue Run Rate of $10.0
million per year and an Aggregate Run Rate of $30.0 million per year. Finally,
another $20.0 million (for a total of $50.0 million) will be available from July
1, 1999 through June 30, 2000 if the Company achieves positive EBITDA on a
monthly basis and a Recurring Revenue Run Rate of $25.0 million per year and an
Aggregate Run Rate of $70.0 million per year. The Program Agreement expires on
June 30, 2000.
The Comdisco facility is secured by the equipment being financed and is
guaranteed by the Company. In addition, the Company is required to issue a
warrant to acquire Common Stock of the Company in an amount equal to ten percent
(10%) of the facility, divided by the exercise price per share. The exercise
price per share is equal to the price paid by investors in recent equity
offerings and will, in no event, be less than $3.00 per share. The warrants will
be issued in three installments based upon amounts available under the facility.
On November 19, 1997, the Company issued a warrant for the purchase of 333,333
shares of Common Stock at an exercise price of $3.00 per share for the first
$10.0 million of the facility. As of March 31, 1998, approximately $1.7 million
of this credit facility is outstanding.
SBA LOAN
As part of the acquisition of ICN, the Company assumed a loan issued by the
Small Business Administration ("SBA") to ICN for the purpose of rebuilding and
repairs under the disaster relief program as a result of flooding in Iowa during
1993. The loan was collateralized by equipment and inventory of the Company and
accrued interest at a rate of 4% per annum. At March 31, 1998 the outstanding
balance of the loan was approximately $285,000. Subsequent to March 31 1998, the
loan was paid in full.
NATIONSCREDIT COMMERCIAL CORPORATION FACILITY
In February 1997, the Company entered into an inventory credit facility with
NationsCredit Commercial Corporation ("NationsCredit") for the purpose of
purchasing data and telephony inventory for sale to customers. The credit line
is currently $0.8 million with an overline approval up to $2.8 million, but is
in the process of being renegotiated into a $5.0 million inventory and accounts
receivable revolving line of credit. The new facility will allow the Company to
obtain financing of up to 85% of eligible accounts receivable and will be
secured by the purchased inventory and guaranteed by the Company.
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<PAGE>
GMAC
In June 1997, the Company obtained a one-year line of credit with General
Motors Acceptance Corporation in the amount of approximately $0.5 million to
purchase vehicles for its operations. The line of credit is subject to an annual
revaluation for continued usage. Advances under the line are payable over a four
to five year term depending on the vehicle purchased. The Company has utilized
$155,521 of this credit facility of which $140,088 remained outstanding as of
March 31, 1998.
SUN FINANCIAL FACILITY
In May 1997, the Company entered into a Master Equipment Lease with Sun
Financial Group, Inc. to lease equipment, facilities and related items for the
Company's internal expansion as well as equipment to be used for customer
installations. The Company has utilized $2.2 million of this credit facility of
which $1.7 million remained outstanding as of March 31, 1998. The facility is
secured by a $0.1 million standby letter of credit. In connection with the
establishment of the facility, the Company issued a warrant to Sun Financial
Group, Inc. for the purchase of 80,571 shares of Common Stock at an exercise
price of $3.00. The Company is in the process of transferring this facility to
CCSI. In addition, the facility will be increased for additional expansion and,
as a result of the transfer, the facility will be guaranteed by the Company.
DESCRIPTION OF THE NOTES
Except as otherwise indicated below, the following summary applies to both
the Old Notes and the New Notes. As used herein, the term "Notes" means the Old
Notes and the New Notes, unless otherwise indicated.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the New Notes will
be registered under the Securities Act, and therefore such New Notes will not be
subject to certain transfer restrictions and registration rights applicable to
the Old Notes. See "The Exchange Offer."
The Notes are issued under an Indenture (the "Indenture"), dated as of April
2, 1998, between the Company and Norwest Bank Colorado, N.A. as trustee (in such
capacity, the "Trustee"). A copy of the form of Indenture is available from the
Initial Purchasers. Upon the issuance of the New Notes, the Indenture will be
subject to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act" or the "TIA"). The following summary of certain provisions of the Indenture
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, (i) all of the provisions of the Notes and the
Indenture, including the definitions of certain terms contained therein and
those terms made a part of the Indenture through the incorporation by reference
of the Trust Indenture Act, as in effect on the Issue Date, and (ii) the Trust
Indenture Act, in the case of the New Notes. Whenever particular provisions or
definitions of the Indenture, the Notes or the terms defined therein are
referred to herein, such provisions or definitions are incorporated herein by
reference. As used in this section, the "Company" refers to Convergent
Communications, Inc. and does not include its subsidiaries except for purposes
of financial data determined on a consolidated basis. The definitions of certain
capitalized terms used in the following summary are set forth below under
"--Certain Definitions."
GENERAL
The Notes are general senior unsecured (except for the security interest in
the Collateral Account) obligations of the Company. The Notes are secured by a
first priority security interest in the Collateral Account described under
"--Disbursement of Funds; Collateral Account" and "--Ranking."
The Old Notes have been, and the New Notes will be, issued only in
registered form, without coupons, in denominations of $1,000 and integral
multiples of $1,000. See "Book-Entry; Delivery and Form."
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<PAGE>
Principal of, premium, if any, and interest on the Notes are payable, and the
Notes are exchangeable and transferable, at the office or agency of the Company
in the City of New York maintained for such purposes (which initially will be
the corporate trust office of the Trustee). See "Book-Entry; Delivery and Form."
No service charge will be made for any registration of transfer, exchange or
redemption of the Notes, except in certain circumstances for any tax or other
governmental charge that may be imposed in connection therewith.
Any Old Notes that remain outstanding after the completion of the Exchange
Offer, together with the New Notes issued in connection with such Exchange
Offer, will be treated as a single class of securities under the Indenture.
MATURITY, INTEREST AND PRINCIPAL
The Notes are limited to $160,000,000 aggregate principal amount, and will
mature on April 1, 2008. Interest on the Notes will accrue at a rate of 13% per
annum, and will be payable semiannually in arrears on each April 1 and October
1, commencing October 1, 1998 to the holders of record of Notes at the close of
business on the March 15 and September 15 immediately preceding such interest
payment date. Interest will accrue from the most recent interest payment date to
which interest has been paid or duly provided for or, if no interest has been
paid or duly provided for, from the Issue Date. Interest will be computed on the
basis of a 360-day year of twelve 30-day months. Interest on overdue principal
and, to the extent permitted by law, on overdue installments of interest will
accrue at the rate of interest borne by the Notes.
OPTIONAL REDEMPTION
The Notes will be redeemable, in whole or in part, at any time on or after
April 1, 2003 at the option of the Company, 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 to the redemption
date, if redeemed during the 12-month period beginning April 1 of the years
indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2003............................................................................. 106.50%
2004............................................................................. 104.33%
2005............................................................................. 102.17%
2006 and thereafter.............................................................. 100.00%
</TABLE>
Notwithstanding the foregoing, on or prior to April 1, 2001, the Company
may, at its option, use the net proceeds of one or more Public Equity Offerings
(as defined below) or one or more sales of Common Stock to a Strategic Equity
Investor (as defined) yielding gross cash proceeds to the Company of not less
than $50 million to redeem up to 35% of the aggregate principal amount of Notes
originally issued, in each case on a PRO RATA basis, at a redemption price of
113% of the principal amount thereof, together with accrued and unpaid interest
to the date of redemption; PROVIDED that not less than 65% of the originally
issued aggregate principal amount of Notes would remain outstanding immediately
after each such redemption. To effect the foregoing redemption, the Company must
mail a notice of redemption not later than 60 days after the consummation of any
Public Equity Offering or sale of Common Stock to a Strategic Equity Investor
that resulted in the requisite gross proceeds.
As used above, "Public Equity Offering" means an underwritten public
offering of Common Stock of the Company registered with the Commission under the
Securities Act.
Notice of an optional redemption must be given no less than 30 nor more than
60 days prior to the applicable redemption date. In the case of a partial
redemption of Notes, selection of the Notes for redemption will be made by lot,
PRO RATA or by such other method as the Trustee in its sole discretion deems
fair and appropriate or in such manner as complies with the requirements of the
principal securities
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exchange, if any, on which the Notes being redeemed are listed and DTC; PROVIDED
that any redemption following one or more Public Equity Offerings or sales of
Common Stock to a Strategic Equity Investor will be made on a PRO RATA or on as
nearly a PRO RATA basis as practicable (subject to the procedures of DTC). Upon
giving of a redemption notice, interest on Notes called for redemption will
cease to accrue from and after the date fixed for redemption (unless the Company
defaults in providing the funds for such redemption) and, upon redemption on
such redemption date, such Notes will cease to be outstanding.
SINKING FUND
The Company will not be required to make any mandatory sinking fund payments
in respect of the Notes.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (the date of such occurrence
being the "Change of Control Date"), the Company shall make an offer to purchase
(the "Change of Control Offer"), on a business day (the "Change of Control
Payment Date") not later than 60 days following the Change of Control Date, all
Notes then outstanding at a purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to any Change of Control
Payment Date. Notice of a Change of Control Offer shall be given to holders of
Notes, not less than 25 days nor more than 45 days before the Change of Control
Payment Date. The Change of Control Offer is required to remain open for at
least 20 business days and until the close of business on the Change of Control
Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay for all of the Notes that
may be delivered by holders of Notes seeking to accept the Change of Control
Offer. The Company shall not be required to make a Change of Control Offer
following 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
applicable to a Change of Control Offer made by the Company and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
If the Company is required to make a Change of Control Offer, the Company
will comply with all applicable tender offer laws and regulations, including, to
the extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and
any other applicable securities laws and regulations. To the extent that the
provisions of any securities laws or regulations conflict with provisions of
this covenant, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under this
paragraph by virtue thereof.
DISBURSEMENT OF FUNDS; COLLATERAL ACCOUNT
The Notes are collateralized, pursuant to the Custody and Security Agreement
(the "Security Agreement") dated as of April 2, 1998, among the Company, the
Trustee and Norwest Bank Colorado, N.A., as Custodian of the Collateral Account,
by a pledge of the Collateral Account (as defined in the Security Agreement),
which contains approximately $57 million of the net proceeds from the sale of
the Old Notes issued pursuant to the Initial Offering and/or U.S. Government
Securities purchased therewith (the "Collateral"), that, together with the
proceeds from the investment thereof, will be sufficient to pay interest on the
Notes for the first six scheduled interest payments (but not any additional
interest that may arise under the Notes Registration Rights Agreement).
The Company has entered into the Security Agreement providing for the grant
by the Company to the Trustee, for the benefit of the holders of the Notes, of
security interests in the Collateral. All such security interests collateralize
the payment and performance when due of the obligation of the Company to pay
interest on the Notes for the first six scheduled interest payments, as provided
in the Security Agreement. The Liens created by the Security Agreement are first
priority security interests in the Collateral. The
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<PAGE>
ability of holders to realize upon any such funds or securities may be subject
to certain bankruptcy law limitations in the event of the bankruptcy of the
Company. See "Risk Factors--Bankruptcy Risks Related to Collateral Account."
Pursuant to the Security Agreement, Collateral may be released from the
Collateral Account only (i) to pay interest on the Notes or (ii) in the event
that the funds or U.S. Government Securities held in the Collateral Account
(together with the proceeds from the investment thereof) exceed the amount
sufficient, in the opinion of a nationally recognized firm of independent public
accountants or a nationally recognized investment banking firm selected by the
Company, to provide for payment in full of the first six scheduled interest
payments due on the Notes (or, in the event an interest payment or payments have
been made, an amount sufficient to provide for payment in full of any interest
payments remaining, up to and including the sixth scheduled interest payment),
the Trustee will be permitted to release to the Company at the Company's request
any such excess amount if no Default then exists under the Indenture.
Pending such disbursements, funds contained in the Collateral Account will
be invested in U.S. Government Securities. Interest earned on such U.S.
Government Securities will be placed in the Collateral Account. Upon the
acceleration of the maturity of the Notes, the Security Agreement will permit
the Trustee to exercise the rights of a secured party with respect to the
Collateral Account. Under the terms of the Indenture, the proceeds of the
Collateral Account shall be applied, first, to amounts owing to the Trustee in
respect of fees and expenses of the Trustee and, second, to all obligations of
the Company under the Notes and the Indenture. Under the Security Agreement,
assuming that the Company makes the first six scheduled interest payments on the
Notes in a timely manner, all of the Collateral will be released from the
Collateral Account.
RANKING
The Indebtedness evidenced by the Notes ranks PARI PASSU in right of payment
with all other future unsecured senior indebtedness of the Company and senior in
right of payment to all existing and future obligations of the Company expressly
subordinated in right of payment to the Notes. As of March 31, 1998, after
giving effect to the sale of the Units and the application of the proceeds
therefrom, there would have been approximately $0.1 million of Indebtedness of
the Company outstanding other than the Notes. The Notes are unsecured (except
for the security interest in the Collateral Account).
The Company is a holding company with no direct operations and no
significant assets other than cash and the stock of the Subsidiaries. The
Company operates its business through the Subsidiaries. The Company will be
dependent on the cash flow of the Subsidiaries to meet its obligations,
including the payment of interest and principal on the Notes. The Subsidiaries
are separate legal entities that have no obligation to pay any amounts due
pursuant to the Notes or to make any funds available therefor, whether by
dividends, loans or other payments. Because the Subsidiaries will not guarantee
the payment of the principal or interest on the Notes, any right of the Company
to receive assets of the Subsidiaries upon their liquidation or reorganization
(and the consequent right of holder of the Notes to participate in the
distribution or realize proceeds from those assets) will be effectively
subordinated to the claims of the creditors of the Subsidiaries (including trade
creditors and holders of indebtedness of such Subsidiaries), except if and to
the extent the Company is itself a creditor of any of the Subsidiaries, in which
case the claims of the Company would still be effectively subordinated to any
security interest in the assets of any of the Subsidiaries. As of March 31,
1998, after giving effect to the sale of the Units and the application of the
proceeds therefrom, the Subsidiaries would have had aggregate liabilities of
approximately $11.9 million. Subject to certain limitations, the Company and its
Restricted Subsidiaries may incur additional Indebtedness in the future,
including secured Indebtedness. For a discussion of certain adverse consequences
of the Company being a holding company and of the terms of certain existing and
potential future indebtedness of the Company and its Subsidiaries, see "Risk
Factors--Holding Company Structure; Structural Subordination."
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CERTAIN COVENANTS
Set forth below are certain covenants that are contained in the Indenture.
LIMITATION ON INDEBTEDNESS. The Indenture provides that the Company will
not, and will not permit any Restricted Subsidiary to, incur any Indebtedness
(including any Acquired Indebtedness) other than Permitted Indebtedness;
PROVIDED that the Company may Incur Indebtedness if and at the time of such
incurrence (i) the Consolidated Indebtedness to Consolidated Operating Cash Flow
Ratio would have been less than or equal to 6.0 to 1.0 and (ii) no Default or
Event of Default shall have occurred and be continuing or occur as a consequence
of the actions set forth in this covenant.
In making the foregoing calculation, (A) PRO FORMA effect will be given to:
(i) the incurrence or repayment of any Indebtedness to be incurred or repaid on
the date of the incurrence of such Indebtedness (the "Transaction Date"), (ii)
Asset Sales and Asset Acquisitions (including giving PRO FORMA effect to the
application of proceeds of any Assets Sales) that occur from the beginning of
the Four Quarter Period (as defined under the "Consolidated Indebtedness to
Consolidated Operating Cash Flow Ratio" definition) through the Transaction Date
(the "Reference Period"), as if such acquisition or disposition had occurred and
such proceeds had been applied on the first day of such Reference Period and
(iii) the acquisition (whether by purchase, merger or otherwise) or disposition
(whether by sale, merger or otherwise) of any company, entity or business
acquired or disposed of (including giving PRO FORMA effect to the application of
proceeds of such disposition) by any Person that has become a Restricted
Subsidiary or has been merged with or into the Company or any Restricted
Subsidiary during such Reference Period and that would have constituted Asset
Sales or Asset Acquisitions had such transactions occurred when such Person was
a Restricted Subsidiary as if such asset dispositions or asset acquisitions were
Asset Sales or Asset Acquisitions that occurred on the first day of such
Reference Period; PROVIDED that, to the extent that clause (ii) or (iii) of this
sentence requires that PRO FORMA effect be given to an Asset Acquisition or
Asset Sale, such PRO FORMA calculation shall be based upon the four full fiscal
quarters, immediately preceding the Transaction Date of the Person, or division
or line of business of the Person, that is acquired or disposed of for which
financial information is available, and (B) the aggregate amount of Indebtedness
outstanding as of the end of the Reference Period will be deemed to include an
amount of funds equal to the average daily balance of Indebtedness outstanding
during the Reference Period under any revolving credit or similar facilities of
the Company and its Restricted Subsidiaries. For purposes of this provision,
whenever PRO FORMA effect is to be given to a transaction, the PRO FORMA
calculations shall be made in good faith by a responsible financial or
accounting officer of the Company.
For the purposes of determining compliance with this covenant, in the event
that an item of Indebtedness or any portion thereof meets the criteria of more
than one of the types of Indebtedness the Company and the Restricted
Subsidiaries are permitted to incur, the Company will have the right, in its
sole discretion, to classify such item of Indebtedness or portion thereof at the
time of its incurrence and will only be required to include the amount and type
of such Indebtedness or portion thereof under the clause permitting the
Indebtedness as so classified.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, take any of the following actions:
(i) declare or pay any dividend on, or make any distribution to holders of,
any shares of its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Qualified Capital Stock or
in options, warrants or other rights to acquire such shares of Qualified
Capital Stock and (y) dividends or distributions payable to the Company
or any Wholly Owned Restricted Subsidiary);
(ii) purchase, redeem or otherwise acquire or retire for value, directly or
indirectly, any shares of its Capital Stock or any Capital Stock of any
of its Affiliates or any options, warrants or other rights to acquire
such shares of Capital Stock;
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(iii) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated
Indebtedness; or
(iv) make any Investment (other than any Permitted Investment);
(such payments or other actions described in (but not excluded from) clauses (i)
though (iv) are collectively referred to as "Restricted Payments"), unless at
the time of, and immediately after giving effect to, the proposed Restricted
Payment (the amount of any such Restricted Payment, if other than cash, as
determined by the Board, whose determination shall be conclusive and evidenced
by a Board Resolution), (1) no Default or Event of Default shall have occurred
and be continuing, (2) the Company could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the proviso of the
"--Limitation on Indebtedness" covenant and (3) the aggregate amount of all
Restricted Payments declared or made after the Issue Date shall not exceed the
sum of:
(A) 50% of the aggregate amount of the Consolidated Adjusted Net Income (or,
if the Consolidated Adjusted Net Income is a loss, minus 100% of the
amount of such loss) (determined by excluding income resulting from
transfers of assets by the Company or a Restricted Subsidiary to an
Unrestricted Subsidiary) accrued on a cumulative basis during the period
(taken as one accounting period) beginning on the first day of the fiscal
quarter immediately following the Issue Date and ending on the last day
of the last full fiscal quarter immediately preceding the date of such
Restricted Payment for which quarterly or annual consolidated financial
statements of the Company are available; plus
(B) the aggregate Net Cash Proceeds received by the Company after the Issue
Date as a capital contribution or from the issuance and sale permitted by
the Indenture of its Capital Stock (other than Disqualified Stock) to a
Person who is not a Subsidiary of the Company, including an issuance or
sale permitted by the Indenture of Indebtedness of the Company for cash
subsequent to the Issue Date upon the conversion of such Indebtedness
into Capital Stock (other than Disqualified Stock) of the Company, or
from the issuance to a Person who is not a Subsidiary of the Company of
any options, warrants or other rights to acquire Capital Stock of the
Company (in each case, exclusive of any Disqualified Stock); plus
(C) to the extent not otherwise included in the Consolidated Adjusted Net
Income of the Company, an amount equal to the sum of (i) the net
reduction in Investments in any Person (other than Permitted Investments)
resulting from the payment in cash of dividends, repayments of loans or
advances or other transfers of assets, or from the Net Cash Proceeds from
the sale of any such Investment, in each case to the Company or any
Restricted Subsidiary after the Issue Date from such Person and (ii) the
portion (proportionate to the Company's equity interest in such
Subsidiary) of the Fair Market Value of the net assets of any
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that in the case
of (i) or (ii) above the foregoing sum shall not exceed the amount of
Investments previously made (and treated as a Restricted Payment) by the
Company or any Restricted Subsidiary in such Person or Unrestricted
Subsidiary.
(b) Notwithstanding paragraph (a) above, the Company and any Restricted
Subsidiary may take the following actions so long as (with respect to clauses
(ii) through (v) inclusive and clauses (vii) through (ix) inclusive below) no
Default or Event of Default shall have occurred and be continuing:
(i) the payment of any dividend within 60 days after the date of declaration
thereof, if at such date of declaration such dividend would have
complied with the provisions of paragraph (a) above and such payment
will be deemed to have been paid on such date of declaration for
purposes of the calculation required by paragraph (a) above;
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(ii) the purchase, redemption or other acquisition or retirement for value
of any shares of Capital Stock of the Company, in exchange for, or out
of the Net Cash Proceeds of a substantially concurrent issuance and
sale (other than to a Restricted Subsidiary) of, shares of Qualified
Capital Stock of the Company; PROVIDED, HOWEVER, that such Qualified
Capital Stock of the Company may not be redeemable at the option of the
holder or be required to be redeemed prior to the Stated Maturity of
the Notes;
(iii) the purchase, redemption, defeasance or other acquisition or retirement
for value of any Subordinated Indebtedness in exchange for or out of
the Net Cash Proceeds of a substantially concurrent issuance and sale
(other than to a Restricted Subsidiary) of shares of Qualified Capital
Stock of the Company;
(iv) the purchase of any Subordinated Indebtedness at a purchase price not
greater than 101% of the principal amount thereof in the event of a
Change of Control in accordance with provisions similar to the "Change
of Control" covenant; PROVIDED that prior to such purchase the Company
has made the Change of Control Offer as provided in such covenant with
respect to the Notes and has purchased all Notes validly tendered for
payment in connection with such Change of Control Offer;
(v) the purchase, redemption, defeasance or other acquisition or retirement
for value of Subordinated Indebtedness in exchange for, or out of the
Net Cash Proceeds of a substantially concurrent incurrence (other than
to a Subsidiary) of new Subordinated Indebtedness so long as (A) the
principal amount of such new Subordinated Indebtedness does not exceed
the principal amount (or, if such Subordinated Indebtedness being
refinanced provides for an amount less than the principal amount thereof
to be due and payable upon a declaration of acceleration thereof, such
lesser amount as of the date of determination) of the Subordinated
Indebtedness being so purchased, redeemed, defeased, acquired or
retired, plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of such
Subordinated Indebtedness being refinanced or the amount of any premium
reasonably determined by the Company as necessary to accomplish such
refinancing, PLUS, in either case, the amount of expenses of the Company
incurred in connection with such refinancing; (B) such new Subordinated
Indebtedness is subordinated to the Notes to the same extent as such
Subordinated Indebtedness so purchased, redeemed, defeased, acquired or
retired and (C) such new Subordinated Indebtedness has an Average Life
to Stated Maturity longer than the Average Life to Stated Maturity of
the Notes and a final Stated Maturity of principal later than the final
Stated Maturity of principal of the Notes;
(vi) the payment of cash in lieu of fractional shares of Common Stock
pursuant to the Warrant Agreement;
(vii) payments of amounts required for any repurchase, redemption or other
acquisition or retirement for value of any Capital Stock of the Company
or any options or rights to acquire such Capital Stock of the Company
owned by any director, officer or employee of the Company or its
Subsidiaries pursuant to any management equity subscription agreement
or similar agreement, or otherwise upon the death, disability,
retirement or termination of employment or departure from the Board,
PROVIDED that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Capital Stock of the Company or options
shall not exceed in the aggregate $0.5 million in any calendar year;
(viii) payments that would otherwise be Restricted Payments in an aggregate
amount not to exceed $1.0 million;
(ix) investments in Telecommunications Businesses that would otherwise be
Restricted Payments, the sum of which does not exceed $5.0 million at
any one time outstanding; and
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(x) repurchases of Capital Stock of the Company solely in connection with
cashless exercises of options, warrants and other convertible
securities.
The actions described in clauses (i) through (iv) inclusive and clauses (vi)
through (ix) inclusive of this paragraph (b) shall be Restricted Payments that
shall be permitted to be taken in accordance with this paragraph (b) but shall
reduce the amount that would otherwise be available for Restricted Payments
under clause (3) of paragraph (a) and the actions described in clauses (v) and
(x) of this paragraph (b) shall be Restricted Payments that shall be permitted
to be taken in accordance with this paragraph (b) and shall not reduce the
amount that would otherwise be available for Restricted Payments under clause
(3) of paragraph (a) above. In the event the proceeds of an issuance of
Qualified Capital Stock of the Company are used for the redemption, repurchase
or other acquisition of the Notes, or Indebtedness that is PARI PASSU with the
Notes, then the Net Cash Proceeds of such issuance shall be included in clause
(B) of the first paragraph of this "Limitation on Restricted Payments" covenant
only to the extent such proceeds are not used for such redemption, repurchase or
other acquisition of Indebtedness.
LIMITATION ON LIENS. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create,
incur, assume or suffer to exist any Lien (other than Permitted Liens) on or
with respect to (i) any of its property or assets, including any shares of stock
or Indebtedness of any Restricted Subsidiary, whether owned at the Issue Date or
thereafter acquired, or any income, profits or proceeds therefrom, or assign or
otherwise convey any right to receive income thereon, unless (x) in the case of
any Lien securing Subordinated Indebtedness, the Notes are secured by a Lien on
such property, assets or proceeds that is senior in priority to such Lien and
(y) in the case of any other Lien, the Notes are equally and ratably secured
with the obligation or liability secured by such Lien, or (ii) the Collateral
Account.
Limitation on Issuances of Guarantees of Indebtedness by Restricted
Subsidiaries. (a) The Indenture provides that the Company will not permit any
Restricted Subsidiary, directly or indirectly, to guarantee, assume or in any
other manner become liable with respect to any Indebtedness of the Company (the
"Guaranteed Indebtedness") unless (i) such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture providing for the guarantee (a
"Subsidiary Guarantee") of payment of the Notes by such Restricted Subsidiary;
PROVIDED that this paragraph (a) shall not be applicable to any guarantee of any
Restricted Subsidiary that existed at the time such Person became a Restricted
Subsidiary and was not incurred in connection with or in contemplation of such
Person becoming a Restricted Subsidiary. If the Guaranteed Indebtedness is (A)
PARI PASSU in right of payment with the Notes, then the guarantee of such
Guaranteed Indebtedness shall be PARI PASSU in right of payment with, or
subordinated in right of payment to, the Subsidiary Guarantee or (B)
subordinated in right of payment to the Notes, then the guarantee of such
Guaranteed Indebtedness shall be subordinated in right of payment to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated in right of payment to the Notes.
(b) Notwithstanding the foregoing, any Subsidiary Guarantee created pursuant
to the provisions described in the foregoing paragraph (a) shall provide by its
terms that it shall be automatically and unconditionally released and discharged
upon (i) any sale, exchange or transfer, to any Person who is not an Affiliate
of the Company, of all of the Company's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii) the release by
the holders of the Indebtedness of the Company described in the preceding
paragraph of their guarantee by such Restricted Subsidiary (including any deemed
release upon payment in full of all obligations under such Indebtedness, except
by or as a result of payment under such Subsidiary Guarantee), at a time when
(A) no other Indebtedness of the Company has been guaranteed by such Restricted
Subsidiary or (B) the holders of all such other Indebtedness which is guaranteed
by such Restricted Subsidiary also release their guarantee by such Restricted
Subsidiary (including any deemed released upon payment in full of all
obligations under such Indebtedness).
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LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Indenture provides that the Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create or otherwise
enter into or cause to become effective any consensual encumbrance or consensual
restriction of any kind on the ability of any Restricted Subsidiary to (a) pay
dividends, in cash or otherwise, or make any other distributions on its Capital
Stock or any other interest or participation in, or measured by, its profits to
the extent owned by the Company or any Restricted Subsidiary, (b) pay any
Indebtedness owed to the Company or any Restricted Subsidiary, (c) make any
Investment in the Company or any Restricted Subsidiary or (d) transfer any of
its properties or assets to the Company or to any Restricted Subsidiary, except
for:
(i) any encumbrance or restriction in existence on the Issue Date;
(ii) customary non-assignment provisions;
(iii) any encumbrance or restriction pertaining to an asset subject to a Lien
to the extent set forth in the documentation governing such Lien;
(iv) any encumbrance or restriction applicable to a Restricted Subsidiary at
the time that it becomes a Restricted Subsidiary that is not created in
contemplation thereof;
(v) any encumbrance or restriction existing under any agreement that
refinances or replaces an agreement containing a restriction permitted
by clause (i) or (iv) above; provided that the terms and conditions of
any such encumbrance or restriction are not materially less favorable to
the holders of Notes than those under or pursuant to the agreement being
replaced or the agreement evidencing the Indebtedness refinanced;
(vi) any encumbrance or restriction imposed upon a Restricted Subsidiary
pursuant to an agreement which has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets
of such Restricted Subsidiary or any Asset Sale to the extent limited
to the Capital Stock or assets in question; and
(vii) any customary encumbrance or restriction applicable to a Restricted
Subsidiary that is contained in an agreement or instrument governing or
relating to Indebtedness contained in any Permitted Credit Facility;
PROVIDED that (subject to customary net worth, leverage, invested
capital and other financial covenants and the absence of default under
such agreement) the provisions of such agreement permit the payment of
interest and principal and mandatory repurchases pursuant to the terms
of the Indenture and the Notes and other indebtedness that is solely an
obligation of the Company; PROVIDED, FURTHER, that such agreement may
contain customary covenants regarding the merger of or sale of all or
any substantial part of the assets of the Company or any Restricted
Subsidiary, customary restrictions on transactions with affiliates, and
customary subordination provisions governing indebtedness owed to the
Company or any Restricted Subsidiary.
DISPOSITION OF PROCEEDS OF ASSET SALES. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, make any
Asset Sale unless (a) the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the shares or assets sold or otherwise disposed of and (b) at least 75%
of such consideration (excluding contingent liabilities assumed by the
transferee of any such assets) consists of cash or Cash Equivalents; PROVIDED
that the amount of any liabilities (other than Subordinated Indebtedness or
Indebtedness of a Restricted Subsidiary that would not constitute Restricted
Subsidiary Indebtedness) that are assumed by the transferee of any such assets
pursuant to an agreement that unconditionally releases the Company or such
Restricted Subsidiary, as the case may be, from further liability shall be
treated as cash for purposes of this covenant. Within 365 days after any Asset
Sale, the Company or the applicable Restricted Subsidiary, as the case may be,
may at its option (a) reinvest an amount equal to the Net Cash Proceeds (or any
portion thereof) from such disposition in properties and assets that will be
used in a Telecommunications Business (or in Capital Stock and other securities
of any Person that will become a Restricted Subsidiary as
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a result of such investment to the extent such Person owns properties and assets
that will be used in a Telecommunications Business) of the Company or any
Restricted Subsidiary ("Replacement Assets"), and/ or (b) apply an amount equal
to such Net Cash Proceeds (or remaining Net Cash Proceeds) to the permanent
reduction of any Indebtedness of the Company ranking PARI PASSU with the Notes
(including the Notes) or the permanent reduction of Indebtedness of any
Restricted Subsidiary of the Company. Pending the final application of any such
Net Cash Proceeds, the Company or such Restricted Subsidiary may temporarily
reduce revolving Indebtedness under any Permitted Credit Facility or otherwise
invest such Net Cash Proceeds in any manner that is not prohibited by the
Indenture. Any Net Cash Proceeds from any Asset Sale that are not used to
reinvest in Replacement Assets and/or repay any such PARI PASSU Indebtedness of
the Company or Indebtedness of its Restricted Subsidiaries constitute Excess
Proceeds.
When the aggregate amount of Excess Proceeds from one or more Asset Sales
equals or exceeds $5.0 million, the Company shall make an offer to purchase (an
"Asset Sale Offer"), from all holders of Notes issued under the Indenture, that
aggregate principal amount of Notes as can be purchased by application of such
Excess Proceeds at a price in cash equal to 100% of the outstanding aggregate
principal amount thereof plus accrued and unpaid interest, if any, to the
purchase date. Each Asset Sale Offer shall remain open for a period of 20
business days or such longer period as may be required by law. To the extent
that the aggregate purchase price for the Notes tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company or any Restricted
Subsidiary may use such deficiency for general corporate purposes. If the
aggregate purchase price for the Notes validly tendered and not withdrawn by
holders thereof exceeds the amount of Notes which can be purchased with the
Excess Proceeds, Notes to be purchased will be selected on a PRO RATA basis.
Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset to zero.
Notwithstanding the two immediately preceding paragraphs, the Company and
the Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 75% of the
consideration of such Asset Sale constitutes Replacement Assets, cash or Cash
Equivalents (including obligations deemed to be cash under this covenant) and
(ii) such Asset Sale is for Fair Market Value; PROVIDED that any consideration
constituting (or deemed to constitute) cash or Cash Equivalents received by the
Company or any of the Restricted Subsidiaries in connection with any Asset Sale
permitted to be consummated under this paragraph shall constitute Net Cash
Proceeds subject to the provisions of the two preceding paragraphs.
If the Company is required to make an Asset Sale Offer, the Company will
comply with all applicable tender offer rules, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable securities laws and regulations.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. The Indenture provides that the Company will not (i) sell,
pledge, hypothecate or otherwise convey or dispose of any Capital Stock of a
Restricted Subsidiary of the Company (other than under a Permitted Credit
Facility) or (ii) permit any of its Restricted Subsidiaries to issue any Capital
Stock, in either case, other than to the Company or a Restricted Subsidiary of
the Company. The foregoing restrictions shall not apply to an Asset Sale
consisting of 100% of the Capital Stock of a Restricted Subsidiary owned by the
Company made in compliance with the covenant "--Disposition of Proceeds of Asset
Sales."
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Indenture provides that the
Company will not, and will not permit, cause or suffer any Restricted Subsidiary
to, conduct any business or enter into any transaction (or series of related
transactions which are similar or part of a common plan) with or for the benefit
of any of their respective Affiliates or any beneficial holder of 5% or more of
the Common Stock of the Company or any officer or director of the Company (each,
an "Affiliate Transaction"), unless the terms of the Affiliate Transaction are
set forth in writing, and are fair and reasonable to the Company or such
Restricted Subsidiary, as the case may be. Each Affiliate Transaction involving
aggregate payments or other Fair Market Value in excess of $1.0 million shall be
approved by a majority of the Board, such
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approval to be evidenced by a Board Resolution stating that the Board has
determined that such transaction or transactions comply with the foregoing
provisions. In addition to the foregoing, each Affiliate Transaction involving
aggregate consideration of $5.0 million or more shall be approved by a majority
of the Disinterested Directors; PROVIDED that, in lieu of such approval by the
Disinterested Directors, the Company may obtain a written opinion from an
Independent Financial Advisor stating that the terms of such Affiliate
Transaction to the Company or the Restricted Subsidiary, as the case may be, are
fair from a financial point of view. For purposes of this covenant, any
Affiliate Transaction approved by a majority of the Disinterested Directors or
as to which a written opinion has been obtained from an Independent Financial
Advisor, on the basis set forth in the preceding sentence, shall be deemed to be
on terms that are fair and reasonable to the Company and the Restricted
Subsidiaries, as the case may be, and therefore shall be permitted under this
covenant.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among, or solely for the benefit of,
the Company and/or any of the Restricted Subsidiaries, (ii) transactions
pursuant to agreements and arrangements existing on the Issue Date, (iii)
dividends and other Restricted Payments paid by the Company pursuant to and in
compliance with the covenant "Limitation on Restricted Payments," (iv) customary
directors' fees, indemnification and similar arrangements, employee salaries and
bonuses, employment agreements and arrangements or compensation or employee
benefit arrangements (including options), (v) grants of customary registration
rights with respect to securities of the Company and (vi) loans or advances to
officers or employees of the Company or any Restricted Subsidiary made in the
ordinary course of business of the Company or such Restricted Subsidiary to pay
business related travel expenses or reasonable relocation costs of such officers
or employees in connection with their employment by the Company or such
Restricted Subsidiary.
REPORTS. The Indenture provides that, whether or not the Company has a
class of securities registered under the Exchange Act, the Company shall furnish
without cost to each holder of record of Notes issued thereunder (in sufficient
quantities for distribution to beneficial holders) and file with the Trustee and
the Commission (unless the Commission will not accept such a filing), (i) within
the applicable time period required under the Exchange Act, after the end of
each fiscal year of the Company, the information required by Form 10-K (or any
successor form thereto) under the Exchange Act with respect to such period
(including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section that describes the consolidated financial
condition and results of operations of the Company), together with a report
thereon by the Company's certified independent accountants, (ii) within the
applicable time period required under the Exchange Act after the end of each of
the first three fiscal quarters of each fiscal year of the Company, the
information required by Form l0-Q (or any successor form thereto) under the
Exchange Act with respect to such period (including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section and
describes the consolidated financial condition and results of operations of the
Company) and (iii) any current reports on Form 8-K (or any successor forms)
required to be filed under the Exchange Act.
LIMITATION ON BUSINESS. The Indenture provides that the Company will not,
and will not permit any of the Restricted Subsidiaries to, engage in a business
which is not a Telecommunications Business.
DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES. The Indenture provides that the
Company will not designate any Subsidiary of the Company (other than a newly
created Subsidiary in which no Investment has previously been made) as an
"Unrestricted Subsidiary" under the Indenture (a "Designation") unless:
(a) no Default shall have occurred and be continuing at the time of or after
giving effect to such Designation;
(b) immediately after giving effect to such Designation, the Company would
be able to incur $1.00 of Indebtedness under the proviso of the covenant
"--Limitation on Indebtedness," except in the case of (1) a Permitted
Investment or (2) an Investment to the extent reasonably promptly made
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with the proceeds of (x) a capital contribution to the Company or (y) an
issue or sale of Capital Stock (other than Disqualified Stock) of the
Company (other than to a Subsidiary of the Company); PROVIDED that any
such Net Cash Proceeds are excluded from clause (3)(B) of paragraph (a)
of the covenant "--Limitation on Restricted Payments," and are not used
for the redemption, repurchase or other acquisition of Indebtedness; and
(c) 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) in an amount (the "US Designation Amount") equal to the
Fair Market Value of the net Investment of the Company or any other
Restricted Subsidiary in such Subsidiary on such date. In the event of
any such Designation, the Company shall be deemed to have made an
Investment constituting a Restricted Payment pursuant to the covenant
"Limitation on Restricted Payments" for all purposes of the Indenture in
the US Designation Amount. The Indenture will further provide that
neither the Company nor any Restricted Subsidiary shall at any time (x)
provide a guarantee of, or similar credit support to, any Indebtedness of
any Unrestricted Subsidiary (including any undertaking, agreement or
instrument evidencing such Indebtedness); PROVIDED that the Company may
pledge Capital Stock or Indebtedness of any Unrestricted Subsidiary on a
nonrecourse basis such that the pledgee has no claim whatsoever against
the Company other than to obtain such pledged property, (y) be directly
or indirectly liable for any Indebtedness of any Unrestricted Subsidiary
or (z) be directly or indirectly liable for any other Indebtedness which
provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon (or cause the payment thereof to be accelerated
or payable prior to its final scheduled maturity) upon the occurrence of
a default with respect to any other Indebtedness that is Indebtedness of
an Unrestricted Subsidiary (including any corresponding right to take
enforcement action against such Unrestricted Subsidiary), except in the
case of clause (x) or (y) to the extent permitted under the covenants
"Limitation on Restricted Payments" and "Limitation on Transactions with
Affiliates."
The Indenture further provides that the Company will not revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation")
unless:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(b) 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 for all purposes of the Indenture.
All Designations and Revocations must be evidenced by Board Resolutions
delivered to the Trustee certifying compliance with the foregoing provisions.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
The Indenture provides that the Company will not (i) consolidate or combine
with or merge with or into or, directly or indirectly, sell, assign, convey,
lease, transfer or otherwise dispose of all or substantially all of its
properties and assets to any Person or Persons in a single transaction or
through a series of transactions, or (ii) permit any of the Restricted
Subsidiaries to enter into any such transaction or series of transactions if it
would result in the disposition of all or substantially all of the properties or
assets of the Company and the Restricted Subsidiaries on a consolidated basis to
a Person other than the Company or another Restricted Subsidiary, unless, in the
case of either (i) or (ii), (a) the Company shall be the continuing Person or,
if the Company is not the continuing Person, the resulting, surviving or
transferee Person (the "surviving entity") shall be a company organized and
existing under the laws of the United States or any State or territory thereof;
(b) the surviving entity shall expressly assume all of the obligations of the
Company or such Restricted Subsidiary, as the case may be, under the Notes and
the Indenture, and
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shall, if required by law to effectuate such assumption, execute a supplemental
indenture to effect such assumption, which supplemental indenture shall be
delivered to the Trustee and shall be in form and substance reasonably
satisfactory to the Trustee; (c) immediately after giving effect to such
transaction or series of transactions on a PRO FORMA basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions),
the Company or the surviving entity (assuming such surviving entity's assumption
of the Company's or Restricted Subsidiary's, as the case may be, obligations
under the Notes and the Indenture), as the case may be, would be able to incur
$1.00 of Indebtedness under the proviso of the covenant "--Limitation on
Indebtedness;" (d) immediately after giving effect to such transaction or series
of transactions on a PRO FORMA basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Default shall have
occurred and be continuing and (e) the Company or the surviving entity, as the
case may be, shall have delivered to the Trustee an officers' certificate
stating that such transaction or series of transactions, and, if a supplemental
indenture is required in connection with such transaction or series of
transactions to effectuate such assumption, such supplemental indenture,
complies with this covenant and that all conditions precedent in the Indenture
relating to the transaction or series of transactions have been satisfied.
Upon the occurrence of any transaction under clause (i) or (ii) of the
preceding paragraph in which the Company or a Restricted Subsidiary, as the case
may be, is not the continuing corporation, the successor corporation formed by
such a consolidation or into which the Company or any such Restricted Subsidiary
is merged or to which such transfer is made will succeed to, and be substituted
for, and may exercise every right and power of, the Company or such Restricted
Subsidiary, as the case may be, under the Indenture and the Notes with the same
effect as if such successor corporation had been named as the Company or such
Restricted Subsidiary therein; and thereafter, except in the case of any lease,
sale, assignment, conveyance, transfer or other disposition to a Restricted
Subsidiary of the Company, the Company shall be discharged from all obligations
and covenants under the Indenture and the Notes issued thereunder.
The Indenture provides that for all purposes of the Indenture and the Notes
(including the provision of this covenant and the covenants "Limitation on
Additional Indebtedness," "Limitation on Restricted Payments" and "Limitation on
Liens"), Subsidiaries of any surviving entity will, upon such transaction or
series of related transactions, become Restricted Subsidiaries or Unrestricted
Subsidiaries as provided pursuant to the covenant "Designations of Unrestricted
Subsidiaries" and all Indebtedness, and all Liens on property or assets, of the
Company and the Restricted Subsidiaries in existence immediately prior to such
transaction or series of related transactions will be deemed to have been
incurred upon such transaction or series of related transactions.
EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture:
(i) default in the payment of interest on the Notes when it becomes due and
payable and continuance of such default for a period of 30 days or more;
PROVIDED that a default in the payment of any installment of interest
when it becomes due and payable on the Notes on or prior to April 1,
2001 will constitute an Event or Default, with no grace or cure period;
or
(ii) default in the payment of the principal of, or premium, if any, on the
Notes when due; or
(iii) default in the performance, or breach, of any covenant described under
"Change of Control," "--Certain Covenants--Disposition of Proceeds of
Asset Sales" or "Consolidation, Merger, Sale of Assets, Etc.;" or
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(iv) default in the performance, or breach, of any covenant in the Indenture
(other than defaults specified in clause (i), (ii) or (iii) above) or
the Security Agreement and continuance of such default or breach for a
period of 30 days or more after written notice to the Company by the
Trustee or to the Company and the Trustee by the holders of at least
25% of the aggregate principal amount of the outstanding Notes; or
(v) failure to perform any term, covenant, condition or provision of one or
more classes or issues of Indebtedness in an aggregate principal amount
of $5.0 million or more under which the Company or a Restricted
Subsidiary is obligated, and either (a) such Indebtedness is already due
and payable in full or (b) such failure results in the acceleration of
the maturity of such Indebtedness; or
(vi) one or more final non-appealable judgments, orders or decrees for the
payment of money of $5.0 million or more, either individually or in the
aggregate, shall be entered against the Company or any Restricted
Subsidiary or any of their respective properties and shall not be
discharged and there shall have been a period of 60 days or more during
which a stay of enforcement of such judgment or order, by reason of
pending appeal or otherwise, shall not be in effect; or
(vii) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company, or any Material
Restricted Subsidiary of the Company in an involuntary case or
proceeding under U.S. bankruptcy laws, as now or hereafter constituted,
or any other applicable federal, state, or foreign bankruptcy,
insolvency, or other similar law or (ii) a decree or order adjudging
the Company, or any Material Restricted Subsidiary of the Company, a
bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company, or any Material Restricted Subsidiary of the
Company, under U.S. bankruptcy laws, as now or hereafter constituted,
or any other applicable federal, state, or foreign bankruptcy,
insolvency, or similar law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official
of the Company, or any Material Restricted Subsidiary of the Company,
or of any substantial part of the property or assets of the Company, or
any Material Restricted Subsidiary of the Company, or ordering the
winding up or liquidation of the affairs of the Company, or any
Material Restricted Subsidiary of the Company, and the continuance of
any such decree or order for relief or any such other decree or order
unstayed and in effect for a period of 60 consecutive days; or
(viii) the Company shall assert or acknowledge in writing that the Security
Agreement is invalid or unenforceable.
If an Event of Default (other than an Event of Default specified in clause
(vii) with respect to the Company) under the Indenture occurs and is continuing,
then the Trustee or the holders of at least 25% of the aggregate principal
amount of the outstanding Notes may by written notice, and the Trustee upon
request of the holders of not less than 25% of the aggregate principal amount of
the outstanding Notes shall, declare the aggregate principal amount of, premium
(if any) on, and any accrued and unpaid interest on the outstanding Notes issued
thereunder to be due and payable immediately. Upon any such declaration, the
aggregate principal amount of, premium (if any) on, and any accrued and unpaid
interest on the outstanding Notes shall become due and payable immediately. If
an Event of Default under the Indenture specified in clause (vii) with respect
to the Company occurs and is continuing then the aggregate principal amount of,
premium (if any) on, and any accrued and unpaid interest on the outstanding
Notes will IPSO FACTO become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holder.
After a declaration of acceleration or any IPSO FACTO acceleration pursuant
to clause (vii) under the Indenture, the holders of a majority of the aggregate
principal amount of outstanding Notes may, by notice to the Trustee, rescind
such declaration of acceleration and its consequences if all existing Events of
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Default, other than nonpayment of the principal of, and accrued and unpaid
interest on, such Notes that have become due solely as a result of such
acceleration, have been cured or waived and if the rescission of acceleration
would not conflict with any judgment or decree. The holders of a majority of the
aggregate principal amount of the outstanding Notes also have the right to waive
past defaults, except a default in the payment of the principal of, or any
interest on, any outstanding Note, or in respect of a covenant or a provision
that cannot be modified or amended without the consent of all holders of the
Notes.
No holder of any of the Notes issued under the Indenture has any right to
institute any proceeding with respect to the Indenture or any remedy thereunder,
unless the holders of at least 25% of the aggregate principal amount of the
outstanding Notes have made written request, and offered reasonable indemnity,
to the Trustee to institute such proceeding as Trustee, the Trustee has failed
to institute such proceeding within 60 days after receipt of such notice and the
Trustee has not within such 60-day period received directions inconsistent with
such written request by holders of a majority of the aggregate principal amount
of the outstanding Notes. Such limitations do not apply, however, to a suit
instituted by a holder of a Note for the enforcement of the payment of the
principal of, premium, if any, or any accrued and unpaid interest on, such Note
on or after the respective due dates expressed in such Note.
During the existence of an Event of Default under the Indenture, the Trustee
is required to exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in its exercise thereof as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs. Subject to the provisions of the Indenture relating to the duties
of the Trustee, if an Event of Default shall occur and be continuing, the
Trustee is not under any obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the holders unless
such holders shall have offered to the Trustee reasonable security or indemnity.
Subject to certain provisions concerning the rights of the Trustee, the holders
of a majority of the aggregate principal amount of the outstanding Notes have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust, or power conferred
on the Trustee.
The Indenture provides that the Trustee will, within 45 days after the
occurrence of any Default, give to the holders of the Notes notice of such
Default known to it, unless such Default shall have been cured or waived;
PROVIDED that, except in the case of a Default in payment of principal of or
premium, if any, on any Note when due or in the case of any Default in the
payment of any interest on the Notes or in the case of any Default arising from
the occurrence of any Change of Control, the Trustee shall be protected in
withholding such notice if it determines in good faith that the withholding of
such notice is in the interest of such holders.
The Company is required to furnish to the Trustee annually a statement as to
compliance with all conditions and covenants under the Indenture.
SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE
The Company may terminate its obligations under the Indenture, when (1)
either: (A) all Notes issued thereunder that have been theretofore authenticated
and delivered have been delivered to the Trustee for cancellation, or (B) all
such Notes issued thereunder that have not theretofore been delivered to the
Trustee for cancellation will become due and payable (a "Discharge") under
irrevocable arrangements satisfactory to the Trustee for the giving of notice of
redemption by such Trustee in the name, and at the expense, of the Company, and
the Company has irrevocably deposited or caused to be deposited with such
Trustee funds in an amount sufficient to pay and discharge the entire
indebtedness on such issue of Notes, not theretofore delivered to the Trustee
for cancellation, for principal of, premium, if any, and interest on the Notes
to the date of deposit or maturity or date of redemption; (2) the Company has
paid or caused to be paid all other sums then due and payable under the
Indenture by the Company and (3) the Company has delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that all
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conditions precedent under the Indenture relating to the satisfaction and
discharge of the Indenture have been complied with.
The Company may elect, at its option, to have its obligations under the
Indenture discharged with respect to the outstanding Notes ("legal defeasance").
Such defeasance means that the Company will be deemed to have paid and
discharged the entire indebtedness represented by the outstanding Notes under
the Indenture, except for (1) the rights of holders of Notes to receive payments
in respect of the principal of and any premium and interest on the Notes when
payments are due, (2) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of transfer 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, (3) the
rights, powers, trusts, duties and immunities of the Trustee, and (4) the
defeasance provisions of the Indenture. In addition, the Company may elect, at
its option, to have its obligations released with respect to certain covenants
in the Indenture, including covenants relating to Asset Sales and Changes of
Control ("covenant defeasance"), and any omission to comply with such obligation
shall not constitute a Default or an Event of Default with respect to the Notes
under the Indenture. In the event covenant defeasance occurs, certain events
(not including non-payment, bankruptcy and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Notes.
In order to exercise either legal defeasance or covenant defeasance with
respect to outstanding Notes: (1) the Company must irrevocably have deposited or
caused to be deposited with the Trustee as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for, and
dedicated solely to the benefits of the holders of the Notes: (A) money in an
amount, or (B) U.S. Government Securities which through the scheduled payment of
principal and interest in respect thereof in accordance with their terms will
provide, not later than the due date of any payment, money in an amount, or (C)
a combination thereof, in each case sufficient without reinvestment, in the
opinion of a nationally recognized firm of independent public accountants or a
nationally recognized investment banking firm expressed in a written
certification thereof delivered to the Trustee to pay and discharge, and which
shall be applied by the Trustee to pay and discharge, the entire Indebtedness in
respect of the principal of and premium, if any, and interest on the Notes on
the maturity thereof or (if the Company has made irrevocable arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name and at the expense of the Company) the redemption date
thereof, as the case may be, in accordance with the terms of the Indenture and
Notes; (2) in the case of legal defeasance under the Indenture, the Company
shall have delivered to the Trustee an opinion of counsel stating that, under
then applicable Federal income tax law, the holders of the Notes will not
recognize gain or loss for federal income tax purposes as a result of the
deposit, defeasance and discharge to be effected with respect to the Notes and
will be subject to federal income tax on the same amount, in the same manner and
at the same times as would be the case if such deposit, defeasance and discharge
were not to occur; (3) in the case of covenant defeasance under the Indenture,
the Company shall have delivered to the Trustee an opinion of counsel to the
effect that the holders of such outstanding Notes will not recognize gain or
loss for U.S. federal income tax purposes as a result of the deposit and
covenant defeasance to be effected with respect to the Notes and will be subject
to U.S. federal income tax on the same amount, in the same manner and at the
same times as would be the case if such deposit and covenant defeasance were not
to occur; (4) no Default with respect to the outstanding Notes shall have
occurred and be continuing at the time of such deposit after giving effect
thereto or, in the case of legal defeasance, no Default relating to bankruptcy
or insolvency shall have occurred and be continuing at any time on or prior to
the 123rd day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until after such 123rd day); (5) such
legal defeasance or covenant defeasance shall not cause the Trustee to have a
conflicting interest within the meaning of the Trust Indenture Act (assuming all
Notes were in default within the meaning of such Act); (6) such defeasance or
covenant defeasance shall not result in a breach or violation of, or constitute
a default under, any other material agreement or instrument to which the Company
is a party or by which it is bound; (7) such legal defeasance or covenant
defeasance shall not result in the trust
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arising from such deposit constituting an investment company within the meaning
of the Investment Company Act of 1940, as amended, unless such trust shall be
registered under such Act or exempt from registration thereunder and (8) the
Company shall have delivered to the Trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent with respect to such
defeasance or covenant defeasance have been complied with.
AMENDMENT AND WAIVERS
From time to time, the Company, when authorized by resolutions of the Board
and the Trustee, without the consent of the holders of Notes, may amend, waive
or supplement the Indenture and the Notes for certain specified purposes,
including, among other things, curing ambiguities, defects or inconsistencies,
to provide for the assumption of the Company's obligations to holders of the
Notes in the case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the holders of the Notes, to add
guarantors with respect to the Notes, to secure the Notes, to maintain the
qualification of the Indenture under the Trust Indenture Act or to make any
change that does not adversely affect the rights of any holder. Other amendments
and modifications of the Indenture or the Notes issued thereunder may be made by
the Company and the Trustee with the consent of the holders of not less than a
majority of the aggregate principal amount of the outstanding Notes; provided
that no such modification or amendment may, without the consent of the holder of
each outstanding Note affected thereby, (i) reduce the principal amount of, or
extend the fixed maturity of the Notes, or alter or waive the redemption
provisions of the Notes, (ii) change the currency in which any Notes or any
premium or the accrued interest thereon is payable, (iii) reduce the percentage
of the aggregate principal amount of outstanding Notes which must consent to an
amendment, supplement or waiver or consent to take any action under the
Indenture or the Notes, (iv) impair the right to institute suit for the
enforcement of any payment on or with respect to the Notes, (v) waive a default
in payment with respect to the Notes, (vi) reduce the rate or extend the time
for payment of interest on the Notes, (vii) following the occurrence of an Asset
Sale or a Change of Control, alter the obligation to purchase Notes as a result
thereof (except for changes required by applicable law) in accordance with the
Indenture or waive any default in the performance thereof, (viii) adversely
affect the ranking of the Notes, except in compliance with the terms of the
Indenture, or (ix) release any funds from the Collateral Account, except in
accordance with the terms of the Security Agreement as in effect on the Issue
Date.
REGARDING THE TRUSTEE
Norwest Bank Colorado, N.A. will serve as Trustee. The Indenture provides
that, except during the continuance of an Event of Default, the Trustee will
perform only such duties as are specifically set forth in the Indenture. If an
Event of Default has occurred and is continuing, the Trustee will exercise such
rights and powers vested in it under the Indenture and use the same degree of
care and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain 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 by it in respect of any
such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions; PROVIDED that if the Trustee acquires any conflicting
interest (as defined) the Trustee must eliminate such conflict, apply to the
Commission for permission to continue as Trustee or resign.
GOVERNING LAW
The Indenture and the Security Agreement provide that the Indenture and the
Notes and the Security Agreement, respectively, are governed by and construed in
accordance with laws of the State of New York without giving effect to
principles of conflicts of law.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the Indenture,
unless otherwise noted. Reference is made to the Indenture for the full
definition of all such terms, as well as any other capitalized terms used herein
for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by such Person and not incurred in connection with, or in
anticipation of, such Person becoming a Restricted Subsidiary or such Asset
Acquisition; PROVIDED that Indebtedness of such Person which is redeemed,
defeased, retired or otherwise repaid at the time of or immediately upon
consummation of the transactions by which such Person becomes a Restricted
Subsidiary or such Asset Acquisition shall not constitute Acquired Indebtedness.
"Affiliate" of any specified Person means any other Person which, directly
or indirectly, controls, is controlled by or is under direct or indirect common
control with, such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Acquisition" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Company or any
Restricted Subsidiary to any other Person, or any acquisition or purchase of
Capital Stock of any other Person by the Company or any Restricted Subsidiary,
in either case pursuant to which such Person shall (a) become a Restricted
Subsidiary or (b) shall be merged with or into the Company or any Restricted
Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary
of the assets of any Person which constitute substantially all of an operating
unit or line of business of such Person or which is otherwise outside of the
ordinary course of business.
"Asset Sale" means any direct or indirect sale, conveyance, transfer or
lease (that has the effect of a disposition and is not for security purposes) or
other disposition (that is not for security purposes) to any Person other than
the Company or a Restricted Subsidiary, in one transaction or a series of
related transactions, of (i) the Capital Stock of any Restricted Subsidiary
(other than customary stock option programs), (ii) any assets of the Company or
any Restricted Subsidiary which constitute substantially all of an operating
unit or line of business of the Company and the Restricted Subsidiaries or (iii)
any other property or asset of the Company or any Restricted Subsidiary outside
of the ordinary course of business. For the purposes of this definition, the
term "Asset Sale" shall not include (i) any disposition of properties and assets
of the Company and/or the Restricted Subsidiaries that is governed under the
covenant "Consolidation, Merger, Sale of Assets, Etc.," (ii) sales of property
or equipment that have become worn out, obsolete or damaged or otherwise
unsuitable for use in connection with the business of the Company or any
Restricted Subsidiary, as the case may be, (iii) for purposes of the covenant
"Disposition of Proceeds of Asset Sales," any sale, conveyance, transfer, lease
or other disposition of any property or asset, whether in one transaction or a
series of related transactions occurring within one year, involving assets with
a Fair Market Value not in excess of $1.0 million, (iv) a Restricted Payment
that is permitted by the covenant "Limitation on Restricted Payments" and (v)
sales of Cash Equivalents.
"Average Life to Stated Maturity" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from such date to the date or dates
of each successive scheduled principal payment (including, without limitation,
any sinking fund requirements) of such Indebtedness multiplied by (b) the amount
of each such principal payment by (ii) the sum of all such principal payments;
PROVIDED that, in the case of any Capitalized Lease Obligation, all calculations
hereunder shall give effect to any applicable options to renew in favor of the
Company or any Restricted Subsidiary.
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"Board" means the Board of Directors of the Company.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
and to be in full force and effect on the date of such certification and
delivered to the Trustee.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting and/or non-voting) of, such Person's capital stock, whether
outstanding on the Issue Date or issued after the Issue Date, and any and all
rights (other than any evidence of Indebtedness), warrants or options
exchangeable for or convertible into such capital stock.
"Capitalized Lease Obligations" means, with respect to any Person, any
obligation of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed, immovable or movable) that is required to be classified and accounted
for as a capitalized lease obligation under GAAP, and, for the purpose of the
Indenture, the amount of such obligation at any date shall be the capitalized
amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness (with, for
purposes of the covenant "Disposition of Proceeds of Asset Sales" only, a
maturity of 365 days or less) issued or directly and fully guaranteed or insured
by the United States or any agency or instrumentality thereof (PROVIDED that the
full faith and credit of the United States is pledged in support thereof or such
Indebtedness constitutes a general obligation of such country); (ii) deposits,
certificates of deposit or acceptances (with, for purposes of the covenant
"Disposition of Proceeds of Asset Sales" only, a maturity of 365 days or less)
of any financial institution that is a member of the Federal Reserve System, in
each case having combined capital and surplus and undivided profits (or any
similar capital concept) of not less than $500.0 million and whose senior
unsecured debt is rated at least "A-l" by S&P or "P-l" by Moody's; (iii)
commercial paper with a maturity of 365 days or less issued by a corporation
(other than an Affiliate of the Company) organized under the laws of the United
States or any State thereof and rated at least "A-l" by S&P or "P-l" by Moody's;
(iv) repurchase agreements and reverse repurchase agreements relating to
marketable direct obligations issued or unconditionally guaranteed by the United
States Government or issued by any agency thereof and backed by the full faith
and credit of the United States Government maturing within 365 days from the
date of acquisition and (v) money market funds which invest substantially all of
their assets in securities described in the preceding clauses (i) through (iv).
"Change of Control" is defined to mean the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), excluding the Permitted Holders,
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total Voting Stock of the
Company; (b) prior to a Public Equity Offering or one or more sales of Common
Stock to a Strategic Equity Investor, any "person" or "group" (as such terms are
used in clause (a)) contemporaneously becomes the "beneficial owner" (as such
term is used in clause (a)), directly or indirectly, of Voting Stock of the
Company in an amount greater than the total Voting Stock of the Company
"beneficially owned" (as such term is used in clause (a)) by the Permitted
Holders; (c) the Company consolidates with, or merges with or into, another
person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any person, or any person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is converted
into or exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is converted
into or exchanged for (1) Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation or its parent corporation and/or (2) cash,
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securities and other property in an amount which could be paid by the Company as
a Restricted Payment under the Indenture and (ii) immediately after such
transaction no "person" or "group" (as such terms are used in clause (a)),
excluding Permitted Holders, is the "beneficial owner" (as such term is used in
clause (a)), directly or indirectly, of more than 50% of the total Voting Stock
of the surviving or transferee corporation or its parent corporation, as
applicable; or (d) during any consecutive two-year period, individuals who at
the beginning of such period constituted the Board (together with any new
directors whose election by the Board or whose nomination for election by the
stockholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board then in
office.
"Common Stock" means, with respect to any Person, any and all shares,
interest or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of such Person's common stock whether
outstanding at the Issue Date, and includes, without limitation, all series and
classes of such common stock.
"Consolidated Adjusted Net Income" means, for any period, the consolidated
net income (or loss) of the Company and all Restricted Subsidiaries for such
period as determined in accordance with GAAP, adjusted by excluding, without
duplication, (a) any net after-tax extraordinary or non-recurring gains or
losses; (b) any net after-tax gains or losses attributable to asset dispositions
other than in the ordinary course of business; (c) the portion of net income (or
loss) of any Person (other than the Company or a Restricted Subsidiary),
including Unrestricted Subsidiaries, in which the Company or any Restricted
Subsidiary has an ownership interest, except to the extent of the amount of
dividends or other distributions actually paid to the Company or any Restricted
Subsidiary in cash dividends or distributions during such period; (d) net income
(but not loss) of any Person combined with the Company or any Restricted
Subsidiary on a "pooling of interests" basis attributable to any period prior to
the date of combination; (e) the net income of any Restricted Subsidiary, to the
extent that the declaration or payment of dividends or similar distributions by
such Restricted Subsidiary is not at the date of determination permitted,
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 such Restricted Subsidiary or its stockholders; (f) any
gain or loss, net of taxes, realized upon the termination of any employee
benefit plan and (g) the cumulative effect of a change in accounting principles
(effected either through cumulative effect adjustment or a retroactive
application, in each case, in accordance with GAAP).
"Consolidated Indebtedness to Consolidated Operating Cash Flow Ratio" means,
at any date of determination, the ratio of (i) the aggregate amount of
Indebtedness of the Company and its Restricted Subsidiaries outstanding at the
date of determination as determined on a consolidated basis in accordance with
GAAP to (ii) the aggregate amount of Consolidated Operating Cash Flow for the
then most recent four full fiscal quarters for which consolidated financial
statements of the Company are available preceding the date of the transaction
giving rise to the need to calculate the Consolidated Indebtedness to
Consolidated Operating Cash Flow Ratio (such four fiscal quarter period being
referred to as the "Four Quarter Period").
"Consolidated Interest Expense" of the Company means, for any period,
without duplication, the sum of (a) the interest expense of the Company and its
Restricted Subsidiaries for such period, including, without limitation, (i)
amortization of debt discount; (ii) the net cost of Interest Rate Agreements
(including amortization of discounts); (iii) the interest portion of any
deferred payment obligation; (iv) accrued interest; (v) the consolidated amount
of any interest capitalized by the Company and (vi) amortization of debt
issuance costs, PLUS (b) the interest component of Capitalized Lease Obligations
of the Company and its Restricted Subsidiaries paid, accrued and/or scheduled to
be paid or accrued during such period, EXCLUDING, HOWEVER, any amount of such
interest of any Restricted Subsidiary if the net income of such Restricted
Subsidiary is excluded in the calculation of Consolidated Adjusted Net Income
pursuant to clause (e) of the definition thereof (but only in the same
proportion as the net income of such
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Restricted Subsidiary is excluded from the calculation of Consolidated Adjusted
Net Income pursuant to clause (e) of the definition thereof); PROVIDED that the
Consolidated Interest Expense attributable to interest on any Indebtedness
computed on a PRO FORMA basis and (A) bearing a floating interest rate shall be
computed as if the rate in effect on the date of computation had been the
applicable rate for the entire period and (B) which was not outstanding during
the period for which the computation is being made but which bears, at the
option of the Company, a fixed or floating rate of interest, shall be computed
by applying, at the option of the Company, either the fixed or the floating
rate.
"Consolidated Net Worth" means, with respect to any Person, the consolidated
stockholders' or partners' equity of such Person reflected on the most recent
financial statements of such Person, determined in accordance with GAAP, less
any amounts attributable to Disqualified Stock of such Person.
"Consolidated Operating Cash Flow" means, with respect to any period, the
Consolidated Adjusted Net Income for such period (a) increased by (to the extent
included in computing Consolidated Adjusted Net Income) the sum of (i) the
Consolidated Tax Expense for such period (other than taxes attributable to
extraordinary or non-recurring gains or losses); (ii) Consolidated Interest
Expense for such period; (iii) depreciation of the Company and the Restricted
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP; (iv) amortization of the Company and its Restricted Subsidiaries for
such period, determined on a consolidated basis in accordance with GAAP and (v)
any other non-cash charges that were deducted in computing Consolidated Adjusted
Net Income (excluding any non-cash charge which requires an accrual or reserve
for cash charges for any future period) of the Company and its Restricted
Subsidiaries for such period in accordance with GAAP and (b) decreased by any
non-cash gains that were included in computing Consolidated Adjusted Net Income.
"Consolidated Tax Expense" means, for any period, the provision for federal,
state, provincial, local and foreign income taxes of the Company and all
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP.
"consolidation" means with respect to the Company, the consolidation of the
accounts of the Restricted Subsidiaries with those of the Company, all in
accordance with GAAP; PROVIDED that "consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary with the accounts
of the Company. The term "consolidated" has a correlative meaning to the
foregoing.
"Currency Agreements" means any spot or forward foreign exchange agreements
and currency swap, currency option or other similar financial agreements or
arrangements entered into by the Company or any of its Restricted Subsidiaries
designed solely to protect against or manage exposure to fluctuations in
currency exchange rates.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designation" has the meaning set forth under the covenant "Designations of
Unrestricted Subsidiaries."
"Disinterested Director" means, with respect to any transaction or series of
transactions in respect of which the Board is required to deliver a Board
Resolution under the Indenture, a member of the Board who does not have any
material direct or indirect financial interest in or with respect to such
transaction or series of transactions.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or becomes mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or becomes exchangeable for Indebtedness at the option
of the holder thereof, or becomes redeemable at the option of the holder
thereof, in whole or in part, on or prior to the final maturity date of the
Notes; PROVIDED such Capital Stock shall only constitute Disqualified Stock to
the
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extent it so matures or becomes so redeemable or exchangeable on or prior to the
final maturity date of the Notes; PROVIDED, FURTHER, that any Capital Stock that
would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase or redeem such
Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the final maturity date of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in the covenants "Disposition of
Proceeds of Asset Sales" and "Change of Control" and such Capital Stock
specifically provides that such Person will not repurchase or redeem any such
stock pursuant to such provision prior to the Company's repurchase of such Notes
as are required to be repurchased pursuant to the covenants "Disposition of
Proceeds of Asset Sales" and "Change of Control" and at all times subject to the
covenant "Limitation on Restricted Payments."
"Eligible Working Capital Borrowing Base" means an amount equal to the sum
of (i) 50% of the net inventory of the Company and (ii) 85% of the net accounts
receivable of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"Fair Market Value" means, with respect to any asset or property, the price
that could be negotiated in an arms-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under pressure
or compulsion to complete the transaction. Unless otherwise specified in the
Indenture, Fair Market Value shall be determined by the Board acting in good
faith and shall be evidenced by a Board Resolution.
"GAAP" means generally accepted accounting principles in the United States
in effect on the Issue Date, consistently applied.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of all or any part of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit.
"Incur" or "incur" means, with respect to any Indebtedness, to create,
issue, assume, guarantee or in any manner become directly or indirectly liable
for the payment of, or otherwise incur such Indebtedness; PROVIDED that neither
the accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities, contingent or otherwise, of such Person: (i) for borrowed money
(including overdrafts); (ii) in connection with any letters of credit and
acceptances issued under letter of credit facilities, acceptance facilities or
other similar facilities; (iii) evidenced by bonds, notes, debentures or other
similar instruments; (iv) for the deferred purchase price of property or
services or created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person; or (v) for
Capitalized Lease Obligations; (b) all obligations of such Person under or in
respect of Interest Rate Agreements or Currency Agreements; (c) all indebtedness
referred to in (but not excluded from) the preceding clauses of other Persons
and all dividends of other Persons, the payment of which is secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or with respect to property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Indebtedness (the amount of such obligation being deemed to be the
lesser of the value of such property or asset or the amount of the obligation so
secured); (d) all guarantees by such Person of Indebtedness referred to in this
definition of any other Person and (e) all Disqualified Stock of such Person
valued at the greater of its
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voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid
dividends. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date (or, in the case of a revolving credit or other
similar facility, the total amount of funds outstanding on the date of
determination) of all unconditional obligations as described above and, with
respect to contingent obligations, the maximum liability upon the occurrence of
the contingency giving rise to the obligation; PROVIDED that the amount
outstanding at any time of any Indebtedness issued with original issue discount
equals the face amount of such Indebtedness less the remaining unamortized
portion of the original issue discount with respect to such Indebtedness at the
time of its issuance as determined in conformity with GAAP. For purposes hereof,
the "maximum fixed repurchase price" of any Disqualified Stock which does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Disqualified Stock as if such Disqualified Stock were purchased on any
date on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Stock, such fair market value shall be determined in
good faith by the board of directors of the issuer of such Disqualified Stock.
Notwithstanding the foregoing, trade accounts and accrued liabilities arising in
the ordinary course of business and any liability for federal, state or local
taxes or other taxes owed by such Person will not be considered Indebtedness for
purposes of this definition.
"Independent Financial Advisor" means a United States investment banking,
consulting or accounting firm of national standing in the United States (i)
which does not, and whose directors, officers and employees or Affiliates do
not, have a material direct or indirect financial interest in the Company or any
of its Subsidiaries or Affiliates and (ii) which, in the judgment of the Board,
is otherwise independent and qualified to perform the task for which it is to be
engaged.
"Interest Rate Agreements" means any interest rate protection agreements and
other types of interest rate hedging agreements or arrangements (including,
without limitation, interest rate swaps, caps, floors, collars and other similar
agreements) designed solely to protect the Company or any Restricted Subsidiary
against fluctuations in interest rates in respect of Indebtedness of the Company
or any Restricted Subsidiary.
"Interest Rate Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount and shall include without limitation, interest rate swaps, caps, floors,
collars, forward interest rate agreements and similar agreements.
"Investment" means, with respect to any Person, any advance, loan, account
receivable (other than an account receivable arising in the ordinary course of
business), or other extension of credit (including, without limitation, by means
of any guarantee) or any capital contribution to (by means of transfers of
property to others, payments for property or services for the account or use of
others, or otherwise), or any purchase or ownership of any stocks, bonds, notes,
debentures or other securities of, any other Person. Notwithstanding the
foregoing, in no event shall any issuance of Capital Stock (other than
Disqualified Stock) of the Company in exchange for Capital Stock, property or
assets of another Person or any redemption or repurchase of the Notes or other
Indebtedness of the Company or any Restricted Subsidiary constitute an
Investment by the Company in such other Person.
"Issue Date" means the original date of issuance of the Notes.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance upon or with respect to any property of any
kind. A Person shall be deemed to own subject to a Lien any property which such
Person has acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title retention
agreement.
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"Market Capitalization" of any Person means, as of any day of determination,
the average Closing Price of such Person's common stock over the 20 consecutive
trading days immediately preceding such day. "Closing Price" on any trading day
with respect to the per share price of any shares of common stock means the last
reported sale price regular way or, in case no such reported sale takes place on
such day, the average of the reported closing bid and asked prices regular way,
in either case on the New York Stock Exchange or, if such shares of common stock
are not listed or admitted to trading on such exchange, on the principal
national securities exchange on which such shares are listed or admitted to
trading or, if not listed or admitted to trading on any national securities
exchange, on The Nasdaq National Market or, if such shares are not listed or
admitted to trading on any national securities exchange or quoted on the Nasdaq
National Market, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange member firm
that is selected from time to time by the Company for that purpose and is
reasonably acceptable to the Trustee.
"Material Restricted Subsidiary" means any Restricted Subsidiary of the
Company, which, at any date of determination, is a "Significant Subsidiary" (as
that term is defined in Regulation S-X issued under the Securities Act).
"maturity" means, with respect to any Note, the date on which any principal
of such Note becomes due and payable as therein or herein provided, whether at
the Stated Maturity with respect to such principal or by declaration of
acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service.
"Net Cash Proceeds" means, (a) with respect to any asset sale, the proceeds
thereof in the form of cash (including assumed liabilities and other items
deemed to be cash under the proviso to the first sentence of the covenant
"Disposition of Proceeds of Asset Sales") or Cash Equivalents including payments
in respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel, accountants, consultants and investment bankers) related to
such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset
Sale, (iii) amounts required to be paid to any Person (other than the Company or
any Restricted Subsidiary) owning a beneficial interest in or having a Lien on
the assets subject to the Asset Sale and (iv) appropriate amounts to be provided
by the Company or any Restricted Subsidiary, as the case may be, as a reserve
required in accordance with GAAP against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the case
may be, after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an officers' certificate delivered to the
Trustee, and (b) with respect to any issuance or sale of Capital Stock or
options, warrants or rights to purchase Capital Stock, or debt securities or
Disqualified Stock that have been converted into or exchanged for Qualified
Capital Stock, as referred to under the "Limitation on Restricted Payments"
covenant, the proceeds of such issuance or sale in the form of cash or Cash
Equivalents, including payments in respect of deferred payment obligations when
received in the form of, or stock or other assets when disposed for, cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary, net of
attorney's fees, accountant's fees and brokerage, consultation, underwriting and
other fees and expenses actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"Permitted Credit Facility" means any senior commercial term loan and/or
revolving credit facility or any letter of credit facility entered into
principally with commercial banks and/or other financial institutions typically
party to commercial loan agreements.
"Permitted Holders" mean (i) John R. Evans, Keith V. Burge and Philip G.
Allen and their spouses, issue or other members of their immediate families (the
"Evans Family," the "Burge Family" and the
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"Allen Family," respectively), (ii) trusts or other entities created for the
benefit of any member of the Evans Family, the Burge Family or the Allen Family,
(iii) entities controlled by any of the Evans Family, the Burge Family or the
Allen Family, and (iv) in the event of the death of any member of the Evans
Family, the Burge Family or the Allen Family, the heirs or testamentary legatees
of such member of the Evans Family, the Burge Family or the Allen Family.
"Permitted Indebtedness" means the following Indebtedness (each of which
shall be given independent effect):
(a) Indebtedness under the Notes and the Indenture;
(b) Indebtedness of the Company and/or any Restricted Subsidiary outstanding
on the Issue Date;
(c) (i) Indebtedness of the Company issued to and held by a Wholly Owned
Restricted Subsidiary and (ii) Indebtedness of a Restricted Subsidiary
issued to and held by the Company or a Wholly Owned Restricted
Subsidiary; PROVIDED, HOWEVER, that (x) any subsequent issuance or
transfer of any Capital Stock that results in any such Wholly Owned
Restricted Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary,
(y) any Designation of such Wholly Owned Restricted Subsidiary as an
Unrestricted Subsidiary or (z) any subsequent transfer of such
Indebtedness (other than to the Company or a Wholly Owned Restricted
Subsidiary) will be deemed, in each case, to constitute the issuance of
such Indebtedness by the Company or such Indebtedness by such Restricted
Subsidiary;
(d) Interest Rate Obligations of the Company and/or any Restricted
Subsidiary relating to Indebtedness of the Company and/or such Restricted
Subsidiary, as the case may be (which Indebtedness (x) bears interest at
fluctuating interest rates and (y) is otherwise permitted to be incurred
under the "Limitation on Additional Indebtedness" covenant), but only to
the extent that the notional principal amount of such Interest Rate
Obligations does not exceed the principal amount of the Indebtedness
(and/or Indebtedness subject to commitments) to which such Interest Rate
Obligations relate;
(e) Indebtedness of the Company and/or any Restricted Subsidiary in respect
of performance bonds of the Company or any Restricted Subsidiary or
surety bonds provided by the Company or any Restricted Subsidiary, in
each case incurred in the ordinary course of business;
(f) Indebtedness of the Company and/or any Restricted Subsidiary to the
extent it represents a replacement, renewal, refinancing or extension (a
"Refinancing") of outstanding Indebtedness of the Company and/or of any
Restricted Subsidiary incurred or outstanding pursuant to clause (b), (g)
or (h) of this definition or the proviso of the covenant "Limitation on
Additional Indebtedness;" PROVIDED that (1) Indebtedness of the Company
may not be Refinanced to such extent under this clause (f) with
Indebtedness of any Restricted Subsidiary and (2) any such Refinancing
shall only be permitted under this clause (f) to the extent that (x) it
does not result in a lower Average Life to Stated Maturity of such
Indebtedness as compared with the Indebtedness being Refinanced, and (y)
it does not exceed the sum of the principal amount (or, if such
Indebtedness provides for a lesser amount to be due and payable upon a
declaration of acceleration thereof, an amount no greater than such
lesser amount) of the Indebtedness being Refinanced plus the amount of
accrued interest thereon and the amount of any reasonably determined
prepayment premium necessary to accomplish such Refinancing and such
reasonable fees and expenses incurred in connection therewith;
(g) Indebtedness of the Company and/or any Restricted Subsidiary incurred
under one or more Permitted Credit Facilities, such that the aggregate
principal amount of the Indebtedness of the Company and the Restricted
Subsidiaries under Permitted Credit Facilities does not exceed the
greater of (i) $50.0 million at any time outstanding and (ii) the
Eligible Working Capital Borrowing Base;
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(h) Indebtedness of the Company not to exceed, at any one time outstanding,
two times (A) the Net Cash Proceeds received by the Company after the
Issue Date as a capital contribution or from the issuance and sale of its
Qualified Capital Stock to a Person that is not a Subsidiary of the
Company, to the extent such Net Cash Proceeds have not been used pursuant
to clause (a)(3)(B) or clauses (b)(ii) and (iii) of the "Limitation on
Restricted Payments" covenant to make a Restricted Payment or for the
redemption, repurchase or other acquisition of Indebtedness and (B) 80%
of the Fair Market Value of property (other than cash and Cash
Equivalents) received by the Company after the Issue Date as a
contribution of capital or from the sale of its Qualified Capital Stock
to a Person that is not a Subsidiary of the Company, to the extent such
capital contribution or sale of Qualified Capital Stock has not been used
pursuant to clause (a) (3) (B) of the "Limitation on Restricted Payments"
covenant to make a Restricted Payment; PROVIDED that such Indebtedness
does not mature prior to the Stated Maturity of the Notes and (y) has an
Average Life to Stated Maturity longer than the Notes;
(i) Purchase Money Indebtedness;
(j) Indebtedness evidenced by letters of credit issued in the ordinary
course of business of the Company and/or any Restricted Subsidiary to
secure workers' compensation and other insurance coverages; and
(k) Indebtedness of the Company and/or any Restricted Subsidiary in addition
to that permitted to be incurred pursuant to clauses (a) through (j)
above in an aggregate principal amount not in excess of $5.0 million
outstanding at any one time.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) Interest
Rate Obligations incurred in compliance with the covenant "Limitation on
Additional Indebtedness;" (d) Investments in the Company or any Wholly Owned
Restricted Subsidiary; (e) Investments made in any Person as a result of which
such Person becomes a Wholly Owned Restricted Subsidiary or is merged into, or
transfers substantially all of its assets to the Company or a Wholly Owned
Restricted Subsidiary; (f) any Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made in compliance with the
covenant "Disposition of Proceeds of Asset Sales;" (g) Investments received as a
part of the settlement of litigation or in satisfaction of extensions of credit
to any Person otherwise permitted under the Indenture pursuant to the
reorganization, bankruptcy or liquidation of such Person or a good faith
settlement of debts with such Person and (h) loans or advances to officers or
employees of the Company or any Restricted Subsidiary made in the ordinary
course of business of the Company or such Restricted Subsidiary to pay business
related travel expenses or reasonable relocation costs of such officers or
employees in connection with their employment by the Company or such Restricted
Subsidiary.
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the Issue Date of the Notes;
(b) Liens on any property or assets of a Subsidiary granted in favor of the
Company or any Restricted Subsidiary;
(c) Liens securing the Notes;
(d) any interest or title of a lessor under any Capitalized Lease
Obligations or of a seller under any Purchase Money Indebtedness
permitted by the Indenture;
(e) Liens securing Indebtedness incurred under clause (g) or (i) of the
definition of "Permitted Indebtedness;"
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(f) statutory Liens or landlord's and carrier's, warehouseman's, mechanic's,
supplier's materialmen's, repairmen's or other like Liens arising in the
ordinary course of business and with respect to amounts not yet
delinquent or being contested in good faith by appropriate proceedings,
if a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made therefor;
(g) Liens for taxes, assessments, government charges or claims that are
being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall
have been made therefor;
(h) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory obligations, surety and appeal bonds, government
contracts, performance bonds and other obligations of a like nature
(including, without limitation, indefeasible rights to use) incurred in
the ordinary course of business (other than contracts for the payment of
money);
(i) easements, servitudes, rights-of-way, restrictions (including, without
limitation, zoning restrictions) and other similar charges or
encumbrances not interfering in any material respect with the business of
the Company or any Subsidiary incurred in the ordinary course of
business;
(j) Liens arising by reason of any judgment, decree or order of any court so
long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have
expired;
(k) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the incurrence of such
Indebtedness by the Company or any Subsidiary; PROVIDED that such Lien
does not extend to any property or assets of the Company or any
Subsidiary other than the assets acquired in connection with the
incurrence of such Acquired Indebtedness;
(l) Liens securing Interest Rate Agreements or Currency Agreements permitted
to be incurred pursuant to clause (e) of the definition of "Permitted
Indebtedness" or any collateral for the Indebtedness to which such
Interest Rate Agreements or Currency Agreements relate;
(m) Liens arising from purchase money mortgages and purchase money security
interests; PROVIDED that the related Indebtedness shall not be secured by
any property or assets of the Company or any Subsidiary other than the
property and assets so acquired;
(n) Liens with respect to assets of a Restricted Subsidiary granted by such
Restricted Subsidiary to the Company or a Restricted Subsidiary to secure
Indebtedness owing to the Company or such Restricted Subsidiary;
(o) pledges and deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of statutory obligations;
(p) Liens with respect to the assets of any entity which becomes the
successor to the Company as provided under "--Consolidation Merger, Sale
of Assets, Etc."; and
(q) any extension, renewal or replacement, in whole or in part, of any Lien
described in the foregoing clauses (a) through (p); PROVIDED that any
such extension, renewal or replacement shall be no more restrictive in
any material respect than the Lien so extended, renewed or replaced and
shall not extend to any additional property or assets.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
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"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding, or issued after
the Issue Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiaries incurred for the purpose of financing all or any part of
the cost of, the construction, expansion, installation, acquisition or
improvement by the Company or any Restricted Subsidiary of the Company of any
Telecommunications Assets or not less than 66 2/3 percent of the outstanding
Voting Stock of a Person that becomes a Restricted Subsidiary the assets of
which consist primarily of Telecommunications Assets; PROVIDED, that the Net
Cash Proceeds from the issuance of such Indebtedness (or the amount of such
Indebtedness constituting Capitalized Lease Obligations) does not exceed, as of
the date of incurrence of such Indebtedness, 100 percent of the lesser of cost
or Fair Market Value of such Telecommunication Assets.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Disqualified Stock.
"Refinancing" has the meaning set forth in clause (f) of the definition of
"Permitted Indebtedness."
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board, by a Board Resolution delivered to the Trustee, as
an Unrestricted Subsidiary pursuant to and in compliance with the covenant
"Designations of Unrestricted Subsidiaries." Any such Designation may be revoked
by a Board Resolution delivered to the Trustee, subject to the provisions of
such covenant.
"Restricted Subsidiary Indebtedness" means Indebtedness of any Restricted
Subsidiary (i) which is not subordinated to any other Indebtedness of such
Restricted Subsidiary and (ii) in respect of which the Company is not also
obligated (by means of a guarantee or otherwise) other than, in the case of this
clause (ii), Indebtedness under any Permitted Credit Facilities.
"Revocation" has the meaning set forth under the covenant "Designations of
Unrestricted Subsidiaries."
"S&P" means Standard & Poor's Corporation.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Strategic Equity Investor" means any Person engaged principally in one or
more Telecommunications Businesses with a Market Capitalization or Consolidated
Net Worth of at least $1.0 billion.
"Subordinated Indebtedness" means any Indebtedness of the Company or any
Restricted Subsidiary which is expressly subordinated in right of payment to the
Notes.
"Subsidiary" means, with respect to any Person, (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors shall at the time be owned, directly or
indirectly, by such Person, or (ii) any other Person of which at least a
majority of voting interest is at the time, directly or indirectly, owned by
such Person.
"Telecommunications Assets" means, with respect to any Person, all assets,
rights (contractual or otherwise) and properties, whether tangible or
intangible, used or intended for use in connection with a Telecommunications
Business.
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"Telecommunications Business" means the business of (i) transmitting, or
providing services relating to the transmission of voice, video or data through
customer or company owned or leased transmission facilities, including without
limitation frame relay, ATM, Internet access, cellular services, paging
services, voice messaging services, local and long distance services, (ii)
constructing, planning, designing, creating, installing, managing, consulting
with respect to developing, leasing, financing, selling or marketing data and
voice equipment, computer hardware and software, networking hardware and
software and other similar devices including without limitation servers,
routors, data switches, personal computers, key systems and handsets, and (iii)
consulting on advisory services relating to either of (i) or (ii), including
without limitation services relating to the design, implementation and
maintenance of web applications, web hosting and Internet access or (iv)
evaluating, participating or pursuing any other activity or opportunity that is
primarily related to those identified in (i), (ii) or (iii) above; PROVIDED that
the determination of what constitutes a Telecommunications Business shall be
made in good faith by the Board.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant "Designations of
Unrestricted Subsidiaries." Any such designation may be revoked by a Board
Resolution delivered to the Trustee, subject to the provisions of such covenant.
"US Designation Amount" has the meaning set forth under the covenant
"Designations of Unrestricted Subsidiaries."
"U.S. Government Securities" means direct obligations of the United States
of America, or obligations guaranteed by the United States of America, for the
payment of which obligations or guarantee its full faith and credit is pledged.
"Voting Stock" means, with respect to any Person, the Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors
or other members of the governing body of such Person.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary in
which all of the outstanding Capital Stock is owned by the Company or another
Wholly Owned Restricted Subsidiary. For the purposes of this definition, any
directors' qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of a Restricted
Subsidiary.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth under "--Certificated Notes," the New Notes will be
issued in the form of one Global New Note. Ownership of beneficial interest in a
Global New Note will be limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants. Ownership
of beneficial interests in a Global New Note will be shown on, and the transfer
of that ownership will be effected only through, records maintained by DTC or
its nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of a
Global New Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the related New Notes represented by such Global New
Note for all purposes under the Indenture and the New Notes. No beneficial owner
of an interest in a Global New Note will be able to transfer that interest
except in accordance with applicable procedures of DTC, in addition to those
provided for under the Indenture.
Payments of the principal of, and interest on, New Notes represented by the
Global New Note registered in the name of and held by the Depository or its
nominee will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of the Company, the Trustee or any Paying Agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
New Note or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
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The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of the Global New Note will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global New Note
as shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in the Global New
Note held through such participants will be governed by standing instructions
and customary practices, as is now the case with securities held for the
accounts of customers registered in the names of nominees for such customers.
Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear and Cedel Bank will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
If a holder requires physical delivery of a certificated Note for any reason,
such holder must transfer its interest in the Global New Note in accordance with
the procedures described under "Notice to Investors," as well as DTC's
applicable procedures and, if applicable, those of Euroclear and Cedel Bank.
The Company expects that DTC will take any action permitted to be taken by a
holder of New Notes (including the presentation of New Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in the Global New Note is credited and only in respect
of such portion of the aggregate principal amount of New Notes, as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the New Notes, DTC will exchange the applicable
Global New Note for certificated New Notes, which it will distribute to its
participants and which may be legended as set forth under "Notice to Investors."
The Company understands that: DTC is a limited-purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC, Euroclear and Cedel Bank are expected to follow the foregoing
procedures in order to facilitate transfers of interests in the Global New Note
among participants of DTC, Euroclear and Cedel Bank, they are under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the Trustee
will have any responsibility for the performance by DTC, Euroclear or Cedel Bank
or their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for
the Global New Note and a successor depositary is not appointed by the Company
within 90 days, the Company will issue certificated New Notes in exchange for
the Global New Notes. Holders of an interest in the Global New Note may receive
a certificated New Note in accordance with DTC's rules and procedures in
addition to those provided for under the Indenture.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Gibson, Dunn & Crutcher LLP, the following discussion sets
forth the material United States federal income tax considerations relevant to
the exchange of Old Notes for New Notes pursuant to the Exchange Offer and the
ownership and disposition of the New Notes by holders who acquire the New Notes
pursuant to the Exchange Offer. The discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
regulations, Internal Revenue Service ("IRS") rulings and pronouncements and
judicial and administrative determinations, all in effect as of the date hereof,
and all of which are subject to change at any time, possibly on a retroactive
basis in a manner which could adversely affect a holder of the New Notes. The
discussion does not address state, local or foreign tax consequences, nor does
it address all of the federal income tax consequences that might be relevant to
a holder in light of such holder's particular circumstances or to holders
subject to special rules, such as certain financial institutions, insurance
companies, dealers in securities, tax-exempt organizations, and persons who hold
the New Notes as part of a "straddle," "hedge," "conversion transaction," or
other risk reduction transaction. This discussion is limited to persons
purchasing the Old Notes for cash at original issue. Moreover, the discussion
deals only with New Notes held as "capital assets" within the meaning of section
1221 of the Code. No rulings have been or will be sought from the IRS with
respect to any of the positions of the Company discussed below.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL TAXATION
THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO EXCHANGE OLD NOTES FOR NEW
NOTES. EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR CONCERNING THE
APPLICATION OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS TO ITS PARTICULAR
SITUATION BEFORE DETERMINING WHETHER TO PARTICIPATE IN THE EXCHANGE OFFER.
TAXATION OF U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of New Notes that is (i) a citizen or resident
of the United States, (ii) a corporation or partnership created or organized
under the laws of the United States or any political subdivision thereof or
therein, (iii) an estate or trust described in section 7701(a)(30) of the Code
or (iv) a person whose worldwide income or gain is otherwise subject to U.S.
federal income taxation on a net income basis (a "U.S. Holder"). Certain U.S.
federal income tax consequences relevant to a holder other than a U.S. Holder
are discussed separately below.
THE EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not be treated as an exchange or other taxable event for U.S. federal income tax
purposes. As a result, there will be no U.S. Federal income tax consequences for
holders regardless of whether such holders participate in the Exchange Offer,
and each holder will continue to be required to include stated interest and
original issue discount ("OID") in its gross income as discussed below, and will
continue to have the same adjusted issue price, adjusted basis and holding
period in its Notes as it had immediately before the exchange.
THE NOTES
STATED INTEREST. Notwithstanding the fact that the Old Notes were
considered to be issued with OID as discussed below, holders of the Notes will
be required to include stated interest on the Notes in gross income in
accordance with their respective methods of accounting for U.S. federal income
tax purposes.
ORIGINAL ISSUE DISCOUNT ON THE NOTES. Since the Old Notes were issued as
part of an investment unit, the Notes are considered to be issued with OID in an
amount equal to the portion of the issue price of a Unit that was allocable to
the Warrants. Each holder (regardless of its accounting method) must generally
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include in gross income a portion of the OID in each taxable year during which
the Note is held in accordance with the OID rules described below.
A holder of a Note must include in gross income for federal income tax
purposes the sum of the daily portions of the OID with respect to the Note for
each day during the taxable year or portion of a taxable year on which such
holder holds the Note. The daily portion is determined by allocating to each day
of each accrual period a pro rata portion of an amount equal to the adjusted
issue price of the Note at the beginning of the accrual period multiplied by the
yield to maturity (generally, the discount rate that, when used in computing the
present value of all principal and stated interest payments to be made on the
Note, produces an amount equal to its issue price) of the Note (determined by
compounding at the close of each accrual period and adjusted for the length of
the accrual period). The adjusted issue price of a Note at the start of any
accrual period will be the issue price of the Note increased by the accrued OID
for each prior accrual period. Under these rules, holders will have to include
in gross income increasingly greater amounts of OID in each successive accrual
period. A holder's original tax basis for determining gain or loss on the sale
or other disposition of a Note will be increased by any accrued OID includible
in such Holder's gross income.
There are several circumstances under which the Company could make a payment
on a Note which would affect the yield to maturity of a Note, including (as
described under "Description of Notes") the payment of additional interest due
to the failure to effect the Exchange Offer, or the redemption or repurchase of
Notes. According to Treasury Regulations, the possibility of a change in the
yield will not be treated as affecting the amount of OID required to be realized
by a holder (or the timing of such recognition) if the likelihood of the change,
as of the date the debt obligations were issued, is remote. The Company intends
to report on the basis that the likelihood of any change in the yield on the
Notes is remote. The Company also intends to report on the basis that there is
no alternative payment schedule that would minimize the yield on the Notes to
the Company.
The Company will report annually to the IRS and to record holders of the
Notes information with respect to OID accruing during the calendar year.
Information regarding OID accruals will be based on the adjusted issue price of
a Note determined as if the record holder were the original holder of the Note.
SALE OR RETIREMENT OF A NOTE. In general, a U.S. Holder of a Note will
recognize gain or loss upon the sale, retirement, redemption or other taxable
disposition of such Note in an amount equal to the difference between (a) the
amount of cash and the fair market value of other property received in exchange
therefor (other than amounts attributable to accrued but unpaid interest not
previously included in income, which amounts will be taxable as ordinary income)
and (b) the holder's adjusted tax basis in such Note. A holder's tax basis in a
Note generally will be equal to the price paid for such Note, increased by the
amount of OID includible in gross income prior to the date of disposition, and
decreased by the amount of any payment (other than "qualified stated interest")
on such Note prior to disposition.
Any gain or loss recognized on the sale, retirement, redemption or other
taxable disposition of a Note generally will be capital gain or loss. Such
capital gain or loss generally will be long-term capital gain or loss if the
Note has been held by the holder for more than one year and otherwise will be a
short-term capital gain or loss. The maximum rate of tax on long-term capital
gains on most capital assets held by an individual for more than 18 months is
20%, and gain on most capital assets held by an individual for more than one
year and up to 18 months is subject to tax at a maximum rate of tax of 28%.
Holders are urged to consult their tax advisors with respect to these capital
gains rates.
TAXATION OF NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a Note that is not a U.S. Holder (a
"Non-U.S. Holder").
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INTEREST AND OID ON THE NOTES. Subject to the discussion of backup
withholding below, payments of interest (including OID) on a Note to any
Non-U.S. Holder will generally not be subject to U.S. federal income or
withholding tax, provided that (1) the holder is not (i) a direct or indirect
owner of 10% or more of the total voting power of all voting stock of the
Company, (ii) a controlled foreign corporation related to the Company through
stock ownership or (iii) a foreign tax-exempt organization or a foreign private
foundation for U.S. federal income tax purposes, (2) such interest payments are
not effectively connected with the conduct by the Non-U.S. Holder of a trade or
business within the United States and (3) the Company or its paying agent
receives (i) from the Non-U.S. Holder, a properly completed Form W-8 (or
substitute Form W-8, or any successor form) under penalties of perjury which
provides the Non-U.S. Holder's name and address and certifies that the Non-U.S.
Holder of the Note is not a U.S. Holder or (ii) from a security clearing
organization, bank or other financial institution that holds the Senior Notes in
the ordinary course of its trade or business (a "financial institution") on
behalf of the Non-U.S. Holder, certification under penalties of perjury that
such a Form W-8 (or substitute Form W-8, or any successor form) has been
received by it, or by another such financial institution, from the Non-U.S.
Holder, and a copy of the Form W-8 (or substitute Form W-8, or any successor
form) is furnished to the payor.
A Non-U.S. Holder that does not qualify for exemption from withholding under
the preceding paragraph generally will be subject to withholding of U.S. federal
income tax at the rate of 30% (or lower applicable treaty rate) on payments of
interest (including OID) on the Notes.
If the payments of interest (including OID) on a Note are effectively
connected with the conduct by a Non-U.S. Holder of a trade of business in the
United States, such payments will be subject to U.S. federal income tax on a net
basis at the rates applicable to United States persons generally (and, with
respect to corporate holders, may also be subject to a 30% branch profits tax).
If payments are subject to U.S. federal income tax on a net basis in accordance
with the rules described in the preceding sentence, such payments will not be
subject to United States withholding tax so long as the holder provides the
Company or its paying agent with a properly executed Form 4224 (or any successor
form).
Non-U.S. Holders should consult any applicable income tax treaties, which
may provide for a lower rate of withholding tax, exemption from or reduction of
branch profits tax, or other rules different from those described above.
DISPOSITION OF NOTES. Subject to the discussion concerning backup
withholding below, any gain realized by a Non-U.S. Holder on the sale, exchange,
retirement or other disposition of a Note generally will not be subject to U.S.
federal income tax, unless (i) such gain is effectively connected with the
conduct by such Non-U.S. Holder of a trade or business within the United States,
(ii) the 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 satisfied or (iii) the Non-U.S. Holder is subject to tax pursuant
to the provisions of U.S. tax law applicable to certain U.S. expatriates.
FEDERAL ESTATE TAX Notes held (or treated as held) by an individual who is
a Non-U.S. Holder at the time of his or her death will not be subject to U.S.
federal estate tax provided that (i) the individual does not actually or
constructively own 10% or more of the total voting power of all voting stock of
the Company and (ii) income on the Notes was not effectively connected with the
conduct by such Non-U.S. Holder of a trade or business within the United States.
BACKUP WITHHOLDING
U.S. HOLDERS. A holder of a Note may be subject to backup withholding at a
rate of 31% with respect to interest and OID on, and gross proceeds upon sale or
retirement of, a Note unless such holder (i) is a corporation or other exempt
recipient and, when required, demonstrates that fact, or (ii) provides a correct
taxpayer identification number, certifies under penalty of perjury, when
required, that the taxpayer identification number provided is the holder's
correct number and that such holder is not subject to backup withholding, and
otherwise complies with applicable requirements of the backup withholding rules.
Backup
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withholding is not an additional tax; any amounts so withheld are creditable
against the holder's federal income tax, provided the required information is
provided to the IRS. Holders of the Notes should consult their tax advisors as
to their qualification for exemption from backup withholding and the procedure
for obtaining such an exemption.
NON-U.S. HOLDERS. The Company must report annually to the IRS and to each
Non-U.S. Holder the amount of any dividends paid to, and the tax withheld with
respect to, such holder, regardless of whether any tax was actually withheld.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities of the
country in which the Non-U.S. Holder resides.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments of principal (including cash payments in
respect of OID) on the Notes by the Company or any agent thereof to a Non-U.S.
Holder if the Non-U.S. Holder certifies as to its Non-U.S. Holder status under
penalties of perjury or otherwise establishes an exemption (provided that
neither the Company nor its agent has actual knowledge that the holder is a U.S.
person or that the conditions of any other exemptions are not in fact
satisfied). The payment of the proceeds on the disposition of Notes to or
through the United States office of a United States or foreign broker will be
subject to information reporting and backup withholding unless the owner
provides the certification described above or otherwise establishes an
exemption. The proceeds of the disposition by a Non-U.S. Holder of Notes to or
through a foreign office of a broker will not be subject to backup withholding
or information reporting. However, if such broker is a U.S. person, a
"controlled foreign corporation" for U.S. federal income tax purposes, or a
foreign person, 50% or more of whose gross income from all sources for certain
periods is from activities that are effectively connected with a U.S. trade or
business, information reporting requirements will apply unless such broker has
documentary evidence in its files of the holder's non-U.S. status and has no
actual knowledge to the contrary, or unless the holder otherwise establishes an
exemption. Recently finalized Treasury Regulations would modify the application
of information reporting requirements and the backup withholding tax to Non-U.S.
Holders generally effective for payments made on or after January 1, 1999. Among
other things, such Treasury Regulations may require Non-U.S. Holders to furnish
new certification of their non-U.S. status after December 31, 1998. Prospective
investors should consult their tax advisors concerning the applicability and
effect of such Treasury Regulations on an investment in Notes.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes 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 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 such date, all dealers effecting
transactions in the New Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sales of New Notes by
broker-dealers or others. New 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 New 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 New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit from any such resale of New Notes and any
commissions 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 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.
LEGAL MATTERS
The validity of the New Notes will be passed upon for the Company by Gibson,
Dunn and Crutcher LLP, Denver, Colorado.
EXPERTS
The consolidated balance sheets of Convergent Communications, Inc., as of
December 31, 1996 and 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year ended December 31,
1995, the period from January 1, 1996 to December 16, 1996, the period from
inception (March 1, 1996) through December 31, 1996 and the year ended December
31, 1997, included in this Registration Statement, have been included herein in
reliance on the report of Coopers & Lybrand, L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The balance sheets of Communications Services of Iowa, Inc. as of March 31,
1997 and December 31, 1996 and the related statements of operations,
stockholder's equity and cash flows for the three months ended March 31, 1997
and the year ended December 31, 1996, included in this Registration Statement,
have been included herein in reliance on the report of Coopers & Lybrand,
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
The balance sheet of A.T.T.ex Corporation as of August 31, 1997 and the
related statements of operations, stockholder's equity and cash flows for the
eight months ended August 31, 1997, included in
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this Registration Statement, have been included herein in reliance on the report
of Coopers & Lybrand, L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The balance sheets of Vital Integration Solutions, Inc. as of August 31,
1997 and December 31, 1996 and 1995 and the related statements of operations,
stockholders' equity and cash flows for the eight months ended August 31, 1997
and the years ended December 31, 1996 and 1995, included in this Registration
Statement, have been included herein in reliance on the report of Coopers &
Lybrand, L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The balance sheets of Telephone Communications Corporation as of January 31,
1998 and December 31, 1997 and the related statements of operations,
stockholder's equity (deficit) and cash flows for the one month ended January
31, 1998 and the year ended December 31, 1997, included in this Registration
Statement, have been included herein in reliance on the report of Coopers &
Lybrand, L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The balance sheets of Communications Services of Colorado, Inc. as of March
31, 1998 and December 31, 1997 and 1996 and the related statements of
operations, stockholder's equity (deficit) and cash flows for the three months
ended March 31, 1998 and the years ended December 31, 1997, 1996 and 1995,
included in this Registration Statement, have been included herein in reliance
on the report of Coopers & Lybrand, L.L.P., independent accountants, given on
the authority of that firm as experts in accounting and auditing.
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GLOSSARY
ACCESS CHARGES--The charges paid by long distance carriers to the local
telephone companies for accessing the local networks of the local telephone
companies to originate and terminate long distance calls.
ATM--Asynchronous Transfer Mode. Very high-speed telecommunications
transmission technology. ATM is a high bandwidth, low-delay packet-like
switching and multiplexing technique. Usable capacity is segmented into
fixed-size cells, consisting of header and information fields, allocated to
services on demand. The Consultative Committee on International Telegraphy and
Telephony has selected ATM as the basis for the future broadband network in view
of its flexibility and suitability for both transmission and switching.
BANDWIDTH--The relative range of frequencies that can be passed through a
medium, such as glass fibers, without distortion. The greater the bandwidth, the
greater the information-carrying capacity of such medium, and references to
"bandwidth" are usually intended to refer to the capacity of the
telecommunication-carrying medium. For fiber-optic transmission, electronic
transmitting devices determine the bandwidth, not the fibers themselves.
CARRIERS--Companies that provide telecommunications transmission services.
CENTRAL OFFICES--The switching centers or central switching facilities of
the local telephone companies.
CLEC--Competitive Local Exchange Company. A carrier other than the incumbent
local exchange provider capable of providing end users with basic local
telephone service.
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 and switching
technologies employ a sequence of these pulses to convey information, as opposed
to the continuously variable analog signal. The precise digital numbers preclude
any distortion (such as graininess or "snow", in the case of video transmission,
or static or other background distortion in the case of audio transmission).
FCC--Federal Communications Commission. Under the Communications Act of
1934, as amended, the FCC exercises jurisdiction over all facilities and
services of telecommunications common carriers to the extent those facilities
are used to provide, originate or terminate interstate or international
communications.
ILEC--Incumbent Local Exchange Carrier. The RBOCs and GTE.
IXC--Interchange Carrier. Usually referred to as long-distance service
providers.
LAN--Local Area Network. The interconnection of computers in one building
for the purpose of sharing files, programs and printers. LANs may include
dedicated computer or file servers that provide a centralized source of shared
files and programs.
LATA--Local Access and Transport Areas. The approximately 200 geographic
areas defined pursuant to the Consent Decree between which the RBOCs are
generally prohibited from providing long distance service.
LEC--Local Exchange Carrier. A company providing local telephone services,
which, until the 1996 Act, were provided by a monopoly public utility. Each
Regional Bell Operating Company which provides local telephone services is a
local exchange carrier. There are approximately 1,000 other independent local
exchange carriers in the U.S.
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LOCAL EXCHANGE--A geographic area determined by the appropriate state
regulatory authority in which calls generally are transmitted without toll
charges to the calling or called party by the LEC.
LONG DISTANCE CARRIER--A long-distance carrier providing services between
local exchanges on an intrastate or interstate basis, also referred to in the
industry as an "interexchange carrier". A long distance carrier may also be a
long distance resale company.
NETWORK--An integrated system composed of switching equipment and
transmission facilities designed to provide for the direction, transport and
recording of telecommunications traffic.
PBX--Private Branch Exchange. A privately-owned and operated switching
system, generally limited to serving the premises of a single customer. The PBX
switch calls between the stations it serves and acts as an interface between
those stations and the public switched network.
POP--Points of Presence. Locations where a long distance carrier has
installed transmission equipment in a service area that serves as, or relays
calls to, a network switching center of that long distance carrier.
PUBLIC SWITCHED NETWORK--Refers to that portion of the local telephone
company's network available to all users generally on a shared basis (i.e., not
dedicated to a particular user). Traffic along the public switched network is
switched at the local telephone company's central office.
PUC--A state regulatory body empowered to establish and enforce rules and
regulations governing public utility companies and others such as the Company in
many of its state jurisdictions.
RBOC--Regional Bell Operating Company. Any of seven regional Bell holding
companies established under the AT&T Divestiture Decree to serve as parent
companies for the Bell Operating Companies.
RESELLERS--Generally used to refer to a telecommunications provider who does
not own any switching or transmission facilities. In reality, a large number of
providers furnish services through a combination of owned and resold facilities.
SONET--Synchronous Optical Network Technology. A technology and network
architecture that enables signals to be transported simultaneously along two
different paths so that if one pathway is cut, traffic can continue in the other
direction without interruption to its destination. This is also referred to as
"diverse routing."
SWITCH--A device that opens or closes circuits or selects the paths or
circuits to be used for transmission of information. Switching is the process of
interconnecting circuits to form a transmission path between users.
SWITCHING EQUIPMENT--A computer that directs telecommunications traffic in
accordance with programmed instructions.
TARIFF--The schedule of rates and regulation set by communications common
carriers and filed with the appropriate Federal and State regulatory agencies;
also the published official list of charges, terms and conditions governing
provision of a specific communications service or facility, which functions in
lieu of a contract between the user and the supplier of a carrier.
WAN--Wide Area Network. A network of computers involving large distances,
generally intercity or interstate.
A-2
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONVERGENT COMMUNICATIONS, INC.
Report of Independent Accountants.................................................... F-3
Consolidated Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998...... F-4
Consolidated Statements of Operations for the year ended December 31, 1995, the
period from January 1, 1996 to December 16, 1996, the period from inception (March
1, 1996) to December 31, 1996, the year ended December 31, 1997 and the three
months ended March 31, 1997 and 1998............................................... F-5
Consolidated Statements of Shareholders' Equity for the year ended December 31, 1995,
the period from January 1, 1996 to December 16, 1996, the period from inception
(March 1, 1996) to December 31, 1996, the year ended December 31, 1997 and the
three months ended March 31, 1998.................................................. F-6
Consolidated Statements of Cash Flows for the year ended December 31, 1995, the
period from January 1, 1996 to December 16, 1996, the period from inception (March
1, 1996) to December 31, 1996, the year ended December 31, 1997 and the three
months ended March 31, 1997 and 1998............................................... F-7
Notes to Consolidated Financial Statements........................................... F-9
PRO FORMA COMBINED FINANCIAL STATEMENTS
Pro Forma Combined Financial Statements.............................................. F-25
Pro Forma Combining Balance Sheets as of March 31, 1998.............................. F-26
Pro Forma Combining Statement of Operations for the year ended December 31, 1997..... F-27
Pro Forma Combining Statement of Operations for the three months ended March 31,
1998............................................................................... F-28
Notes to Pro Forma Combining Financial Statements.................................... F-29
COMMUNICATIONS SERVICES OF IOWA, INC.
Report of Independent Accountants.................................................... F-31
Balance Sheets as of March 31, 1997 and December 31, 1996............................ F-32
Statements of Operations for the three months ended March 31, 1997 and the year ended
December 31, 1996.................................................................. F-33
Statements of Stockholder's Equity for the three months ended March 31, 1997 and the
year ended December 31, 1996....................................................... F-34
Statements of Cash Flows for the three months ended March 31, 1997 and the year ended
December 31, 1996.................................................................. F-35
Notes to Financial Statements........................................................ F-36
A.T.T.EX CORPORATION
Report of Independent Accountants.................................................... F-41
Balance Sheet as of August 31, 1997.................................................. F-42
Statement of Operations for the eight months ended August 31, 1997................... F-43
Statement of Stockholder's Equity for the eight months ended August 31, 1997......... F-44
Statement of Cash Flows for the eight months ended August 31, 1997................... F-45
Notes to Financial Statements........................................................ F-46
VITAL INTEGRATION SOLUTIONS, INC.
Report of Independent Accountants.................................................... F-52
Balance Sheets as of August 31, 1997 and December 31, 1996 and 1995.................. F-53
Statements of Operations for the eight months ended August 31, 1997 and the years
ended December 31, 1996 and 1995................................................... F-54
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Statements of Stockholders' Equity for the eight months ended August 31, 1997 and the
years ended December 31, 1996 and 1995............................................. F-55
Statements of Cash Flows for the eight months ended August 31, 1997 and the years
ended December 31, 1996 and 1995................................................... F-56
Notes to Financial Statements........................................................ F-57
TELEPHONE COMMUNICATIONS CORPORATION
Report of Independent Accountants.................................................... F-62
Balance Sheets as of January 31, 1998 and December 31, 1997.......................... F-63
Statements of Operations for the one month ended January 31, 1998 and the year ended
December 31, 1997.................................................................. F-64
Statements of Stockholder's Equity (Deficit) for the one month ended January 31, 1998
and the year ended December 31, 1997............................................... F-65
Statements of Cash Flows for the one month ended January 31, 1998 and the year ended
December 31, 1997.................................................................. F-66
Notes to Financial Statements........................................................ F-67
COMMUNICATIONS SERVICES OF COLORADO, INC.
Report of Independent Accountants.................................................... F-71
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996................... F-72
Statements of Operations for the three months ended March 31, 1998 and the years
ended December 31, 1997, 1996 and 1995............................................. F-73
Statements of Stockholder's Equity (Deficit) for the three months ended March 31,
1998 and the years ended December 31, 1997, 1996 and 1995.......................... F-74
Statements of Cash Flows for the three months ended March 31, 1998 and the years
ended December 31, 1997, 1996 and 1995............................................. F-75
Notes to Financial Statements........................................................ F-76
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Convergent Communications, Inc.:
We have audited the accompanying consolidated balance sheets of Convergent
Communications, Inc. (as defined in Note 1) as of December 31, 1996 and 1997 and
the related consolidated statements of operations, shareholders' equity and cash
flows for the year ended December 31, 1995, the period from January 1, 1996 to
December 16, 1996, the period from inception (March 1, 1996) to December 31,
1996 and the year ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As explained in Note 1 to the financial statements, the Successor Company
purchased all of the net assets of the Predecessor Company as of December 17,
1996. The transaction was accounted for as a purchase whereby the purchase price
was allocated to the assets and liabilities of the Predecessor based upon their
estimated fair values as of December 17, 1996. Accordingly, the financial
statements of the Successor Company are not comparable to those of the
Predecessor Company.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Convergent Communications, Inc. (as defined in Note 1) as of December 31, 1996
and 1997 and the consolidated results of its operations and cash flows for the
year ended December 31, 1995, the period from January 1, 1996 to December 16,
1996, the period from inception (March 1, 1996) to December 31, 1996 and the
year ended December 31, 1997 in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Denver, Colorado
March 4, 1998
F-3
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997 MARCH 31, 1998
------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 3,161,387 $ 667,344 $ 412,817
Short-term investment........................................... -- 7,371,303 2,502,484
Trade accounts receivable, net of allowance for doubtful
accounts of $15,827, $21,389 and $49,740, respectively........ 147,905 2,075,150 4,596,997
Prepaid expenses and other current assets....................... 58,959 449,158 764,408
------------- -------------- --------------
Total current assets.......................................... 3,368,251 10,562,955 8,276,706
Property and equipment............................................ 1,933,509 5,448,183 8,189,511
Less accumulated depreciation................................... (10,060) (610,386) (1,054,036)
------------- -------------- --------------
Total property and equipment.................................. 1,923,449 4,837,797 7,135,475
Restricted cash................................................... -- 405,816 409,298
Goodwill, net of amortization of $12,090, $475,052 and $649,886,
respectively.................................................. 3,200,517 6,392,600 8,044,051
Other intangible assets, net of amortization of $18,548,
$358,486, and $502,805, respectively.......................... 1,354,414 1,328,676 1,786,923
Investments and other assets...................................... 40,000 1,394,325 1,009,004
------------- -------------- --------------
Total assets.................................................. $ 9,886,631 $ 24,922,169 $ 26,661,457
------------- -------------- --------------
------------- -------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.......................................... $ 131,535 $ 2,040,457 $ 4,543,262
Accrued compensation............................................ -- 1,467,587 2,267,188
Other accrued liabilities....................................... 314,262 753,326 2,379,668
Current portion of notes payable and capital leases............. 1,032,724 967,358 1,909,678
------------- -------------- --------------
Total current liabilities..................................... 1,478,521 5,228,728 11,099,796
Non-current portion of notes payable and capital leases........... 423,020 965,711 1,251,371
Commitments (Note 7)..............................................
Shareholders' equity:
Preferred stock, 1 million shares authorized, none issued....... -- -- --
Common stock, no par value, 50 million shares authorized,
15,739,525, 26,859,000 and 27,152,148 issued and outstanding,
respectively.................................................. 8,166,948 24,941,521 25,549,757
Warrants........................................................ 152,000 3,996,460 3,996,460
Accumulated other comprehensive income.......................... -- (16,864) 40,826
Unearned compensation........................................... -- (204,750) (177,450)
Accumulated deficit............................................. (333,858) (9,988,637) (15,099,303)
------------- -------------- --------------
Total shareholders' equity.................................... 7,985,090 18,727,730 14,310,290
------------- -------------- --------------
Total liabilities and shareholders' equity.................... $ 9,886,631 $ 24,922,169 $ 26,661,457
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE PERIOD FOR THE PERIOD FOR THE YEAR FOR THE
ENDED DECEMBER FROM JANUARY 1, FROM INCEPTION ENDED THREE MONTHS ENDED
31, 1995 1996 THROUGH DECEMBER 31, 1997 ----------------------
----------------- THROUGH DECEMBER 31, 1996 ----------------- MARCH 31, MARCH 31,
DECEMBER 16, 1996 ----------------- 1997 1998
(PREDECESSOR) ----------------- (SUCCESSOR) ---------- ----------
(SUCCESSOR)
(PREDECESSOR) (SUCCESSOR) (SUCCESSOR)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Data and voice product
revenue.............. $ -- $ -- $ -- $ 7,415,247 $ 233,568 $4,715,792
Data and voice service
revenue.............. 1,434,167 1,495,977 97,741 2,794,777 364,780 1,807,073
----------------- ----------------- ----------------- ----------------- ---------- ----------
Total revenue...... 1,434,167 1,495,977 97,741 10,210,024 598,348 6,522,865
Cost of data and voice
products............. -- -- -- 6,090,243 121,033 3,882,456
Cost of data and voice
services............. 964,277 1,018,494 79,459 1,278,266 257,343 915,568
Selling, general and
administrative....... 404,373 554,109 310,558 10,982,769 1,187,564 6,061,845
Depreciation and
amortization......... 127,261 124,086 40,698 1,453,019 223,260 762,439
----------------- ----------------- ----------------- ----------------- ---------- ----------
Total Operating
Expenses......... 1,495,911 1,696,689 430,715 19,804,297 1,789,200 11,622,308
Operating Loss......... (61,744) (200,712) (332,974) (9,594,273) (1,190,852) (5,099,443)
Interest (expense)
income and other..... (17,457) (20,588) (884) (60,506) 105,473 (11,223)
----------------- ----------------- ----------------- ----------------- ---------- ----------
Net loss............... $ (79,201) $ (221,300) $ (333,858) $ (9,654,779) (1,085,379) (5,110,666)
Other comprehensive
income, unrealized
holdings gains on
securities........... -- -- -- -- -- 57,690
----------------- ----------------- ----------------- ----------------- ---------- ----------
Comprehensive loss..... $ (79,201) $ (221,300) $ (333,858) $ (9,654,779) $(1,085,379) $(5,052,976)
----------------- ----------------- ----------------- ----------------- ---------- ----------
----------------- ----------------- ----------------- ----------------- ---------- ----------
Net loss per share
(basic).............. -- -- $ (0.04) $ (0.46) $ (0.07) $ (0.22)
----------------- ----------------- ----------------- ----------------- ---------- ----------
----------------- ----------------- ----------------- ----------------- ---------- ----------
Weighted average shares
outstanding
(basic).............. -- -- 7,774,651 20,921,569 16,375,270 22,992,368
----------------- ----------------- ----------------- ----------------- ---------- ----------
----------------- ----------------- ----------------- ----------------- ---------- ----------
Net loss per share
(diluted)............ -- -- $ (0.04) $ (0.46) $ (0.07) $ (0.22)
----------------- ----------------- ----------------- ----------------- ---------- ----------
----------------- ----------------- ----------------- ----------------- ---------- ----------
Weighted average shares
outstanding
(diluted)............ -- -- 7,774,651 20,921,569 16,375,270 22,992,368
----------------- ----------------- ----------------- ----------------- ---------- ----------
----------------- ----------------- ----------------- ----------------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
PREDECESSOR:
Member's equity, January 1, 1995............................................... $ 341,569
Receivable from member......................................................... (45,535)
Net loss allocated to members.................................................. (79,201)
---------
Balance, December 31, 1995..................................................... 216,833
Net loss allocated to members.................................................. (221,300)
Contributions from members..................................................... 214,128
---------
Balance, December 16, 1996..................................................... $ 209,661
---------
---------
</TABLE>
SUCCESSOR:
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON COMMON UNEARNED COMPREHENSIVE ACCUMULATED
SHARES STOCK WARRANTS COMPENSATION INCOME DEFICIT TOTAL
--------- ---------- --------- ------------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 1, 1996.......... -- $ -- $ -- $ -- $ -- $ -- $ --
Initial sale of stock to
founders...................... 7,500,000 450,000 -- -- -- -- 450,000
Sale of stock in private
placement..................... 4,739,525 4,587,525 152,000 -- -- -- 4,739,525
Offering costs.................. -- (411,310) -- -- -- -- (411,310)
Stock issued in acquisition of
ICN........................... 3,500,000 3,500,000 -- -- -- -- 3,500,000
Stock compensation.............. -- 40,733 -- -- -- -- 40,733
Net loss........................ -- -- -- -- -- (333,858) (333,858)
--------- ---------- --------- ------------- --------------- ------------ ----------
Balance, December 31, 1996...... 15,739,525 8,166,948 152,000 -- -- (333,858) 7,985,090
Sale of stock in private
placement..................... 9,060,475 15,845,915 3,414,560 -- -- -- 19,260,475
Offering costs.................. -- (2,003,109) -- -- -- -- (2,003,109)
Stock issued to SONeTech........ 375,000 375,000 -- -- -- -- 375,000
Stock issued in acquisitions.... 875,000 2,112,500 -- -- -- -- 2,112,500
Exercise of stock options....... 950,000 261,750 -- (204,750) -- -- 57,000
Stock purchases................. (200,000) (12,000) -- -- -- -- (12,000)
Stock compensation.............. 59,000 194,517 -- -- -- -- 194,517
Warrants........................ -- -- 429,900 -- -- -- 429,900
Unrealized (loss) on
securities.................... -- -- -- -- (16,864) -- (16,864)
Net loss........................ -- -- -- -- -- (9,654,779) (9,654,779)
--------- ---------- --------- ------------- --------------- ------------ ----------
Balance, December 31, 1997...... 26,859,000 $24,941,521 $3,996,460 $(204,750) $ (16,864) $(9,988,637) $18,727,730
401K Match--1997................ 57,815 99,836 -- -- -- -- 99,836
Stock issued to consultants..... 20,333 55,000 -- -- -- -- 55,000
Correction of private
placement..................... 20,000 -- -- -- -- -- --
Stock issued in acquisitions.... 110,000 438,900 -- -- -- -- 438,900
Exercise of stock options....... 85,000 14,500 -- -- -- -- 14,500
Amortization of unearned
compensation.................. -- -- -- 27,300 -- -- 27,300
Other comprehensive income:
Unrealized gain on
securities.................. -- -- -- -- 57,690 -- 57,690
Net loss........................ -- -- -- -- -- (5,110,666) (5,110,666)
--------- ---------- --------- ------------- --------------- ------------ ----------
Balance, March 31, 1998
(unaudited)................... 27,152,148 $25,549,757 $3,996,460 $(177,450) $ 40,826 ($15,099,303) $14,310,290
--------- ---------- --------- ------------- --------------- ------------ ----------
--------- ---------- --------- ------------- --------------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FOR THE YEAR FROM JANUARY 1, FROM INCEPTION FOR THE YEAR THREE MONTHS ENDED
ENDED 1996 THROUGH THROUGH ENDED ----------------------
DECEMBER 31, DECEMBER 16, DECEMBER 31, DECEMBER 31, MARCH 31 MARCH 31
1996 1996 1997 1997 1998
1995
--------------- -------------- ------------ ---------- ----------
------------- (predecessor) (successor) (successor) (successor) (successor)
(predecessor) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................. $ (79,201) $ (221,300) $ (333,858) $(9,654,779) (1,085,379) (5,110,666)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization......... 121,852 124,076 40,698 1,453,019 223,260 762,439
Provision for uncollectible
accounts............................ 10,273 3,802 -- -- -- --
Stock compensation expense............ -- -- -- 194,517 (32,708) 27,300
Unrealized (gain) loss on
investments......................... -- -- -- -- -- 57,690
(Gain) loss from sale of equipment.... (269) 312 -- 50,751 -- (1,039)
Other................................. -- -- -- 40,000 (5,000) 4,981
Change in working capital (net of
acquisitions):
Trade accounts receivable............. (55,643) 61,535 (97,741) (1,527,544) (126,602) (2,333,283)
Prepaid expenses and other current
assets.............................. 1,962 1,107 (51,697) (274,229) (353,095) (277,993)
Restricted cash....................... -- -- -- (405,816) -- (3,482)
Trade accounts payable................ 29,321 10,341 56,278 1,326,723 372,513 1,906,273
Accrued compensation.................. 1,467,587 -- 799,600
Other accrued liabilities............. 32,173 (10,544) 103,731 225,672 87,648 1,781,180
------------- --------------- -------------- ------------ ---------- ----------
Net cash provided by (used in)
operating activities................ 60,468 (30,671) (282,589) (7,104,099) (919,363) (2,387,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment... (22,624) (36,042) (28,713) (2,042,203) (196,471) (1,928,186)
Proceeds from sales of property and
equipment........................... 14,346 300 -- -- -- 14,800
Organizational costs.................. -- (115) (219,637) -- -- --
Acquisitions, net of cash acquired.... -- -- (1,157,304) (1,542,208) -- (424,302)
Long-term investment.................. -- -- (40,000) -- (60,000) --
Purchase of short-term investments.... -- -- -- (12,218,469) -- --
Sale of short-term investments........ -- -- -- 4,830,302 -- 4,868,819
Other assets.......................... -- (269,425) -- (14,579)
------------- --------------- -------------- ------------ ---------- ----------
Net cash used in investing
activities.......................... (8,278) (35,857) (1,445,654) (11,242,003) (256,471) 2,516,552
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term borrowings...... (15,725) (9,214) -- (317,927) (1,139,848) (398,579)
Advances to members................... (45,535) -- -- -- -- --
Proceeds from new borrowings.......... -- 100,000 -- -- -- --
Proceeds from initial capital
contributions....................... -- -- 450,000 -- -- --
Proceeds from sale of common stock,
net................................. -- -- 4,439,630 17,257,366 2,078,790 --
Payment of note to former owner of
ICN................................. -- -- -- (1,000,000) -- --
Cash paid to retire indebtedness of
predecessor company................. -- -- -- (132,380) -- --
Proceeds from exercise of stock
options............................. -- -- -- 57,000 -- 14,500
Repurchase of common shares........... -- -- -- (12,000) -- --
------------- --------------- -------------- ------------ ---------- ----------
Net cash provided by (used in)
financing activities................ (61,260) 90,786 4,889,630 15,852,059 938,942 (384,079)
Net increase (decrease) in cash and
cash equivalents.................... (9,070) 24,258 3,161,387 (2,494,043) (236,892) (254,527)
Cash and cash equivalents at beginning
of period........................... 22,508 13,438 -- 3,161,387 3,161,387 667,344
------------- --------------- -------------- ------------ ---------- ----------
Cash and cash equivalents at end of
period.............................. $ 13,438 $ 37,696 $ 3,161,387 $ 667,344 $2,924,495 $ 412,817
------------- --------------- -------------- ------------ ---------- ----------
------------- --------------- -------------- ------------ ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE YEAR THREE MONTHS ENDED
FROM JANUARY 1, FROM INCEPTION ENDED ----------------------
1996 THROUGH THROUGH DECEMBER 31, MARCH 31 MARCH 31
DECEMBER 16, DECEMBER 31, 1997 1997 1998
FOR THE YEAR 1996 1996 ------------ ---------- ----------
ENDED --------------- --------------
DECEMBER 31, (successor) (successor) (successor)
1995 (predecessor) (successor)
-------------
(predecessor) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Non cash transactions and supplemental
disclosures:
Acquisition of equipment through the
assumption of capital lease
obligations......................... $ -- $ -- $ -- $1,674,596 $ -- $ 878,808
Issuance of common stock for
investment and business
combinations........................ -- -- -- 375,000 -- 438,900
Interest paid....................... 17,457 18,190 -- 144,782 5,604 97,958
Income taxes paid..................... -- -- -- -- -- --
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Convergent Communications, Inc. (the "Company" or "Convergent") was formed
under the laws of the State of Colorado in October 1995 and capitalized on March
1, 1996 ("Inception").
Convergent Communications, Inc. is an Enterprise Network Carrier-TM-
offering comprehensive, single-source communications services primarily to small
and medium-sized businesses. The Company provides the following products and
services:
DATA:
- Data networking services--including the planning, design, installation and
management of networks, from simple LANs to complex WANs.
- Data products--including the sale and integration of servers, routers,
data switches and desk top computers.
- Data transport services--including frame relay and ATM.
- Internet services--including web applications, web hosting and Internet
access.
TELEPHONY:
- Voice services--including local and long distance services.
- Voice products--including the sale and integration of key systems and
PBXs.
ENTERPRISE NETWORK SERVICES:
- ENS--the delivery under long-term contract of one or more of the Company's
data and telephony services utilizing the Company's owned network inside
the customer's premise.
As an Enterprise Network Carrier,-TM- the Company integrates its data and
telephony products and services into a single product offering, enabling the
Company to act as a single-source, one-stop provider of its customer's total
communications requirements. Unlike traditional telecommunications companies
that provide services from outside a customer's premise, in providing Enterprise
Network Services ("ENS"), the Company designs, buys and builds its OWN network
within the customer's premise, enabling the Company to act as an outsource
provider of any or all of the customer's communications requirements.
The Company focuses on small to medium size businesses and has offices in
Denver, San Francisco, Portland, Dallas, Atlanta, Salt Lake City and Des Moines.
In November 1996, the Company consummated a private placement offering (the
"Private Placement") and on December 17, 1996 acquired all of the assets of
Integrated Communication Networks, L.L.C. ("ICN") in exchange for cash, notes
and shares of common stock. The acquisition of ICN has been treated as a
business combination accounted for by the purchase method of accounting. The
accompanying consolidated financial statements include the accounts of ICN from
December 17, 1996, the effective date of the acquisition. For purposes of
identification and description, ICN is referred to as the "Predecessor" for the
period prior to the acquisition. The Company since inception and ICN since
December 17, 1996 are referred to as the "Successor" (see Note 3).
F-9
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All intercompany amounts and
transactions have been eliminated.
UNAUDITED FINANCIAL INFORMATION:
The interim consolidated financial statements as of March 31, 1998 and for
the three months ended March 31, 1997 and 1998 and related disclosures included
herein are unaudited, but reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to fairly present
the results for all such periods. All disclosures subsequent to March 4, 1998
are unaudited.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
SHORT-TERM INVESTMENTS:
Short-term investments are classified as available-for-sale securities at
December 31, 1997. Gains or losses on the sale of short-term investments are
recognized on the specific identification method. Unrealized gains or losses are
treated as a separate component of shareholders' equity until the security to
which they relate is sold.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable, accounts payable and short-term borrowings
approximate fair value because of the immediate or short-term maturity of these
financial instruments. Short-term investments are stated at fair value. The
carrying amounts reported for long-term debt and capital leases approximate fair
value based upon management's best estimates of what interest rates would be
available for the same or similar instruments.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, which
range from two to five years. Expenditures which significantly increase asset
values or extend useful lives are capitalized. Maintenance and repairs are
expensed as incurred. When property and equipment is retired, sold or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts, and gains and losses resulting from such transactions are reflected in
operations.
F-10
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RESTRICTED CASH:
Restricted cash represents cash used to collateralize letters of credit,
which are held as collateral for certain of the Company's office leases and
capital lease obligations.
INTANGIBLE ASSETS:
Site location contracts are exclusive rights to operate public telephones at
various locations acquired through business combinations and are stated at cost.
Amortization of the site location contracts is recorded using the straight-line
method primarily over five years, the expected average lives of the contracts.
Software license fees represent proprietary rights to software associated with
the public telephones which is being amortized using the straight-line method
over ten years, the estimated life of the related equipment. Goodwill represents
the excess purchase price over the net assets acquired in acquisitions and is
being amortized using the straight-line method over ten years. Organization
costs are being amortized over a five-year period using the straight-line
method.
LONG-LIVED ASSETS:
The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"). SFAS 121 requires an evaluation of indicators of impairment and
future undiscounted cash flows to be generated by those assets.
INVESTMENTS:
Investments consist of ownership interests of less than 20% in unrelated
entities and are accounted for using the cost method.
REVENUE RECOGNITION:
Revenue is recognized for product sales when the product is shipped.
Revenues from services are recognized when the services are provided.
INCOME TAXES:
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to the differences between the financial statement
carrying value of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured by using enacted tax
rates that are applicable to the future years in which deferred tax assets or
liabilities are expected to be realized or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in net earnings
in the period in which the tax rate change was enacted. The Company establishes
a valuation allowance when it is more likely than not that a deferred tax asset
will not be recovered.
STOCK-BASED COMPENSATION:
The Company uses the intrinsic value method of Accounting Principles Board
Opinion No. 25 to account for all of its employee stock-based compensation
plans.
F-11
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CONCENTRATIONS OF CREDIT RISK:
The Company sells its products and services to small to medium sized
businesses on open account. The Company typically does not obtain collateral for
its receivables. The Company maintains adequate reserves for potential credit
losses and performs on-going credit evaluations. To date, the Company has not
experienced any significant credit losses.
All of the Company's short-term investments are maintained at a single
financial institution. The investments consist of high-quality commercial paper.
RECENTLY ADOPTED ACCOUNTING STANDARDS:
Effective January 1, 1998 the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting and display of comprehensive
income and its components. Comprehensive income generally includes changes in
separately reported components of equity along with net income.
Effective January 1, 1998 the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This statement will
not affect the results of operations, financial position or cash flows of the
Company and has no effect on the financial statements as previously presented.
3. ACQUISITIONS:
INTEGRATED COMMUNICATION NETWORKS, L.C. In December 1996, the Company
acquired Integrated Communication Networks, L.C. (ICN), a public telephone
service provider. The Company paid $1,232,300 in cash, issued a $1,000,000
promissory note and issued 3,500,000 shares of Common Stock. The note was paid
in January 1997.
The acquisition of ICN was treated as a business combination accounted for
by the purchase method of accounting. ICN was valued at the fair market value of
consideration given. In connection with the acquisition, the excess of
consideration given over the fair market value of net assets acquired is being
amortized on a straight-line basis over 10 years.
COMMUNICATION SERVICES OF IOWA, INC. In April 1997, the Company acquired
Communication Services of Iowa, Inc. (CSI), an Iowa reseller of telephony
keyboard PBX telephone equipment to businesses. The Company paid $100,000 cash,
issued a $100,000 one-year promissory note at 8% and issued 50,000 shares of
Common Stock.
The acquisition of CSI was treated as a business combination accounted for
by the purchase method of accounting. CSI was valued at the fair market value of
consideration given. In connection with the acquisition, the excess of
consideration given over the fair market value of net assets acquired is being
amortized on a straight-line basis over 10 years. The accompanying consolidated
financial statements include the accounts of CSI from April 1, 1997, the
effective date of the acquisition.
A.T.T.EX CORPORATION. In September 1997, the Company acquired A.T.T.ex
Corporation (A.T.T.ex) of Des Moines, Iowa, a telecommunications service company
providing direct telephony service support to corporate customers. The purchase
price consisted of $450,000 in cash and the issuance of 75,000 shares of
F-12
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS: (CONTINUED)
Common Stock, together with an "earn out" clause entitling the seller to up to
an additional 25,000 shares of Common Stock over a period of five years.
The acquisition of A.T.T.ex was treated as a business combination accounted
for by the purchase method of accounting. A.T.T.ex was valued at the fair market
value of consideration given. In connection with the acquisition, the excess of
consideration given over the fair market value of net assets acquired is being
amortized on a straight-line basis over 10 years. The accompanying consolidated
financial statements include the accounts of A.T.T.ex from September 1, 1997,
the effective date of the acquisition.
VITAL INTEGRATION SOLUTIONS, INC. In September 1997, the Company acquired
Vital Integration Solutions, Inc. (Vital) of Des Moines, Iowa and Omaha,
Nebraska, a full service integration solutions provider, specializing in
comprehensive information management and networking solutions. Vital provides
its clients with the hardware, software and integration services necessary to
build information systems and networks. The Company paid $500,000 in cash and
issued 750,000 shares of Common Stock.
The acquisition of Vital was treated as a business combination accounted for
by the purchase method of accounting. Vital was valued at the fair market value
of consideration given. In connection with the acquisition, the excess of
consideration given over the fair market value of net assets acquired is being
amortized on a straight-line basis over 10 years. The accompanying consolidated
financial statements include the accounts of Vital from September 1, 1997, the
effective date of the acquisition.
BIG PLANET, INC. In October 1997, the Company acquired certain assets and
assumed certain liabilities of Big Planet, Inc., of Portland, Oregon. Big Planet
is an Internet service provider (ISP) offering a full range of Internet
services, including Internet access, Web hosting, maintenance, and site design.
The Company paid $250,000 in cash for the assets and the assumption of certain
trade payables.
The acquisition was treated as an asset acquisition accounted for by the
purchase method of accounting and the assets acquired were valued at fair market
value. In connection with the acquisition, the excess of consideration given
over the fair market value of net assets acquired is being amortized on a
straight-line basis over 10 years.
SIGMACOM CORPORATION. In December 1997, the Company acquired the data
integration assets of Sigmacom Corporation of Denver, Colorado. Sigmacom is a
systems integrator for corporate audio, video and data communications, providing
state-of-the-art systems that combine telecommunications and computer network
technologies. Sigmacom is also developing Internet application software for
financial institutions such as credit unions. The Company did not acquire the
software development assets; however, the Company received a 17.9% investment
position in Sigmacom's software development business.
The Company paid $875,000 in cash and has an additional potential obligation
to pay up to $600,000 in cash and issue 118,000 shares of Common Stock in July
1998. Issuance of the Common Stock and additional cash payments are contingent
upon the acquired business meeting certain revenue requirements. The Company
also issued Sigmacom a warrant to purchase 50,000 shares of Common Stock for a
price of $7.50 per share, which expires in December 1999.
The acquisition of Sigmacom was treated as an asset acquisition accounted
for by the purchase method of accounting. The assets were valued at the fair
market value of the consideration given. In connection with the acquisition, the
excess of consideration given over the fair market value of net assets acquired
is being amortized on a straight-line basis over 10 years.
F-13
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS: (CONTINUED)
TELEPHONE COMMUNICATIONS CORPORATION. In February 1998, the Company
acquired the assets and assumed certain liabilities of Telephone Communications
Corporation ("TCC") of Vail, Colorado. TCC is a long distance switchless
reseller providing 1+, 0+, 800, and Calling Card services to cities such as
Dillon, Frisco and the Vail Valley. The Company paid $400,000 in cash, issued a
$200,000 one-year note at 8% and issued 10,000 shares of Common Stock which for
purchase accounting purposes were assigned a value of $4.00 per share. The
Company also assumed a note with National Network Corporation of approximately
$287,000, which will be paid down monthly in equal installments through 1998.
NETWORK COMPUTER SOLUTIONS, LLC. In February 1998, the company acquired the
assets and liabilities of Network Computer Solutions ("NCS") of Greenwood
Village, Colorado. NCS provides network integration services. The Company paid
$500,000 in cash, and issued 100,000 shares of Common Stock which for purchase
accounting purposes were assigned a value of $4.00 per share.
The consideration paid for acquisitions in 1996 and 1997, and the allocation
of such consideration to the acquired assets is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
1996 1997 1998
------------ ------------ ----------------
(UNAUDITED)
<S> <C> <C> <C>
Cash paid for the assets, net of cash
acquired...................................... $ 1,157,304 $ 1,542,208 $ 424,302
Notes payable issued to former owners........... 1,000,000 100,000 675,000
Common stock issued to the former owners........ 3,500,000 2,112,500 438,900
Receivable eliminated through the acquisition of
ICN........................................... 75,000 -- --
Warrants issued................................. 30,000 --
Expenses associated with acquisitions........... 25,000 --
Liabilities assumed:
Accounts payable and accrued liabilities...... 140,107 636,747 377,301
Debt assumed.................................. 455,744 163,293 287,000
------------ ------------ ----------------
Total purchase price to be allocated to acquired
assets........................................ $ 6,328,155 $ 4,609,748 $ 2,202,503
------------ ------------ ----------------
------------ ------------ ----------------
Allocation of the purchase price to acquired
assets:
Equipment....................................... $ 1,904,796 $ 355,959 $ 150,397
Accounts receivable............................. 50,164 399,700 185,365
Prepaid expenses and other current assets....... 7,262 -- --
Other current assets............................ -- 115,971 40,456
Deposits........................................ -- 3,950 --
Investments..................................... -- 350,000 --
Site contracts.................................. 656,682 -- --
Software license................................ 496,643 -- --
Goodwill........................................ 3,212,608 3,384,168 1,826,285
------------ ------------ ----------------
Amounts allocated to acquired assets............ $ 6,328,155 $ 4,609,748 $ 2,202,503
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
F-14
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS: (CONTINUED)
On a pro forma basis, as though the above combinations had taken place at
the beginning of the periods presented, revenue, net loss per share would have
been as follows (unaudited):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
---------------------------- ENDED MARCH
1996 1997 31, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Revenue......................................... $ 9,188,745 $ 16,868,118 $ 6,735,413
Net loss........................................ $ (1,330,300) $ (9,783,598) $ (5,072,519)
Net loss per share.............................. $ (0.15) $ (0.46) $ (0.22)
Weighted average shares......................... 8,649,651 21,483,316 22,995,812
</TABLE>
4. SHORT-TERM INVESTMENTS:
All of the Company's short-term investments as December 31, 1997 are
classified as available for sale. At December 31, 1997, the investments had an
amortized cost basis of $7,388,167 and a fair value of $7,371,303. The
unrealized loss at December 31, 1997 related to these investments was ($16,864).
These investments mature at the rate of $1,000,000 per month through July 1998
and $500,000 in August 1998.
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
------------ ------------ MARCH 31,
1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements............................. $ 37,141 $ 56,559 $ 152,602
Office furniture & equipment....................... 79,219 2,908,261 3,913,832
Company vehicles................................... 33,058 226,421 260,000
Network equipment.................................. 1,784,091 2,256,942 3,863,077
------------ ------------ -------------
1,933,509 5,448,183 8,189,511
Less: accumulated depreciation..................... (10,060) (610,386) (1,054,036)
------------ ------------ -------------
Net property and equipment......................... $ 1,923,449 $ 4,837,797 $ 7,135,475
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
Depreciation expense was $10,927, $70,739, $5,365, $515,317, $55,859 and
$437,283 for the year ended December 31, 1995, the period from January 1, 1996
to December 16, 1996, the period from inception to December 31, 1996, the year
ended December 31, 1997 and the three months ended March 31, 1997 and 1998
(unaudited), respectively. The Company enters into capital leases for various
equipment. Equipment under capital leases is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
------------ ------------ MARCH 31,
1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and equipment............................ $ -- $ 1,674,596 $ 2,088,158
Less: accumulated depreciation..................... -- (338,199) (667,329)
------------ ------------ -------------
$ -- $ 1,336,397 $ 1,420,829
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
F-15
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. NOTES PAYABLE AND CAPITAL LEASES:
NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1996 1997 1998
------------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable for acquisition, interest at 11%, principal and accrued
interest due January 1997............................................. $ 1,000,000 $ -- $ --
Note payable, interest at 4%, payable in monthly installments of $1,963
through September 2014................................................ 430,744 287,565 284,542
Note payable for acquisition, interest at 8%, principal and accrued
interest due February 1999............................................ -- -- 201,500
Note payable assumed in acquisition, interest at 9%, payable in monthly
installments of $29,876, through December 1998........................ -- -- 259,071
Note payable for acquisition, interest at 10%, payable in monthly
installments of $2,255, through August 1998........................... -- -- 13,153
Note payable for acquisition, interest at prime plus 1.5%, principal and
accrued interest due May 1998......................................... -- -- 242,821
Line of credit for multiple items, interest at 2.5% over prime,
principal and accrued interest due January 1997....................... 25,000 -- --
Note payable for acquisition, interest at 8%, principal and accrued
interest due March 1998............................................... -- 106,670 --
Notes payable for vehicles, interest rates ranging from 6.9% to 11.2%,
payable in monthly installments totaling $4,946 through June 2002..... -- 147,746 174,179
------------- ----------- ------------
1,455,744 541,981 1,175,266
Less current portion.................................................... (1,032,724) (163,220) (779,858)
------------- ----------- ------------
Long term portion....................................................... $ 423,020 $ 378,761 $ 395,408
------------- ----------- ------------
------------- ----------- ------------
</TABLE>
Scheduled maturities on debt outstanding are as follows:
<TABLE>
<CAPTION>
MARCH 31,
1998
DECEMBER 31, ------------
1997
------------ (UNAUDITED)
<S> <C> <C>
Due within:
One year......................................................... $ 163,220 $ 779,858
Two years........................................................ 49,615 58,529
Three years...................................................... 51,825 60,800
Four years....................................................... 38,262 42,573
Five years....................................................... 18,017 16,225
Thereafter....................................................... 221,042 217,281
------------ ------------
Total debt....................................................... $ 541,981 $ 1,175,266
------------ ------------
------------ ------------
</TABLE>
F-16
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE AND CAPITAL LEASES: (CONTINUED)
FINANCING FACILITIES
COMDISCO FACILITY. In November 1997 the Company entered into a three year,
$50.0 million Program Agreement with Comdisco, Inc. ("Comdisco"). The Program
Agreement provides for lease financing of equipment to be used by the Company in
the provision of ENS and other services. Under the Program Agreement, the
Company's wholly owned subsidiary, Convergent Capital Corporation ("C3"),
entered into a Master Lease Agreement ("Master Lease") with Comdisco. Pursuant
to the Master Lease, C3 can either (i) lease equipment from Comdisco's inventory
or (ii) issue purchase orders to third-party vendors on behalf of Comdisco and
lease the purchased equipment from Comdisco. The leased equipment is then leased
to the Company's operating subsidiary, which provides the equipment to its
customers under its ENS contracts, or, in some instances, through direct
equipment leases. When the Company provides equipment to its customers, it
assigns to Comdisco the equipment schedule and associated revenue from the
customer related to the leased equipment.
There is currently $10 million available for lease to the Company under the
Program Agreement. The availability of additional amounts depends on whether the
Company meets certain financial criteria. The Program Agreement expires on June
30, 2000.
The Comdisco facility is collateralized by the equipment being financed and
is guaranteed by the Company. In addition, the Company is required to issue a
warrant to acquire Common Stock of the Company in an amount equal to ten percent
(10%) of the facility, divided by the exercise price per share. The exercise
price per share is equal to the price paid by investors in recent equity
offerings and will, in no event, be less than $3.00 per share. The warrants will
be issued in three installments based upon amounts available under the facility.
As such, the Company has issued a warrant for the purchase of 333,333 shares of
Common Stock at an exercise price of $3.00 per share for the first $10 million
of the facility. Through December 31, 1997, the Company had not drawn any
amounts under the facility.
SBA LOAN. As part of the acquisition of ICN, the Company assumed a loan
issued by the Small Business Administration ("SBA") to ICN for the purpose of
rebuilding and repairs under the disaster relief program as a result of flooding
in Iowa during 1993. The loan is collateralized by equipment and inventory of
the Company and guaranteed by Bruce Boland, a former officer and director of the
Company and former president of ICN. The loan accrues interest at the rate of 4%
per annum. At December 31, 1997, the outstanding balance of the loan was
approximately $288,000.
NATIONSCREDIT COMMERCIAL CORPORATION FACILITY. In February 1997 the Company
entered into an inventory credit facility with NationsCredit Commercial
Corporation ("NationsCredit") for the purpose of purchasing data and telephony
inventory for sale to customers. The credit line is currently $800,000 but is in
the process of being renegotiated into a $5 million inventory and accounts
receivable revolving line of credit. The new facility will allow the Company to
obtain financing of up to 85% of eligible accounts receivable and will be
collateralized by the purchased inventory and guaranteed by the Company.
GMAC. In June 1997, the Company obtained a one-year renewable line of
credit with General Motors Acceptance Corporation in the amount $538,000 to
acquire vehicles for its operations. The line of credit is subject to an annual
revaluation for continued usage. Advances under the line are payable over a four
to five year term. The Company has not yet utilized this credit facility.
SUN FINANCIAL FACILITY. In May 1997, the Company entered into a Master
Equipment Lease with Sun Financial Group, Inc. to lease equipment, facilities
and related items for the Company's internal expansion
F-17
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE AND CAPITAL LEASES: (CONTINUED)
as well as equipment to be used for customer installations. As of December 31,
1997, the Company had utilized approximately $1.4 million of this credit
facility. The facility is collateralized by a $100,000 standby letter of credit.
In connection with the establishment of the facility, the Company issued a
warrant to Sun Financial Group, Inc. for the purchase of 80,571 shares of Common
Stock at an exercise price of $3.00 per share.
CAPITAL LEASES
The Company leases certain equipment used by its customers under capital
leases. The following is a schedule of the minimum lease payments under capital
leases together with the present value of the minimum lease payments.
<TABLE>
<CAPTION>
MARCH 31,
1998
DECEMBER 31, -------------
1997
------------ (UNAUDITED)
<S> <C> <C>
DUE WITHIN:
One year........................................................ $ 944,573 $ 1,292,828
Two years....................................................... 620,234 724,666
Three years..................................................... 1,216 187,320
------------ -------------
Total minimum lease payments.................................... 1,566,023 2,204,808
Less: Amount representing interest.............................. (174,935) (219,025)
------------ -------------
Present value of minimum lease payments......................... 1,391,088 1,985,783
Less: current portion........................................... (804,138) (1,129,820)
------------ -------------
Long term portion............................................... $ 586,950 $ 855,963
------------ -------------
------------ -------------
</TABLE>
7. COMMITMENTS:
OPERATING LEASES
The Company leases a portion of its buildings and equipment under operating
leases. Future minimum payments under operating leases as of December 31, 1997
are as follows:
<TABLE>
<CAPTION>
AMOUNT
------------
<S> <C>
1998............................................................................ $ 736,859
1999............................................................................ 744,375
2000............................................................................ 757,392
2001............................................................................ 776,005
2002............................................................................ 482,784
Thereafter...................................................................... --
------------
$ 3,497,415
------------
------------
</TABLE>
Rent expense under operating leases was $28,787, $45,874, $17,927 and
$431,930, respectively for the year ended December 31, 1995, the period from
January 1, 1996 to December 16, 1996, the period from inception to December 31,
1996, and the year ended December 31, 1997.
F-18
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS: (CONTINUED)
SONETECH ENGINEERING AND CONSULTING AGREEMENT:
The Company has an exclusive engineering and consulting agreement with
Services-oriented Open Network Technologies, Inc. ("SONeTech") for the
architecture of certain software which may be used in the Company's E-POP
network strategy. The Company issued 375,000 shares of Common Stock in exchange
for a 10% equity interest in SONeTech and an exclusive engineering and
consulting agreement. The Company will be entitled to reacquire a portion of the
Common Stock under certain circumstances if SONeTech does not meet certain
obligations to the Company. The Company may acquire an additional equity
interest in SONeTech of up to a total of 30% by providing additional financing.
8. SHAREHOLDERS' EQUITY:
In connection with the acquisition of Sigmacom (see Note 3), the Company
issued warrants to purchase 50,000 shares of Common Stock exercisable at $7.50
per share through December 1999.
In February 1997, the Company completed the offering of 7,000,000 units
consisting of one share of common stock and one-half warrant to purchase a share
of common stock. The units were sold at a price of $1.00 each. One warrant
entitles the holder to purchase one share of common stock for a price of $1.50
per share for five years from the date of the offering. The proceeds, net of
related offering costs, were approximately $6,386,000, of which approximately
$4,328,000 was received during 1996. As part of the offering, the Company issued
warrants to purchase 3,500,000 Common Shares to investors exercisable at $1.50
per share and warrants to purchase 741,250 Common Shares to the placement agents
exercisable at $1.20 per share through November 7, 2001.
In October 1997, the Company completed the offering of 6,800,000 units
consisting of one share of common stock and one-half warrant to purchase a share
of common stock. The units were sold at a price of $2.50 each. One warrant
entitles the holder to purchase one share of common stock for a price of $3.75
per share for two years from the date of the offering. The proceeds, net of
related offering costs, were approximately $15,200,000. As part of the offering,
the Company issued warrants to purchase 3,410,000 Common Shares to investors
exercisable at $3.75 per share beginning in November 1998 through July 14, 1999
and warrants to purchase 615,860 Common Shares to the placement agents
exercisable at $3.00 per share beginning in May 1998 through November 14, 2002.
In connection with the signing of financing agreements with Comdisco, Inc.
and Sun Financial (see Note 6), the Company granted Comdisco, Inc. and Sun
Financial warrants to purchase 333,333 and 80,571 shares of common stock
respectively, exercisable at $3.00 per share. The Comdisco warrants expire on
November 2007 and the Sun Financial warrants are exercisable beginning in May
1998 and expire in May 2002.
The holders of certain warrants have the right to demand the Company file a
registration statement concerning their shares in 1998 and 1999.
STOCK OPTION PLANS:
The Company has adopted the 1996 and 1997 Incentive and Non-Statutory Option
Plans and the 1998 Stock Option Plan (the "Plans") which authorize the Company
to grant up to 5,600,000 shares of the Company's common stock to employees,
consultants and directors under incentive stock options within the
F-19
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHAREHOLDERS' EQUITY: (CONTINUED)
meaning of Section 422A of the Internal Revenue Code of 1986, as amended, and to
grant non-statutory stock options.
The Plans require that the exercise price of options granted must be at
least equal to the fair market value of share of Common Stock on the date of
grant and are exercisable over a period of up to ten years, provided that if an
employee owns more than 10% of the Company's outstanding Common Stock, then the
exercise price of an incentive option must be at least 110% of the fair market
value of a share of the Company's Common Stock on the date of grant and are
exercisable over a period of five years. The options vest over 5 years.
The Plan is administered by the Company's Board of Directors or a committee
thereof which determines the terms of the options granted, including the
exercise price, the number of shares of Common Stock subject to the option, and
the terms and conditions of exercise. No option granted under the Plan is
transferable by the optionee other than by will or the laws of descent and
distribution and each option is exercisable during the lifetime of the optionee
only by such optionee.
In May 1997, the Company accelerated the vesting provisions related to
options to purchase 950,000 shares with an exercise price of $0.06 per share and
all of the options were exercised. The underlying shares are subject to a
repurchase agreement over a five year period whereby the shares are subject to
being repurchased by the Company upon termination of employment, provided that,
the amount available for repurchase is reduced by 20% each year of employment.
In late 1997, the Company repurchased 200,000 shares for $0.06 per share, upon
the termination of one of the exercising employees. At December 31, 1997,
190,000 shares were no longer subject to repurchase.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE GRANT
NUMBER OF WEIGHTED AVERAGE DATE FAIR
SHARES EXERCISE PRICE VALUE
---------- ----------------- -------------
<S> <C> <C> <C>
Outstanding at March 1, 1996...................... -- --
Granted........................................... 1,810,000 $ 0.51 $ 1.06
Exercised......................................... -- --
Forfeited......................................... -- --
---------- -----
Outstanding at December 31, 1996.................. 1,810,000 0.51
Granted........................................... 3,795,000 1.84 1.47
Exercised......................................... (950,000) 0.06
Forfeited......................................... (12,000) 1.33
---------- -----
Outstanding at December 31, 1997.................. 4,643,000 $ 1.69
---------- -----
---------- -----
</TABLE>
At December 31, 1997, options for 345,000 shares are exercisable with a
weighted average exercise price of $1.29. No options were exercisable at
December 31, 1996.
F-20
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHAREHOLDERS' EQUITY: (CONTINUED)
At December 31, 1997, the range of exercise prices and weighted average
remaining contractual life for options outstanding was as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING
NUMBER OF SHARES OPTION PRICE CONTRACTUAL LIFE
- -------------------------------------------------------------- ------------- ----------------
<S> <C> <C>
75,000...................................................... $ 0.06 4.00 years
1,955,000..................................................... 1.00 4.15 years
700,000...................................................... 1.10 4.00 years
165,000...................................................... 2.00 4.39 years
952,000...................................................... 2.50 4.67 years
796,000...................................................... 3.00 4.87 years
</TABLE>
Had compensation cost for the Plan been determined based on the fair value
at the grant dates for awards using the method prescribed by SFAS No. 123, the
Company's pro forma net loss and net loss per share would have been as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
THROUGH DECEMBER YEAR ENDED
31, 1996 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Net loss:
As reported......................................... $ (333,858) $ (9,654,779)
Pro forma........................................... (334,274) (9,703,446)
Net loss per share:
As reported......................................... (0.04) (0.46)
Pro forma........................................... (0.04) (0.46)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions:
<TABLE>
<CAPTION>
DECEMBER
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Dividend Yield................................................... -- --
Risk Free Interest Rate.......................................... 6.06-6.48% 5.65-6.84%
Expected Lives................................................... 5 years 5 years
</TABLE>
Because the determination of the fair value of all options granted if the
Company becomes a public entity will include an expected volatility factor in
addition to the factors described in the preceding paragraph and, because
additional option grants are expected to be made each year, the above pro forma
disclosures are not representative of pro forma effects on net income to be
reported for future years.
During the periods ended December 31, 1996 and 1997, the Company recognized
compensation expense of $40,733 and $194,517, respectively for employee stock
grants and stock options.
9. INCOME TAXES:
The Company was organized as an S corporation under the provisions of
Section 1361 of the Internal Revenue Code. As an S corporation, the entity was
not subject to tax on its income; rather the shareholders of the entity was
taxed on its share of the taxable income, whether or not the income was
F-21
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES: (CONTINUED)
distributed. Effective December 5, 1996, Convergent rescinded its S Corporation
election under the Internal Revenue Code and became subject to tax on its
income. No pro forma tax benefit has been provided for either the Company or ICN
as Predecessor due to their continuing losses.
The Predecessor was a limited liability company which was treated as a
partnership for taxation purposes.
No income taxes were paid for the periods ended December 31, 1996 or 1997.
At December 31, 1997, the Company had, for federal income tax purposes, net
operating loss carryforwards of approximately $9.1 million which will expire
beginning in 2011.
The components of the net deferred tax assets as of December 31, 1996 and
1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER
-------------------------
1996 1997
---------- -------------
<S> <C> <C>
Deferred tax assets:
Non-current:
Allowance for doubtful accounts................................ $ 6,014 $ 8,127
Net operating loss carryforwards............................... 40,377 3,461,765
Property and equipment......................................... -- 112,106
Valuation allowance............................................ (46,391) (3,581,998)
---------- -------------
Total deferred tax assets.......................................... $ -- $ --
---------- -------------
---------- -------------
</TABLE>
The Company's actual income taxes differed from the expected statutory rate
of 34% as follows:
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION YEAR ENDED DECEMBER
TO DECEMBER 31, 1996 31, 1997
----------------------- ---------------------
<S> <C> <C>
Statutory tax rate................................... 34% 34%
State taxes, net of federal benefit.................. 4 4
Valuation allowance.................................. (38) (38)
-- --
Effective tax rate................................... 0% 0%
-- --
-- --
</TABLE>
The increase in the valuation allowance of $3,535,607 in 1997 is due to
increased losses during the year. The Company has recorded a full valuation
allowance on its deferred tax assets due to continuing losses.
F-22
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. NET LOSS PER SHARE:
The net loss available to common shareholders consists of the following:
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS ENDED MARCH 31,
INCEPTION TO YEAR ENDED
DECEMBER 31, DECEMBER 31, ----------------------------
1996 1997 1997 1998
------------ ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net loss.............................................. $ (333,858) $ (9,654,779) $ (1,085,378) $ (5,110,666)
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
The weighted average shares consist of the following:
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS ENDED MARCH
INCEPTION TO YEAR ENDED 31,
DECEMBER 31, DECEMBER 31, --------------------------
1996 1997 1997 1998
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Weighted average common shares used for basic earnings
per share............................................. 7,774,651 20,921,569 16,375,270 22,992,368
Warrants................................................ -- --
Stock options........................................... -- -- -- --
------------ ------------ ------------ ------------
Weighted average common shares used for fully diluted
earnings per share.................................... 7,774,651 20,921,569 16,375,270 22,992,368
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
For the period from inception to December 31, 1996, the year ended December
31, 1997 and the three months ended March 31, 1997 and 1998, a total of 307,181,
7,653,035, 2,700,000 and 12,935,125 weighted average options and warrants were
not included in the above calculation because their effect would be
anti-dilutive.
11. EMPLOYEE BENEFIT PLANS:
The Company adopted an employee benefit 401(k) plan for all employees
effective March 1, 1997. Under the plan, employees may voluntarily elect to have
up to 15% of their salaries deducted from earnings and placed in the plan. The
Company may elect to match up to 6% of the employee contributions by
contributing the Company's common stock to the plan. Company contributions are
made on a quarterly basis and the number of shares to be contributed is based
upon the estimated fair value of the stock at the end of each quarter. The
Company accrued matching contributions of $166,467 for the year ended December
31, 1997.
12. RELATED PARTY TRANSACTIONS:
During 1995, $45,535 of short-term cash and working capital advances were
paid to a shareholder of ICN. This balance represents advances of $50,535 offset
by $5,000 of amounts borrowed from the shareholder. This transaction has been
reflected as a reduction of members' equity. During 1996, capital contributions
to the predecessor include $206,237 of public telephone equipment, approximately
$11,343 of other equipment and furniture and repayment of the advances from 1995
contributed by a shareholder of ICN.
F-23
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. RELATED PARTY TRANSACTIONS: (CONTINUED)
Pursuant to the terms of a non-cancelable license fee related to proprietary
telecommunications equipment technology, ICN paid monthly license fees of $2,500
and management fees of $1,200 to a shareholder of ICN. During the period from
January 1, 1996 through December 16, 1996 and the year ended December 31, 1995,
ICN incurred costs of $44,400 under these arrangements.
A Director of the Company provides financial advisory services to the
Company from time to time. An aggregate of $1,750 has been paid to the Director
for such services. In addition, the Director was a Principal and owner of
Shepherd Financial Group which received compensation totaling approximately $1.5
million and the issuance of 438,000 warrants to purchase Common Stock in
exchange for placement agent services provided to the Company in the Company's
1996 and 1997 private placements of Common Stock. The Director was also a
Principal and owner of Shepherd Capital Group which was paid approximately $0.5
million for financial advisory services provided to the Company during 1997.
13. SUBSEQUENT EVENTS:
DEBT OFFERING. Subsequent to March 31, 1998 the Company completed a private
offering of $160 million in 13% Senior Notes ("13% Senior Notes") and 640,000
warrants to purchase 1,728,000 common shares of the Company (the "Warrants")
(the "Offering"). The 13% Senior Notes mature on April 1, 2008 and interest will
be payable semiannually in arrears on April 1 and October 1 of each year.
Concurrently with the closing of the Offering the Company deposited in a
collateral account an amount of cash or U.S. Government Securities, or
combination thereof that, together with the interest received thereon, will be
sufficient to pay, when due the first six interest payments. Each "Warrant"
entitles the holder to purchase 2.7 shares of Common Stock of the Company at an
exercise price of $.01 per share. Proceeds available to the Company, net of
offering costs of approximately $5.7 million and the deposit into the collateral
account of $56.8 million, were approximately $97.5 million.
COMMUNICATION SERVICES OF COLORADO. In May 1998, the Company completed a
merger with Communication Services of Colorado ("CSC") of Englewood, Colorado.
CSC is a long distance switchless reseller providing 1+, 0+, 800/888, and
calling card services. The Company paid $475,000 in cash and issued a $530,000
one-year note at 8%.
H,H & H COMMUNICATIONS TECHNOLOGIES, INC. In May 1998, the Company
completed the acquisition of the assets of H, H & H Communications Technologies,
Inc., a voice equipment provider in Texas. The Company paid $200,000 in cash and
issued 30,000 shares of Common Stock.
F-24
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
Effective April 1, 1997, the Company acquired Communications Services of
Iowa, Inc. ("CSI"). Consideration for the purchase consisted of (i) $100,000 in
cash (ii) a $100,000 one-year note payable at 8% and (iii) the issuance of
50,000 shares of Common Stock ($150,000). The acquisition was accounted for
using the purchase method of accounting.
Effective September 1, 1997, the Company acquired A.T.T.ex Corporation
("ATTex"). Consideration for the purchase consisted of (i) $450,000 in cash and
(ii) the issuance of 75,000 shares of Common Stock ($187,500). The acquisition
was accounted for using the purchase method of accounting.
Effective September 1, 1997, the Company acquired Vital Integration
Solutions, Inc. ("Vital"). Consideration for the purchase consisted of (i)
$500,000 in cash and (ii) the issuance of 750,000 shares of Common Stock
($1,875,000). The acquisition was accounted for using the purchase method of
accounting.
Effective February 1, 1998, the Company acquired the assets and certain
liabilities of Telephone Communications Corporation ("TCC"). Consideration for
the purchase consisted of (i) $400,000 in cash, (ii) a $200,000 one-year note
payable at 8%, (iii) the issuance of 10,000 shares of Common Stock ($39,900) and
(iv) the assumption of a $287,000 4% note payable. The acquisition was accounted
for using the purchase method of accounting.
Effective May 22, 1998, the Company acquired Communications Services of
Colorado, Inc. ("CSC"). Consideration for the purchase consisted of (i) $475,000
in cash and (ii) a $530,000 note payable at 8%. The acquisition was accounted
for using the purchase method of accounting.
The following unaudited Pro Forma Combined Statements of Operations for the
year ended December 31, 1997 and the three months ended March 31, 1998 assume
that the acquisitions occurred on January 1, 1997. The information for CSI,
ATTex, Vital and TCC consists of historical amounts through March 31, 1997,
August 31, 1997, August 31, 1997 and January 31, 1998, respectively. The results
of operations from the closing dates are included in the Company's historical
financial statements. All related purchase price adjustments for CSI, ATTex,
Vital and TCC are included in the Company's historical balance sheet for the
most recent period presented. The information for CSC consists of historical
amounts for all periods presented in the Pro Forma Combined Financial Statements
as the closing date of the acquisition is subsequent to the periods presented.
Although the Company completed or is completing other acquisitions, the
operations of these businesses are not significant to the pro forma combined
total assets or operations and, accordingly, the effects of these acquisitions
have not been included in the accompanying Pro Forma Combined Financial
Statements.
The unaudited Pro Forma Combined Financial Statements should be read in
conjunction with the historical audited financial statements and related notes
thereto of the Company, CSI, ATTex, Vital, TCC and CSC included elsewhere
herein. The unaudited Combined Pro Forma Financial Statements are not
necessarily indicative of the results that actually would have occurred had the
pro forma transactions been consummated at the dates indicated, nor are they
necessarily indicative of future operating results of the Company.
F-25
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
PRO FORMA COMBINING BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL COMMUNICATION
CONVERGENT SERVICES OF PRO FORMA PRO FORMA
COMMUNICATIONS COLORADO(1) ADJUSTMENTS(2) COMBINED
--------------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 412,817 $ -- $ (475,000)(a) $ (62,183)
Short-term investment.............................. 2,502,484 -- -- 2,502,484
Trade accounts receivable, net..................... 4,596,997 191,193 -- 4,788,190
Prepaid expense and other current assets........... 764,408 15,419 -- 779,827
--------------- -------------- -------------- -----------
Total current assets........................... 8,276,706 206,612 (475,000) 8,008,318
Property and equipment:.............................. 8,189,511 229,549 -- 8,419,060
Less accumulated depreciation...................... (1,054,036) (189,954) -- (1,243,990)
--------------- -------------- -------------- -----------
Total property and equipment................... 7,135,475 39,595 -- 7,175,070
Restricted cash.................................... 409,298 -- -- 409,298
Goodwill, net...................................... 8,044,051 -- 1,122,508(b) 9,166,559
Other intangible assets, net....................... 1,786,923 5,388 -- 1,792,311
Investments and other assets....................... 1,009,004 3,382 -- 1,012,386
--------------- -------------- -------------- -----------
Total assets................................... $ 26,661,457 $ 254,977 $ 647,508 $27,563,942
--------------- -------------- -------------- -----------
--------------- -------------- -------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable............................. $ 4,543,262 $ 167,015 $ -- $ 4,710,277
Accrued compensation............................... 2,267,188 -- -- 2,267,188
Other accrued liabilities.......................... 2,379,668 184,746 -- 2,564,414
Current portion of notes payable and capital
leases........................................... 1,909,678 8,274 530,000(c) 2,447,952
--------------- -------------- -------------- -----------
Total current liabilities...................... 11,099,796 360,035 530,000 11,989,831
Non-current portion of notes payable and capital
leases........................................... 1,251,371 12,450 -- 1,263,821
--------------- -------------- -------------- -----------
Total liabilities.............................. 12,351,167 372,485 530,000 13,253,652
Shareholders' equity:
Preferred stock.................................... -- -- -- --
Common stock....................................... 25,549,757 500 (500)(d) 25,549,757
Treasury stock..................................... -- (41,125) 41,125(d) --
Warrants........................................... 3,996,460 -- -- 3,996,460
Other comprehensive income......................... 40,826 -- -- 40,826
Unearned compensation.............................. (177,450) -- -- (177,450)
Accumulated deficit................................ (15,099,303) (76,883) 76,883(d) (15,099,303)
--------------- -------------- -------------- -----------
Total shareholders' equity..................... 14,310,290 (117,508) 117,508 14,310,290
--------------- -------------- -------------- -----------
Total liabilities and shareholders' equity..... $ 26,661,457 $ 254,977 $ 647,508 $27,563,942
--------------- -------------- -------------- -----------
--------------- -------------- -------------- -----------
</TABLE>
See the accompanying notes to pro forma combined financial statements
F-26
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL COMMUNICATION VITAL TELEPHONE
CONVERGENT SERVICES OF A.T.T.EX INTEGRATION COMMUNICATIONS
COMMUNICATIONS IOWA(1) CORPORATION(1) SOLUTIONS(1) CORPORATION(1)
--------------- ----------------- --------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue..................................... $ 10,210 $ 86 $ 689 $ 5,883 $ 1,949
Cost of Revenue............................. 7,369 103 469 4,874 1,424
Selling, general and administrative......... 10,983 57 274 729 711
Depreciation and amortization............... 1,453 4 18 22 20
Interest expense (income) and other......... 60 -- 2 (4) 32
------- ----- ------ ------ ------
Total expenses.......................... 19,865 164 763 5,621 2,187
Income (loss from continuing operations
before income taxes....................... (9,655) (78) (74) 262 (238)
Income tax expense (benefit)................ -- (11) (28) 100 --
------- ----- ------ ------ ------
Income (loss) from continuing
operations.............................. $ (9,655) $ (67) $ (46) $ 162 $ (238)
------- ----- ------ ------ ------
------- ----- ------ ------ ------
Net loss per share (basic and diluted)...... $ (0.46)
-------
-------
Weighted average shares outstanding (basic
and diluted).............................. 20,922
-------
-------
<CAPTION>
COMMUNICATION
SERVICES OF PRO FORMA PRO FORMA
COLORADO(1) ADJUSTMENTS(2) COMBINED
--------------- --------------- -----------
<S> <C> <C> <C>
Statement of Operations Data:
Revenue..................................... $ 2,125 $ -- $ 20,942
Cost of Revenue............................. 1,411 -- 15,650
Selling, general and administrative......... 594 13,348
Depreciation and amortization............... 3 299(e) 1,819
Interest expense (income) and other......... (4) 60(f) 146
------ ----- -----------
Total expenses.......................... 2,004 359 30,963
Income (loss from continuing operations
before income taxes....................... 121 (359) (10,021)
Income tax expense (benefit)................ -- -- (g) 61
------ ----- -----------
Income (loss) from continuing
operations.............................. $ 121 $ (359) $ (10,082)
------ ----- -----------
------ ----- -----------
Net loss per share (basic and diluted)...... $ (0.47)
-----------
-----------
Weighted average shares outstanding (basic
and diluted).............................. 572(h) 21,494
----- -----------
----- -----------
</TABLE>
See the accompanying notes to pro forma combined financial statements.
F-27
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL TELEPHONE COMMUNICATION
CONVERGENT COMMUNICATIONS SERVICES OF PRO FORMA
STATEMENT OF OPERATIONS DATA: COMMUNICATIONS CORPORATION(1) COLORADO(1) ADJUSTMENTS(2)
--------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Revenue.............................................. $ 6,523 213 526 --
Cost of revenue...................................... 4,798 119 376 --
Selling, general and administrative.................. 6,062 51 168 --
Depreciation and amortization........................ 762 2 2 17(e)
Interest expense (income) and other.................. 11 -- (1) 7(f)
------- ----- ----- ---
Total expenses....................................... 11,633 172 545 24
Income (loss) from continuing operations before
income taxes....................................... (5,110) 41 (19) (24)
Income tax expense (benefit)......................... -- -- -- -- (g)
------- ----- ----- ---
Income (loss) from consulting operations............. $ (5,110) 41 (19) (24)
------- ----- ----- ---
------- ----- ----- ---
Net loss per share (basic and diluted)............... $ (0.22)
-------
-------
Weighted average shares outstanding (basic and
diluted)........................................... 22,992 3(h)
------- ---
------- ---
<CAPTION>
PRO FORMA
STATEMENT OF OPERATIONS DATA: COMBINED
-----------
<S> <C>
Revenue.............................................. $ 7,262
Cost of revenue...................................... 5,293
Selling, general and administrative.................. 6,281
Depreciation and amortization........................ 783
Interest expense (income) and other.................. 17
-----------
Total expenses....................................... 12,374
Income (loss) from continuing operations before
income taxes....................................... (5,112)
Income tax expense (benefit)......................... --
-----------
Income (loss) from consulting operations............. $ (5,112)
-----------
-----------
Net loss per share (basic and diluted)............... $ (0.22)
-----------
-----------
Weighted average shares outstanding (basic and
diluted)........................................... 22,995
-----------
-----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-28
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
PRO FORMA NOTES TO COMBINING STATEMENTS
BASIS OF PRESENTATION:
(1) The pro forma information reflects the acquisitions of Communications
Services of Iowa, Inc. ("CSI"), A.T.T.ex Corporation ("ATTex"), Vital
Integration Solutions, Inc. ("Vital"), Telephone Communications Corporation
("TCC") and Communications Services of Colorado, Inc. ("CSC").
The unaudited Pro Forma Combined Statement of Operations for the year
ended December 31, 1997 includes historical results of operations for the
Company, TCC and CSC and for CSI, ATTex and Vital through their respective
closing dates of the acquisitions. The Pro Forma Combined Statement of
Operations for the three months ended March 31, 1998 includes historical
results of operations for the Company and CSC and for TCC through the
closing date of the acquisition. The results of operations from the closing
dates are included in the historical financial statements of the Company.
(2) The following Pro Forma adjustments have been made to the unaudited combined
statements of operations of the Company, CSI, ATTex, Vital, TCC and CSC.
Adjustment amounts to the Pro Forma Statement of Operations are for the
periods prior to the respective closing dates for each of the acquisitions.
(a) Cash paid as a portion of the purchase price for the acquisition of CSC.
(b) Represents the purchase price in excess of net assets for the
acquisition of CSC.
(c) Note payable recorded as portion of the purchase price for the
acquisition of CSC.
(d) Elimination entries necessary upon the combining of parent and
subsidiary financial statement to eliminate CSC equity owned by the
Company as of March 31, 1998 on a pro forma basis.
(e) Amortization of step-up goodwill recorded on the acquisitions of CSI,
ATTex, Vital, TCC and CSC for the year ended December 31, 1997 and TCC
and CSC for the three months ended March 31, 1998.
(f) Interest expense calculated for the acquisition notes payable recorded
on the acquisitions of CSI, TCC and CSC for the year ended December 31,
1997 and TCC and CSC for the three months ended March 31, 1998.
(g) No adjustment is made to income taxes due to the Company's continuing
losses.
(h) Adjustment to weighted average Common Shares for shares issued related
to the acquisitions of CSI, ATTex, Vital and TCC for the year ended
December 31, 1997 and for TCC for the three months ended March 31, 1998.
F-29
<PAGE>
COMMUNICATIONS SERVICES OF IOWA, INC.
------------------------
FINANCIAL STATEMENTS
AS OF MARCH 31, 1997 AND DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
FOR THE YEAR ENDED DECEMBER 31, 1996
F-30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Communications Services of Iowa, Inc.:
We have audited the accompanying balance sheets of Communications Services
of Iowa, Inc. as of March 31, 1997 and December 31, 1996, and the related
statements of operations, stockholder's equity and cash flows for the three
months ended March 31, 1997 and for the year ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Communications Services Of
Iowa, Inc. as of March 31, 1997 and December 31, 1996, and the results of its
operations and its cash flows for the three months ended March 31, 1997 and for
the year ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Denver, Colorado
May 27, 1998
F-31
<PAGE>
COMMUNICATIONS SERVICES OF IOWA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Cash.............................................. $ 14,797 $ 19,870
Accounts receivable............................... 19,024 16,812
Inventory......................................... 25,459 26,418
Income tax receivable............................. 19,131 10,517
Prepaids.......................................... 6,995 3,595
------------- -------------
Total current assets.......................... 85,406 77,212
------------- -------------
Equipment......................................... 62,046 62,046
Less accumulated depreciation..................... (37,657) (33,846)
------------- -------------
Total equipment............................... 24,389 28,200
------------- -------------
Total assets................................ $ 109,795 $ 105,412
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Trade accounts payable.......................... $ 80,805 $ 12,517
Deferred revenue................................ 11,771 8,459
Warranty accrual................................ 19,701 14,502
Other accrued liabilities....................... 17,006 19,818
Current portion of capital lease obligations.... 6,562 6,241
------------- -------------
Total current liabilities..................... 135,845 61,537
Noncurrent portion of capital lease obligations... 16,096 19,142
------------- -------------
Total liabilities........................... 151,941 80,679
------------- -------------
Stockholder's equity:
Common stock, $1.00 par value; 1,000,000 shares
authorized, 3,000 shares issued and
outstanding at March 31, 1997 and December 31,
1996, respectively............................ 3,000 3,000
Retained earnings (accumulated deficit)......... (45,146) 21,733
------------- -------------
Total stockholder's equity.................... (42,146) 24,733
------------- -------------
Total liabilities and stockholder's
equity.................................... $ 109,795 $ 105,412
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
COMMUNICATIONS SERVICES OF IOWA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH DECEMBER 31,
31, 1997 1996
------------- ------------
<S> <C> <C>
Revenue............................................................................. $ 85,817 $ 430,344
------------- ------------
Operating expenses:
Cost of revenue................................................................... 102,883 259,769
Selling, general and administrative............................................... 56,754 194,882
Depreciation...................................................................... 3,811 4,665
------------- ------------
Total operating expenses........................................................ 163,448 459,316
------------- ------------
Operating loss.................................................................. (77,631) (28,972)
Interest income and other........................................................... -- (4,134)
------------- ------------
Loss before income tax benefit...................................................... (77,631) (24,838)
Income tax benefit.................................................................. (10,752) (9,432)
------------- ------------
Net loss........................................................................ $ (66,879) $ (15,406)
------------- ------------
------------- ------------
Net loss per share (basic).......................................................... $ (22.29) $ (5.14)
------------- ------------
------------- ------------
Weighted average shares outstanding (basic)......................................... 3,000 3,000
------------- ------------
------------- ------------
Net loss per share (diluted)........................................................ $ (22.29) $ (5.14)
------------- ------------
------------- ------------
Weighted average shares outstanding (diluted)....................................... 3,000 3,000
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
COMMUNICATIONS SERVICES OF IOWA, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
TOTAL
COMMON COMMON RETAINED STOCKHOLDER'S
SHARES STOCK EARNINGS EQUITY
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995........................................ 3,000 $ 3,000 $ 37,139 $ 40,139
Net loss........................................................ -- -- (15,406) (15,406)
----- ----------- ---------- ------------
Balance, December 31, 1996........................................ 3,000 3,000 21,733 24,733
Net loss........................................................ -- -- (66,879) (66,879)
----- ----------- ---------- ------------
Balance, March 31, 1997........................................... 3,000 $ 3,000 $ (45,146) $ (42,146)
----- ----------- ---------- ------------
----- ----------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
COMMUNICATIONS SERVICES OF IOWA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH DECEMBER 31,
31, 1997 1996
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................................................... $ (66,879) $ (15,406)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation.................................................................. 3,811 4,665
Deferred income taxes......................................................... (2,138) 86
Changes in assets and liabilities:
(Increase) decrease in accounts receivable.................................. (2,212) 25,123
Decrease in inventory....................................................... 959 10,180
(Increase) in income tax receivable......................................... (8,614) (10,517)
(Increase) in prepaid expenses.............................................. (3,400) (2,196)
Increase (decrease) in accounts payable..................................... 68,288 (21,183)
Increase in deferred revenue, warranty accrual and other accrued
liabilities............................................................... 7,837 32,855
------------- ------------
Net cash provided by (used in) operating activities....................... (2,348) 23,607
------------- ------------
Cash flows from financing activities:
Payments for capital lease obligations............................................ (2,725) (18,534)
------------- ------------
Net cash used in financing activities....................................... (2,725) (18,534)
------------- ------------
Net decrease in cash................................................................ (5,073) 5,073
Cash, beginning of period........................................................... 19,870 14,797
------------- ------------
Cash, end of period................................................................. $ 14,797 $ 19,870
------------- ------------
------------- ------------
Supplemental disclosure of noncash investing and financing activities:
During the year ended December 31, 1996, the Company acquired a vehicle and
computer equipment under capital lease obligations (see Note 3).
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
COMMUNICATIONS SERVICES OF IOWA, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Communications Services of Iowa, Inc. (the "Company" or "CSI") was formed
under the laws of the State of Iowa in February 1989.
CSI provides network integration services and computer equipment to
corporate customers within the State of Iowa.
The Company focuses on small to medium-sized businesses and has sales
offices in Des Moines.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts reported in the balance sheet for cash, accounts
receivable and accounts payable approximate fair value because of the immediate
or short-term maturity of these financial instruments.
EQUIPMENT:
Equipment is recorded at cost. Depreciation is computed using the
straight-line or double-declining methods over the estimated useful lives of the
assets, which range from three to seven years. Expenditures that significantly
increase asset values or extend useful lives are capitalized. Maintenance and
repairs are expensed as incurred. When property and equipment is retired, sold
or otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts and gains and losses resulting from such transactions
are reflected in operations.
Leased equipment meeting certain criteria is capitalized and the present
value of the related lease payments is recorded as a liability. Amortization of
capitalized leased assets is computed on the straight-line method over the term
of the lease.
LONG-LIVED ASSETS:
The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF. SFAS 121 requires an evaluation of indicators of impairment and future
undiscounted cash flows to be generated by those assets.
F-36
<PAGE>
COMMUNICATIONS SERVICES OF IOWA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INVENTORY:
Inventory consists of equipment held for resale and is recorded at the lower
of cost or market. Cost is determined using the first-in, first-out method of
inventory valuation.
REVENUE RECOGNITION:
Revenue is recognized for product sales when the product is shipped.
Revenues from services are recognized when the services are provided.
INCOME TAXES:
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to the differences between the financial statement
carrying value of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured by using enacted tax
rates that are applicable to the future years in which deferred tax assets or
liabilities are expected to be realized or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in net earnings
in the period in which the tax rate change is enacted. The Company establishes a
valuation allowance when it is more likely than not that a deferred tax asset
will not be recovered.
CONCENTRATION OF CREDIT RISK:
The Company sells its products and services to small to medium-sized
businesses on open account. The Company typically does not obtain collateral for
its receivables. To date, the Company has not experienced any significant credit
losses.
Accounts receivable from two customers were approximately $7,000 and $3,600
at March 31, 1997. Accounts receivable from two customers were approximately
$3,300 and $4,300 at December 31, 1996.
EARNINGS PER SHARE:
The Company adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), Earnings per Share in 1997 and all prior periods have been restated.
SFAS 128 replaces the presentation of "primary" and " fully diluted" EPS with
"basic" and "diluted" EPS. Basic EPS is computed by dividing net income
available to common shareholders by the weighted average number of common shares
outstanding. Diluted EPS requires an adjustment to the denominator to include
the number of additional common shares that would have been outstanding if
dilutive potential common shares had been issued.
F-37
<PAGE>
COMMUNICATIONS SERVICES OF IOWA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. CAPITAL LEASES:
The Company leases a vehicle and computer equipment under capital leases.
The following is a schedule of the minimum lease payments under the capital
leases as of March 31, 1997.
<TABLE>
<S> <C>
1997.............................................. $ 6,562
1998.............................................. 10,461
1999.............................................. 4,860
2000.............................................. 4,860
Thereafter........................................ 1,620
-------
Total minimum lease payments...................... 28,363
Less amount representing interest................. 5,705
-------
Present value of minimum lease payments........... 22,658
Less current portion.............................. 6,562
-------
Long-term portion................................. $ 16,096
-------
-------
</TABLE>
Property and equipment under capital leases at March 31, 1997 and December
31, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, 1997 1996
-------------- --------------
<S> <C> <C>
Vehicle........................................... $ 16,361 $ 16,361
Computer.......................................... 14,554 14,554
------- -------
30,915 30,915
Less accumulated depreciation..................... (12,208) (9,335)
------- -------
Net property and equipment under capital lease.... $ 18,707 $ 21,580
------- -------
------- -------
</TABLE>
4. INCOME TAXES:
The provision for (benefit from) income taxes consists of the following for
the periods ended March 31, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, 1997 1996
-------------- --------------
<S> <C> <C>
Current:
Federal......................................... $ (7,510) $ (8,014)
State........................................... (1,104) (1,504)
-------------- -------
(8,614) (9,518)
-------------- -------
Deferred:
Federal......................................... (1,864) 86
State........................................... (274) --
-------------- -------
(2,138) 86
-------------- -------
Total income tax expense (benefit)............ $ (10,752) $ (9,432)
-------------- -------
-------------- -------
</TABLE>
F-38
<PAGE>
COMMUNICATIONS SERVICES OF IOWA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES: (CONTINUED)
Deferred tax assets and liabilities are comprised of the following as of
March 31, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
Assets:
Net operating loss carryforwards.................. $ 20,525 $ --
Depreciation...................................... 1,256 --
--------- ------------
Gross deferred tax assets....................... 21,781 --
--------- ------------
Liabilities:
Depreciation...................................... -- (2,138)
--------- ------------
Gross deferred tax (liabilities)................ -- (2,138)
--------- ------------
Valuation allowance............................... (21,781) --
--------- ------------
Net deferred tax assets (liabilities)........... $ -- $ (2,138)
--------- ------------
--------- ------------
</TABLE>
The reported amount of income tax expense on pre-tax income differs from the
amount of income tax expense that would result from applying domestic federal
statutory tax rates to pre-tax income for the following reasons:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
<S> <C> <C> <C> <C>
U.S. federal statutory expense (benefit).......... $ (26,395) (34.0)% $ (9,850) (34.0)%
State taxes, net of federal benefit............... (3,074) (4.0) (1,149) (4.0)
Change in valuation allowance..................... 21,781 (28.0) -- --
Other, net........................................ (3,064) (3.9) 1,567 5.40
-------------- --------- ------- ---------
$ (10,752) (13.9)% $ (9,432) (32.6)%
-------------- --------- ------- ---------
-------------- --------- ------- ---------
</TABLE>
During the three months ended March 31, 1997, the Company recorded a
valuation allowance for temporary differences which will not be recovered
(primarily net operating losses).
The Company has net tax operating loss carryforwards of $20,525 at March 31,
1997 which expire in 2012.
5. SUBSEQUENT EVENTS:
On April 1, 1997, Convergent Communications, Inc. ("CCI") purchased all of
the Company's outstanding shares of common stock for $100,000 in cash, a
$100,000 one-year promissory note at 8% and the issuance of 50,000 shares of CCI
common stock.
F-39
<PAGE>
A.T.T.EX CORPORATION
------------------------
FINANCIAL STATEMENTS
AS OF AND FOR THE EIGHT MONTHS ENDED AUGUST 31, 1997
F-40
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
A.T.T.ex Corporation:
We have audited the accompanying balance sheet of A.T.T.ex Corporation as of
August 31, 1997, and the related statements of operations, stockholders' equity
and cash flows for the eight months then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of A.T.T.ex Corporation as of
August 31, 1997, and the results of its operations and its cash flows for the
eight months then ended in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
Denver, Colorado
May 27, 1998
F-41
<PAGE>
A.T.T.EX CORPORATION
BALANCE SHEET
AS OF AUGUST 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash.............................................................................. $ 87,559
Accounts receivable............................................................... 38,134
Prepaid expenses.................................................................. 3,680
---------
Total current assets.......................................................... 129,373
---------
Property and equipment............................................................ 183,208
Less accumulated depreciation..................................................... (83,747)
---------
Total property and equipment.................................................. 99,461
---------
Total assets................................................................ $ 228,834
---------
---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Trade accounts payable.......................................................... $ 25,324
Other accrued liabilities....................................................... 13,731
Income taxes payable............................................................ 8,370
Accrued vacation................................................................ 20,295
Current portion of notes payable and capital lease obligations.................. 23,608
---------
Total current liabilities..................................................... 91,328
Noncurrent portion of notes payable and capital lease obligations................. 41,159
---------
Total liabilities............................................................. 132,487
---------
Commitments (Note 5)
Stockholder's equity:
Common stock, $1.00 par value; 100,000 shares authorized, 2,000 shares issued
and outstanding at August 31, 1997............................................ 2,000
Retained earnings............................................................... 94,347
---------
Total stockholders' equity.................................................... 96,347
---------
Total liabilities and stockholders' equity.................................. $ 228,834
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
A.T.T.EX CORPORATION
STATEMENT OF OPERATIONS
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1997
<TABLE>
<S> <C>
Revenues.......................................................................... $ 689,265
---------
Operating expenses:
Cost of revenues................................................................ 469,330
Selling, general and administrative............................................. 274,319
Depreciation and amortization................................................... 18,277
---------
Total operating expenses...................................................... 761,926
---------
Operating loss................................................................ (72,661)
Interest (expense) income (net of interest expense of $3,400) and other........... (1,051)
---------
Loss before income tax benefit................................................ (73,712)
Income tax benefit................................................................ (27,900)
---------
Net loss...................................................................... $ (45,812)
---------
---------
Net loss per share (basic)........................................................ $ (22.91)
---------
---------
Weighted average shares outstanding (basic)....................................... 2,000
---------
---------
Net loss per share (diluted)...................................................... $ (22.91)
---------
---------
Weighted average shares outstanding (diluted)..................................... 2,000
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
A.T.T.EX CORPORATION
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
TOTAL
COMMON COMMON RETAINED STOCKHOLDER'S
SHARES STOCK EARNINGS EQUITY
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996........................................ 2,000 $ 2,000 $ 140,159 $ 142,159
Net loss........................................................ -- -- (45,812) (45,812)
----- ----------- ---------- ------------
Balance, August 31, 1997.......................................... 2,000 $ 2,000 $ 94,347 $ 96,347
----- ----------- ---------- ------------
----- ----------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
A.T.T.EX CORPORATION
STATEMENT OF CASH FLOWS
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss........................................................................ $ (45,812)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................... 18,277
Changes in assets and liabilities:
Decrease in accounts receivable........................................... 34,230
Increase in prepaid expenses.............................................. (1,886)
Decrease in accounts payable.............................................. (5,715)
Decrease in other accrued liabilities..................................... (30,947)
Decrease in income taxes payable.......................................... (28,616)
---------
Net cash used in operating activities................................... (60,469)
---------
Cash flows from investing activities:
Payments for property and equipment............................................. (5,399)
---------
Net cash used in investing activities..................................... (5,399)
---------
Cash flows from financing activities:
Cash payments under capital lease............................................... (1,696)
Cash payments under seller notes................................................ (12,662)
---------
Net cash used in financing activities..................................... (14,358)
---------
Net decrease in cash.............................................................. (80,226)
Cash, beginning of period......................................................... 167,785
---------
Cash, end of period............................................................... $ 87,559
---------
---------
Supplemental schedule of noncash investing and financing activities:
Cash paid for interest.......................................................... $ 3,872
---------
---------
Capital lease assets acquired and obligations incurred.......................... $ 16,705
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
A.T.T.EX CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
A.T.T.ex Corporation (the "Company" or "A.T.T.ex") was formed under the laws
of the State of Iowa in July 1986.
A.T.T.ex provides telephony services which include voice products (sale and
integration of key systems and PBXs) and voice services (maintenance of the
products), to corporate customers within the State of Iowa.
The Company focuses on small to medium-sized businesses and has sales
offices in Des Moines.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts reported in the balance sheet for cash, accounts
receivable and accounts payable approximate fair value because of the immediate
or short-term maturity of these financial instruments.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, which
range from 5 to 7 years for equipment and vehicles and 25 years for buildings.
Expenditures that significantly increase asset values or extend useful lives are
capitalized. Maintenance and repairs are expensed as incurred. When property and
equipment is retired, sold or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and gains and losses
resulting from such transactions are reflected in operations.
Leased property meeting certain criteria is capitalized and the present
value of the related lease payments is recorded as a liability. Amortization of
capital lease assets is computed on the straight-line method over the term of
the lease.
LONG-LIVED ASSETS:
The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF. SFAS 121 requires an evaluation of indicators of impairment and future
undiscounted cash flows to be generated by those assets.
F-46
<PAGE>
A.T.T.EX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION:
Revenue is recognized for product sales when the product is shipped.
Revenues from services are recognized when the services are provided.
INCOME TAXES:
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to the differences between the financial statement
carrying value of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured by using enacted tax
rates that are applicable to the future years in which deferred tax assets or
liabilities are expected to be realized or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in net earnings
in the period in which the tax rate change was enacted. The Company establishes
a valuation allowance when it is more likely than not that a deferred tax asset
will not be recovered.
CONCENTRATION OF CREDIT RISK:
The Company sells its products and services to small to medium-sized
businesses on open account. The Company typically does not obtain collateral for
its receivables. To date, the Company has not experienced any significant credit
losses.
Revenues from two customers represented approximately $106,000 and 96,000,
respectively, of the Company's revenues for the period ended August 31, 1997.
Accounts receivable from the two customers were $11,303 and $3,310,
respectively, for the period ended August 31, 1997.
EARNINGS PER SHARE:
The Company adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), Earnings per Share in 1997 has been restated. SFAS 128 replaces the
presentation of "primary" and "fully diluted" EPS with "basic" and "diluted"
EPS. Basic EPS is computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding.
Diluted EPS requires an adjustment to the denominator to include the number of
additional common shares that would have been outstanding if dilutive potential
common shares had been issued.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at August 31, 1997:
<TABLE>
<S> <C>
Office equipment.................................................. $ 22,985
Company vehicles.................................................. 146,110
Buildings......................................................... 14,113
---------
183,208
Less accumulated depreciation..................................... (83,747)
---------
Net property and equipment........................................ $ 99,461
---------
---------
</TABLE>
Depreciation expense was $18,277 for the eight months ended August 31, 1997.
F-47
<PAGE>
A.T.T.EX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT: (CONTINUED)
Equipment under capital leases was $7,167 and accumulated depreciation was
$1,653 at August 31, 1997.
4. NOTES PAYABLE AND CAPITAL LEASES:
Notes payable at August 31, 1997 consists of the following:
<TABLE>
<S> <C>
Note payable to purchase a van, bearing interest at 6.9%, due in
$360.22 installments through June 23, 1998 (collateralized by the
van)............................................................. 3,491
Note payable to purchase a van, bearing interest at 9.75%, due in
$371.22 installments through February 14, 1999 (collateralized by
the van)......................................................... 5,874
Note payable to purchase a van, bearing interest at 9.75%, due in
$393.63 installments through February 12, 1999 (collateralized by
the van)......................................................... 6,582
Note payable to purchase a van, bearing interest at 9.5%, due in
$408.45 installments through July 24, 2000 (collateralized by the
van)............................................................. 12,439
Note payable to purchase a car, bearing interest at 9.5%, due in
$441.88 installments through January 9, 2001 (collateralized by
the car)......................................................... 15,415
Note payable to purchase a van, bearing interest at 10.6%, due in
$360.71 installments through June 10, 2002 (collateralized by the
van)............................................................. 16,316
---------
Total............................................................ 60,117
Less current portion............................................... 21,153
---------
Long-term portion.................................................. $ 38,964
---------
---------
</TABLE>
The following is a schedule of payments for the notes payable over the next
five years, as of August 31, 1997:
<TABLE>
<S> <C>
September 1, 1997 - August 31, 1998................................ $ 21,153
September 1, 1998 - August 31, 1999................................ 17,132
September 1, 1999 - August 31, 2000................................ 12,497
September 1, 2000 - August 31, 2001................................ 5,898
September 1, 2001 - August 31, 2002................................ 3,437
---------
Total.............................................................. $ 60,117
---------
---------
</TABLE>
F-48
<PAGE>
A.T.T.EX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE AND CAPITAL LEASES: (CONTINUED)
The Company leases certain equipment under capital leases. The following is
a schedule of the minimum lease payments under the capital leases together with
the present value of the minimum lease payments as of August 31, 1997.
<TABLE>
<S> <C>
September 1, 1997 - August 31, 1998................................. $ 2,890
September 1, 1998 - August 31, 1999................................. 2,192
September 1, 1999 - August 31, 2000................................. 125
Thereafter.......................................................... --
---------
Total minimum lease payments........................................ 5,207
Less amount representing interest................................... 557
---------
Present value of minimum lease payments............................. 4,650
Less current portion................................................ 2,455
---------
Long-term portion................................................... $ 2,195
---------
---------
</TABLE>
5. COMMITMENTS:
OPERATING LEASES:
The Company leases a portion of its buildings and equipment under operating
leases. Future minimum payments under operating leases are as follows:
<TABLE>
<S> <C>
September 1, 1997 - August 31, 1998................................ $ 7,509
September 1, 1998 - August 31, 1999................................ 2,855
Thereafter......................................................... --
---------
$ 10,364
---------
---------
</TABLE>
Rent expense under operating leases was $7,360, for the eight months ended
August 31, 1997.
6. INCOME TAXES:
The benefit from income taxes consists of the following for the eight months
ended August 31, 1997:
<TABLE>
<S> <C>
Current:
Federal......................................................... $ (23,500)
State........................................................... (4,400)
---------
(27,900)
---------
Deferred:
Federal......................................................... --
State........................................................... --
---------
--
---------
Total income tax benefit...................................... $ (27,900)
---------
---------
</TABLE>
F-49
<PAGE>
A.T.T.EX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES: (CONTINUED)
The income tax benefit from the current period has been applied against the
income tax payable for the fiscal period January 1, 1996 through December 31,
1996.
The reported amount of income tax benefit on pre-tax loss differs from the
amount of income tax benefit that would result from applying domestic federal
statutory tax rates to pre-tax loss for the following reasons:
<TABLE>
<CAPTION>
EIGHT
MONTHS
ENDED
AUGUST 31,
1997
-----------
<S> <C>
U.S. federal statutory benefit.................................................... (34.0)%
State taxes, net of federal benefit............................................... (4.0)
Other, net........................................................................ (.9)
-----------
(38.9)%
-----------
-----------
</TABLE>
7. SUBSEQUENT EVENTS:
On September 1, 1997, Convergent Communications, Inc. ("CCI") purchased all
of the Company's outstanding shares of common stock for $450,000 in cash, and
the issuance of 75,000 shares of CCI's common stock.
F-50
<PAGE>
VITAL INTEGRATION SOLUTIONS, INC.
------------------------
FINANCIAL STATEMENTS
AS OF AUGUST 31, 1997 AND DECEMBER 31, 1996 AND 1995
AND FOR THE EIGHT MONTHS ENDED AUGUST 31, 1997 AND
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
F-51
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Vital Integration Solutions, Inc.:
We have audited the accompanying balance sheets of Vital Integration
Solutions, Inc. as of August 31, 1997 and December 31, 1996 and 1995, and the
related statements of operations, stockholders' equity and cash flows for the
eight months ended August 31, 1997 and for the years ended December 31, 1996 and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vital Integration Solutions,
Inc. as of August 31, 1997 and December 31, 1996 and 1995, and the results of
its operations and its cash flows for the eight months ended August 31, 1997 and
for the years ended December 31, 1996 and 1995 in conformity with generally
accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Denver, Colorado
May 27, 1998
F-52
<PAGE>
VITAL INTEGRATION SOLUTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
AUGUST 31, ----------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Cash......................................................................... $ 458,260 $ 242,519 $ 19,068
Accounts receivable.......................................................... 397,678 477,381 751,584
Inventory.................................................................... 21,874 -- --
Prepaid and other current assets............................................. 4,887 3,413 1,153
---------- ---------- ----------
Total current assets..................................................... 882,699 723,313 771,805
---------- ---------- ----------
Property and equipment....................................................... 151,128 104,615 36,733
Less accumulated depreciation................................................ (51,892) (29,952) (6,461)
---------- ---------- ----------
Total property and equipment............................................. 99,236 74,663 30,272
---------- ---------- ----------
Other assets................................................................. 4,250 600 400
---------- ---------- ----------
Total assets........................................................... $ 986,185 $ 798,576 $ 802,477
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Trade accounts payable..................................................... $ 549,693 $ 421,847 $ 602,805
Deferred revenue........................................................... -- 68,000 --
Note payable............................................................... -- -- 12,385
Income taxes payable....................................................... 92,157 -- 57,417
Other accrued liabilities.................................................. 52,637 180,370 33,414
---------- ---------- ----------
Total current liabilities................................................ 694,487 670,217 706,021
Deferred tax liability....................................................... 4,990 4,357 6,789
---------- ---------- ----------
Total liabilities........................................................ 699,477 674,574 712,810
---------- ---------- ----------
Commitments (Note 4)
Stockholders' equity:
Common stock, no par value; 100,000 shares authorized, 9,600 shares issued
and outstanding at August 31, 1997 and December 31, 1996 and 1995........ 9,600 9,600 9,600
Retained earnings.......................................................... 277,108 114,402 80,067
---------- ---------- ----------
Total stockholders' equity............................................... 286,708 124,002 89,667
---------- ---------- ----------
Total liabilities and stockholders' equity............................. $ 986,185 $ 798,576 $ 802,477
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE>
VITAL INTEGRATION SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED YEAR ENDED DECEMBER 31,
AUGUST 31, --------------------------
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Revenue................................................................ $ 5,883,012 $ 6,099,809 $ 3,567,494
------------- ------------ ------------
Operating expenses:
Cost of revenue...................................................... 4,873,584 5,063,652 3,096,465
Selling, general and administrative.................................. 729,156 955,567 304,995
Depreciation and amortization........................................ 21,940 23,592 6,562
------------- ------------ ------------
Total operating expenses........................................... 5,624,680 6,042,811 3,408,022
------------- ------------ ------------
Operating income................................................... 258,332 56,998 159,472
Interest (expense) income and other.................................... 3,944 29 (2,994)
------------- ------------ ------------
Income before income tax............................................... 262,276 57,027 156,478
Income tax expense..................................................... 99,570 22,692 64,664
------------- ------------ ------------
Net income....................................................... $ 162,706 $ 34,335 $ 91,814
------------- ------------ ------------
------------- ------------ ------------
Net income per share (basic)........................................... $ 16.95 $ 3.58 $ 10.45
------------- ------------ ------------
------------- ------------ ------------
Weighted average shares outstanding (basic)............................ 9,600 9,600 8,785
------------- ------------ ------------
------------- ------------ ------------
Net income per share (diluted)......................................... $ 16.95 $ 3.58 $ 10.45
------------- ------------ ------------
------------- ------------ ------------
Weighted average shares outstanding (diluted).......................... 9,600 9,600 8,785
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE>
VITAL INTEGRATION SOLUTIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1997 AND
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- TOTAL
SHARES RETAINED STOCKHOLDERS'
ISSUED AMOUNT EARNINGS EQUITY
--------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994....................................... 9,600 $ 38,253 $ -- $ 38,253
Sale of common stock........................................... 9,600 9,600 -- 9,600
Treasury stock purchased....................................... (9,600) (38,253) (11,747) (50,000)
Net income..................................................... -- -- 91,814 91,814
--------- ---------- ---------- -------------
Balance, December 31, 1995....................................... 9,600 9,600 80,067 89,667
Net income..................................................... -- -- 34,335 34,335
--------- ---------- ---------- -------------
Balance, December 31, 1996....................................... 9,600 9,600 114,402 124,002
Net income..................................................... -- -- 162,706 162,706
--------- ---------- ---------- -------------
Balance, August 31, 1997......................................... 9,600 $ 9,600 $ 277,108 $ 286,708
--------- ---------- ---------- -------------
--------- ---------- ---------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE>
VITAL INTEGRATION SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED YEAR ENDED DECEMBER 31,
AUGUST 31, ------------------------
1997 1996 1995
------------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................. $ 162,706 $ 34,335 $ 91,814
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization...................................... 21,940 23,592 6,562
Deferred income taxes.............................................. 633 (2,432) 3,818
Changes in assets and liabilities:
(Increase) decrease in accounts receivable....................... 79,703 274,203 (594,150)
(Increase) in prepaid expenses and other assets.................. (5,124) (1,188) (1,653)
(Increase) decrease in inventory................................. (21,874) -- 2,864
(Increase) in other assets....................................... -- (1,372) --
Increase (decrease) in accounts payable.......................... 127,841 (180,959) 490,695
Increase (decrease) in other accrued liabilities................. (104,209) 157,539 75,778
------------- ----------- -----------
Net cash provided by operating activities...................... 261,616 303,718 75,728
------------- ----------- -----------
Cash flows from investing activities:
Payments for property and equipment.................................... (45,875) (67,882) (27,850)
------------- ----------- -----------
Net cash used in investing activities............................ (45,875) (67,882) (27,850)
------------- ----------- -----------
Cash flows from financing activities:
Purchase of stock...................................................... -- -- (50,000)
Borrowings on note payable............................................. -- -- 50,000
Cash payments on notes payable......................................... -- (12,385) (37,615)
Sale of common stock................................................... -- -- 9,600
------------- ----------- -----------
Net cash used in financing activities............................ -- (12,385) (28,015)
------------- ----------- -----------
Net increase in cash..................................................... 215,741 223,451 19,863
Cash, beginning of period................................................ 242,519 19,068 (795)
------------- ----------- -----------
Cash, end of period...................................................... $ 458,260 $ 242,519 $ 19,068
------------- ----------- -----------
------------- ----------- -----------
Supplemental disclosures:
Cash paid for interest................................................. $ 1,918 $ 861 $ 2,994
------------- ----------- -----------
------------- ----------- -----------
Cash paid for taxes.................................................... $ 9,423 $ 57,417 $ --
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE>
VITAL INTEGRATION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Vital Integration Solutions, Inc. (the "Company") was formed under the laws
of the State of Iowa in December 1994.
The Company provides network integration services and computer equipment to
corporate customers within the states of Iowa and Nebraska.
The Company focuses on medium-sized businesses and has sales offices in Des
Moines and Omaha.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts reported in the balance sheet for cash, accounts
receivable, accounts payable and short-term borrowings approximate fair value
because of the immediate or short-term maturity of these financial instruments.
INVENTORY:
Inventory consists of finished goods which are awaiting approval for return
to the vendors and is valued at actual cost using the specific identification
method.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line or double-declining methods over the estimated useful lives of
the assets, which range from three to seven years. Expenditures that
significantly increase asset values or extend useful lives are capitalized.
Maintenance and repairs are expensed as incurred. When property and equipment is
retired, sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and gains and losses resulting from
such transactions are reflected in operations.
LONG-LIVED ASSETS:
The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF. SFAS 121 requires an evaluation of indicators of impairment and future
undiscounted cash flows to be generated by those assets.
F-57
<PAGE>
VITAL INTEGRATION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
EARNINGS PER SHARE:
The Company adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), Earnings per Share in 1997 and all prior periods have been restated.
SFAS 128 replaces the presentation of "primary" and "fully diluted" EPS with
"basic" and "diluted" EPS. Basic EPS is computed by dividing net income
available to common shareholders by the weighted average number of common shares
outstanding. Diluted EPS requires an adjustment to the denominator to include
the number of additional common shares that would have been outstanding if
dilutive potential common shares had been issued.
REVENUE RECOGNITION:
Revenue is recognized for product sales when the product is shipped.
Revenues from services are recognized when the services are provided.
DEFERRED REVENUE:
Deferred revenue at December 31, 1996 consists of a customer deposit for an
uncompleted contract.
INCOME TAXES:
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to the differences between the financial statement
carrying value of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured by using enacted tax
rates that are applicable to the future years in which deferred tax assets or
liabilities are expected to be realized or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in net earnings
in the period in which the tax rate change was enacted. The Company establishes
a valuation allowance when it is more likely than not that a deferred tax asset
will not be recovered.
CONCENTRATION OF CREDIT RISK:
The Company sells its products and services to small to medium-sized
businesses on open account. The Company typically does not obtain collateral for
its receivables. To date, the Company has not experienced any significant credit
losses.
At August 31, 1997 and December 31, 1996, substantially all of the Company's
cash is maintained at one bank in Iowa. To date this concentration of credit
risk has not had a material effect on the results of operations of the Company.
Revenues from two, one and three customers represented approximately
$1,961,000, $1,170,000 and $1,546,124 of the Company's consolidated revenues for
the eight months ended August 31, 1997 and for years ended December 31, 1996 and
1995, respectively.
F-58
<PAGE>
VITAL INTEGRATION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at August 31, 1997,
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
AUGUST 31, ---------------------
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Office equipment........................................... $ 21,848 $ 14,772 $ 27,849
Office furniture and equipment............................. 9,001 6,857 8,884
Company vehicles........................................... 24,899 24,899 --
Computer equipment......................................... 95,380 58,087 --
---------- ---------- ---------
151,128 104,615 36,733
Less accumulated depreciation.............................. (51,892) (29,952) (6,461)
---------- ---------- ---------
Net property and equipment................................. $ 99,236 $ 74,663 $ 30,272
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
Depreciation expense was $21,940, $23,592 and $6,562 for the eight months
ended August 31, 1997 and for the years ended December 31, 1996 and 1995,
respectively.
4. COMMITMENTS:
OPERATING LEASES:
The Company leases a portion of its buildings and equipment under operating
leases. Future minimum payments under operating leases are as follows:
<TABLE>
<S> <C>
September 1, 1997 - August 31, 1998................................ $ 57,748
September 1, 1998 - August 31, 1999................................ 18,088
September 1, 1999 - August 31, 2000................................ 2,855
September 1, 2000 - August 31, 2001 and thereafter................. --
---------
$ 78,691
---------
---------
</TABLE>
Rent expense under operating leases was $30,763, $18,089 and $7,750,
respectively, for the eight months ended August 31, 1997 and for the years ended
December 31, 1996 and 1995.
F-59
<PAGE>
VITAL INTEGRATION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES:
The provision for (benefit from) income taxes consists of the following for
the periods ended August 31, 1997 and December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
AUGUST 31, --------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Current:
Federal................................................... $ 83,299 $ 21,153 $ 48,568
State..................................................... 15,638 3,971 12,278
---------- --------- ---------
98,937 25,124 60,846
---------- --------- ---------
Deferred:
Federal................................................... 552 (2,120) 3,329
State..................................................... 81 (312) 489
---------- --------- ---------
633 (2,432) 3,818
---------- --------- ---------
Total income tax expenses............................... $ 99,570 $ 22,692 $ 64,664
---------- --------- ---------
---------- --------- ---------
</TABLE>
The reported amount of income tax expense on pre-tax income differs from the
amount of income tax expense that would result from applying domestic federal
statutory tax rates to pre-tax income for the following reasons:
<TABLE>
<CAPTION>
DECEMBER 31,
AUGUST 31, ------------------------------------------
1997 1996 1995
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. federal statutory
expense................... $ 89,174 34.0% $ 19,389 34.0% $ 53,377 34.0%
State taxes, net of federal
benefit................... 10,396 4.0 2,259 4.0 6,217 4.0
Other, net.................. -- -- 1,044 .8 5,070 3.2
--------- --- --------- --- --------- ---
$ 99,570 38.0% $ 22,692 38.8% $ 64,664 41.2%
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
</TABLE>
The deferred tax liabilities are comprised of the following as of August 31,
1997 and December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
AUGUST 31, --------------------
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Depreciation................................................... $ 4,990 $ 4,357 $ 6,789
----------- --------- ---------
Net deferred tax liabilities................................... $ 4,990 $ 4,357 $ 6,789
----------- --------- ---------
----------- --------- ---------
</TABLE>
6. SUBSEQUENT EVENTS:
On August 31, 1997, Convergent Communications, Inc. ("CCI") purchased all of
the Company's outstanding shares of common stock for $500,000 in cash and
750,000 shares of CCI common stock.
F-60
<PAGE>
TELEPHONE COMMUNICATIONS CORPORATION
------------------------
FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998 AND DECEMBER 31, 1997
AND FOR THE ONE MONTH ENDED JANUARY 31, 1998 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
F-61
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Telephone Communications Corporation:
We have audited the accompanying balance sheets of Telephone Communications
Corporation as of January 31, 1998 and December 31, 1997, and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
one month ended January 31, 1998 and for the year ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Telephone Communications
Corporation as of January 31, 1998 and December 31, 1997, and the results of its
operations and its cash flows for the one month ended January 31, 1998 and for
the year ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Denver, Colorado
May 27, 1998
F-62
<PAGE>
TELEPHONE COMMUNICATIONS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................................ $ 52,645 $ 10,159
Accounts receivable, net of allowance of $74,000 and $69,600 at January 31, 1998 and
December 31, 1997, respectively.................................................... 300,923 273,730
Prepaid expenses..................................................................... 4,685 7,343
------------ ------------
Total current assets............................................................. 358,253 291,232
------------ ------------
Property and equipment............................................................... 88,959 87,154
Less accumulated depreciation........................................................ (58,853) (57,137)
------------ ------------
Total property and equipment..................................................... 30,106 30,017
------------ ------------
Total assets................................................................... $ 388,359 $ 321,249
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Trade accounts payable............................................................. $ 747,183 $ 661,930
Other accrued liabilities.......................................................... 64,521 71,013
Current portion of note payable.................................................... 286,796 142,412
------------ ------------
Total current liabilities........................................................ 1,098,500 875,355
Noncurrent portion of note payable................................................... -- 155,771
------------ ------------
Total liabilities................................................................ 1,098,500 1,031,126
------------ ------------
Commitments (Note 5)
Stockholders' equity (deficit):
Common stock, no par value; 50,000 shares authorized, 1,001 shares issued and
outstanding at January 31, 1998 and December 31, 1997............................ 100 100
Accumulated deficit................................................................ (710,241) (709,977)
------------ ------------
Total stockholders' equity (deficit)............................................. (710,141) (709,877)
------------ ------------
Total liabilities and stockholders' equity (deficit)........................... $ 388,359 $ 321,249
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE>
TELEPHONE COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ONE MONTH
ENDED YEAR ENDED
JANUARY 31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
Operating revenue..................................................................... $ 216,557 $1,995,977
Discount allowances................................................................... (4,012) (47,377)
----------- ------------
Total revenue..................................................................... 212,545 1,948,600
----------- ------------
Operating expenses:
Cost of revenues 119,474 1,423,809
Selling, general and administrative................................................. 50,976 710,672
Depreciation and amortization....................................................... 1,715 20,224
----------- ------------
Total operating expenses.......................................................... 172,165 2,154,705
----------- ------------
Operating income (loss)........................................................... 40,380 (206,105)
Interest (expense).................................................................... (28) (31,910)
----------- ------------
Net income (loss)............................................................... $ 40,352 $ (238,015)
----------- ------------
----------- ------------
Net income (loss) per share (basic)................................................... $ 40.31 $ (237.78)
----------- ------------
----------- ------------
Weighted average shares outstanding (basic)........................................... 1,001 1,001
----------- ------------
----------- ------------
Net income (loss) per share (diluted)................................................. $ 40.31 $ (237.78)
----------- ------------
----------- ------------
Weighted average shares outstanding (diluted)......................................... 1,001 1,001
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE>
TELEPHONE COMMUNICATIONS CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE ONE MONTH ENDED JANUARY 31, 1998 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS'
COMMON COMMON ACCUMULATED EQUITY
SHARES STOCK DEFICIT (DEFICIT)
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996...................................... 1,001 $ 100 $ (292,014) $ (291,914)
Dividends..................................................... -- -- (179,948) (179,948)
Net loss...................................................... -- -- (238,015) (238,015)
----- ----- ------------ ------------
Balance, December 31, 1997...................................... 1,001 100 (709,977) (709,877)
Dividends..................................................... -- -- (40,616) (40,616)
Net income.................................................... -- -- 40,352 40,352
----- ----- ------------ ------------
Balance, January 31, 1998....................................... 1,001 $ 100 $ (710,241) $ (710,141)
----- ----- ------------ ------------
----- ----- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE>
TELEPHONE COMMUNICATIONS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ONE MONTH
ENDED YEAR ENDED
JANUARY 31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................... $ 40,352 $ (238,015)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization................................................... 1,716 20,224
Provision for bad debts......................................................... 4,400 69,600
Changes in assets and liabilities:
Decrease (increase) in accounts receivable.................................... (31,593) (60,787)
Decrease in prepaids.......................................................... 2,658 952
Increase in accounts payable.................................................. 85,253 506,206
Increase (decrease) in accrued liabilities.................................... (6,492) 38,391
----------- ------------
Net cash provided by operating activities..................................... 96,294 336,571
----------- ------------
Cash flows from investing activities:
Payments for property and equipment................................................. (1,805) (9,109)
----------- ------------
Net cash used in investing activities........................................... (1,805) (9,109)
----------- ------------
Cash flows from financing activities:
Cash payments for note payable...................................................... (11,387) (169,492)
Dividends paid...................................................................... (40,616) (179,948)
Cash payments from notes receivable................................................. -- 6,174
----------- ------------
Net cash used in investing activities......................................... (52,003) (343,266)
----------- ------------
Net increase (decrease) in cash....................................................... 42,486 (15,804)
Cash and cash equivalents, beginning of period........................................ 10,159 25,963
----------- ------------
Cash and cash equivalents, end of period.............................................. $ 52,645 $ 10,159
----------- ------------
----------- ------------
Supplemental disclosures:
Cash paid for interest.............................................................. $ 2,321 $ 30,951
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
TELEPHONE COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Peak Communications, Inc., doing business as Telephone Communications
Corporation (the "Company" or "TCC"), was formed under the laws of the State of
Colorado in August 1992.
TCC provides long distance services to corporate customers within the State
of Colorado.
The Company focuses on small businesses and has sales offices in Colorado.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts reported in the balance sheet for cash, accounts
receivable and accounts payable approximate fair value because of the immediate
or short-term maturity of these financial instruments.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line or double-declining methods over the estimated useful lives of
the assets, which range from three to seven years. Expenditures that
significantly increase asset values or extend useful lives are capitalized.
Maintenance and repairs are expensed as incurred. When property and equipment is
retired, sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and gains and losses resulting from
such transactions are reflected in operations.
LONG-LIVED ASSETS:
The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF. SFAS 121 requires an evaluation of indicators of impairment and future
undiscounted cash flows to be generated by those assets.
REVENUE RECOGNITION:
Revenues from services are recognized when the services are provided.
F-67
<PAGE>
TELEPHONE COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CONCENTRATIONS:
The Company sells its services to small to medium-sized businesses on open
account. The Company typically does not obtain collateral for its receivables.
To date, the Company has not experienced any significant credit losses.
Revenues from Copper Mountain Resort represented approximately $24,200 and
$250,000 of the Company's revenues for the one month ended January 31, 1998 and
for the year ended December 31, 1997, respectively. Accounts receivable from
Copper Mountain Resort were $31,900 and $35,000 at January 31, 1998 and December
31, respectively.
The Company purchased services from National Network Corporation, an entity
under common control. The cost of these services represented approximately 50%
of the Company's cost of sales.
INCOME TAXES:
No provision for income taxes is provided in the Company's financial
statements because it is a subchapter S corporation. Income taxes are the
responsibility of the Company's stockholders.
EARNINGS PER SHARE:
The Company adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), Earnings per Share in 1998 and 1997 have been restated. SFAS 128
replaces the presentation of "primary" and "fully diluted" EPS with "basic" and
"diluted" EPS. Basic EPS is computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding.
Diluted EPS requires an adjustment to the denominator to include the number of
additional common shares that would have been outstanding if dilutive potential
common shares had been issued.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at January 31, 1998 and
December 31, 1997:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
Tools and equipment............................................... $ 39,335 $ 37,530
Dialers........................................................... 29,680 29,680
Billing system.................................................... 19,944 19,944
----------- ------------
88,959 87,154
Less accumulated depreciation..................................... (58,853) (57,137)
----------- ------------
Net property and equipment........................................ $ 30,106 $ 30,017
----------- ------------
----------- ------------
</TABLE>
Depreciation expense was $1,715 and $20,224 for the one month ended January
31, 1998 and for the year ended December 31, 1997, respectively.
F-68
<PAGE>
TELEPHONE COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. NOTE PAYABLE:
Note payable at January 31, 1998 and December 31, 1997 consists of the
following:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
Note payable...................................................... $ 286,796 $ 298,183
Less current portion.............................................. (286,796) (142,412)
----------- ------------
Long-term portion................................................. $ -- $ 155,771
----------- ------------
----------- ------------
</TABLE>
On December 31, 1996, the Company converted outstanding invoices in the
amount of $428,380 into a promissory note payable to National Network
Corporation. The note is payable in 24 monthly installments of $13,622 at an
interest rate of 9% per annum, with a balloon payment of all remaining unpaid
principal and accrued interest due on January 1, 1999. As part of the purchase
of the Company by Convergent Communications, Inc. ("CCI"), the note payable was
assumed by CCI.
5. COMMITMENTS:
OPERATING LEASES:
The Company leases a portion of its buildings and equipment under operating
leases. Future minimum payments under operating leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999............................................................................... $ 38,400
2000............................................................................... 38,400
2001 and thereafter................................................................ --
---------
$ 76,800
---------
---------
</TABLE>
Rent expense under operating leases was $3,620 and $42,956, respectively,
for the one month ended January 31, 1998 and for the year ended December 31,
1997.
6. SUBSEQUENT EVENTS:
On February 1, 1998, Convergent Communications, Inc. ("CCI") purchased
certain assets of the Company for $400,000 in cash, the issuance of a $200,000
one-year note at 8% and 10,000 shares of CCI's Common Stock. CCI also assumed
debt in the amount of approximately $287,000.
F-69
<PAGE>
COMMUNICATION SERVICES OF COLORADO, INC.
------------------------
FINANCIAL STATEMENTS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997 AND 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR
THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
F-70
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Communication Services of Colorado, Inc.:
We have audited the accompanying balance sheets of Communication Services of
Colorado, Inc. as of March 31, 1998 and December 31, 1997 and 1996, and the
related statements of operations, stockholder's equity (deficit) and cash flows
for the three months ended March 31, 1998 and for the years ended December 31,
1997, 1996 and 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Communication Services of
Colorado, Inc. as of March 31, 1998 and December 31, 1997 and 1996, and the
results of its operations and its cash flows for the three months ended March
31, 1998 and for the years ended December 31, 1997, 1996 and 1995 in conformity
with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Denver, Colorado
May 27, 1998
F-71
<PAGE>
COMMUNICATION SERVICES OF COLORADO, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ -- $ -- $ --
Accounts receivable, net of allowance of $5,418, $4,400, and $9,075 and at
March 31, 1998 and December 31, 1997, and 1996, respectively............. 191,193 193,493 227,873
Note receivable, related party............................................. -- 19,945 23,572
Prepaids................................................................... 15,419 6,878 3,281
----------- ----------- -----------
Total current assets................................................... 206,612 220,316 254,726
----------- ----------- -----------
Property and equipment..................................................... 229,549 229,505 211,024
Less accumulated depreciation.............................................. (189,954) (191,871) (197,370)
----------- ----------- -----------
Total property and equipment........................................... 39,595 37,634 13,654
----------- ----------- -----------
Deposits................................................................... 3,382 3,382 3,177
Intangibles, net of amortization of $1,000, $250, and $250 at March 31,
1998 and December 31, 1997 and 1996, respectively........................ 5,388 750 750
----------- ----------- -----------
Total assets......................................................... $ 254,977 $ 262,082 $ 272,307
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Trade accounts payable................................................... $ 167,015 $ 204,756 $ 117,003
Overdrafts payable....................................................... 21,023 9,771 12,728
Other accrued liabilities................................................ 151,890 76,007 170,483
Current portion of capital lease obligations............................. 8,274 8,319 14,811
Line of credit........................................................... -- 14,722 64,072
Deferred revenue......................................................... 11,833 14,192 --
----------- ----------- -----------
Total current liabilities.............................................. 360,035 327,767 379,097
Noncurrent portion of capital lease obligations............................ 12,450 14,617 --
----------- ----------- -----------
Total liabilities...................................................... 372,485 342,384 379,097
----------- ----------- -----------
Commitments (Note 6)
Stockholder's deficit:
Common stock, no par value; 50,000 shares authorized,
10,200 shares issued and outstanding at March 31, 1998
and December 31, 1997, and 1996........................................ 500 500 500
Accumulated deficit...................................................... (76,883) (39,677) (66,165)
Treasury stock, at cost (9,800 shares)................................... (41,125) (41,125) (41,125)
----------- ----------- -----------
Total stockholder's deficit............................................ (117,508) (80,302) (106,790)
----------- ----------- -----------
Total liabilities and stockholder's deficit.......................... $ 254,977 $ 262,082 $ 272,307
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-72
<PAGE>
COMMUNICATION SERVICES OF COLORADO, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ----------------------------------------
1998 1997 1996 1995
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue................................................. $ 525,900 $ 2,125,669 $ 2,250,088 $ 2,129,745
------------- ------------ ------------ ------------
Operating expenses:
Cost of revenues...................................... 376,091 1,411,495 1,520,948 1,422,198
Selling, general and administrative................... 167,609 594,064 634,564 586,565
Depreciation and amortization......................... 1,959 2,915 49,135 54,910
------------- ------------ ------------ ------------
Total operating expenses............................ 545,659 2,008,474 2,204,647 2,063,673
------------- ------------ ------------ ------------
Operating income (loss) (19,759) 117,195 45,441 66,072
Other income............................................ 5,275 18,904 10,314 14,804
Interest (expense) income and other..................... (4,222) (15,400) (10,467) (4,629)
------------- ------------ ------------ ------------
Net income (loss)................................... $ (18,706) $ 120,699 $ 45,288 $ 76,247
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Net income (loss) per share (basic)..................... $ (1.83) $ 11.83 $ 4.44 $ 7.48
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Weighted average shares outstanding (basic)............. 10,200 10,200 10,200 10,200
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Net income (loss) per share (diluted)................... $ (1.83) $ 11.83 $ 4.44 $ 7.48
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Weighted average shares outstanding (diluted)........... 10,200 10,200 10,200 10,200
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-73
<PAGE>
COMMUNICATION SERVICES OF COLORADO, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDER'S
COMMON COMMON TREASURY ACCUMULATED EQUITY
SHARES STOCK STOCK DEFICIT (DEFICIT)
----------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994........................ 10,200 $ 500 $ (41,125) $ 40,989 $ 364
Net income...................................... -- -- -- 76,247 76,247
Distribution to owner........................... -- -- -- (135,689) (135,689)
----------- ----- ---------- ------------ --------------
Balance, December 31, 1995........................ 10,200 500 (41,125) (18,453) (59,078)
Net income...................................... -- -- -- 45,288 45,288
Distribution to owner........................... -- -- -- (93,000) (93,000)
----------- ----- ---------- ------------ --------------
Balance, December 31, 1996........................ 10,200 500 (41,125) (66,165) (106,790)
Net income...................................... -- -- -- 120,699 120,699
Distribution to owner........................... -- -- -- (94,211) (94,211)
----------- ----- ---------- ------------ --------------
Balance, December 31, 1997........................ 10,200 500 (41,125) (39,677) (80,302)
Net loss........................................ -- -- -- (18,706) (18,706)
Distribution to owner........................... -- -- -- (18,500) (18,500)
----------- ----- ---------- ------------ --------------
Balance, March 31, 1998........................... 10,200 $ 500 $ (41,125) $ (76,883) $ (117,508)
----------- ----- ---------- ------------ --------------
----------- ----- ---------- ------------ --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-74
<PAGE>
COMMUNICATION SERVICES OF COLORADO, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED DECEMBER 31,
ENDED MARCH ----------------------------------------
31, 1998 1997 1996 1995
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $ (18,706) $ 120,699 $ 45,288 $ 76,247
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization..................... 1,959 2,915 49,135 54,910
Loss on disposal of equipment..................... -- -- -- 758
Changes in assets and liabilities:
Decrease (increase) in accounts receivable...... 3,745 34,380 2,865 (32,525)
Decrease (increase) in stockholder receivable... 18,500 3,627 (13,572) --
Decrease (increase) in prepaid expenses......... (8,541) (3,801) 2,454 (2,116)
Increase in intangibles......................... (5,388) -- -- --
Increase (decrease) in accounts payable......... (37,792) 87,797 22,160 (119,363)
Increase (decrease) in deferred revenue......... (2,360) 14,192 -- --
Increase (decrease) in other accrued
liabilities................................... 75,871 (94,476) 12,456 88,527
Increase (decrease) in customer deposits........ 50 45 (75) (6,195)
Decrease in deferred revenue.................... -- -- -- (2,597)
------------- ------------ ------------ ------------
Net cash provided by operating activities....... 27,338 165,378 120,711 57,646
------------- ------------ ------------ ------------
Cash flows from investing activities:
Payments for property and equipment................... (3,167) (25,986) (15,874) (6,259)
------------- ------------ ------------ ------------
Net cash used in investing activities........... (3,167) (25,986) (15,874) (6,259)
------------- ------------ ------------ ------------
Cash flows from financing activities:
Borrowings (repayments) on bank overdrafts............ 11,252 (2,957) 5,568 7,160
Borrowings (repayments) on line of credit............. (14,711) (49,349) 14,300 49,771
Distributions to owner................................ (18,500) (95,211) (93,000) (135,689)
Cash payments under capital leases.................... (2,212) 8,125 (31,705) (30,156)
------------- ------------ ------------ ------------
Net cash used in financing activities........... (24,171) (139,392) (104,837) (108,914)
------------- ------------ ------------ ------------
Net (decrease) in cash and cash equivalents............. -- -- -- (57,527)
Cash and cash equivalents, beginning of period.......... -- -- -- 57,527
------------- ------------ ------------ ------------
Cash and cash equivalents, end of period................ $ -- $ -- $ -- $ --
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Supplemental disclosures:
Cash paid for interest................................ $ 4,476 $ 18,050 $ 12,291 $ 5,873
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE>
COMMUNICATION SERVICES OF COLORADO, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Communication Services Of Colorado, Inc. (the "Company" or "CSC") was formed
under the laws of the State of Wyoming in 1991.
CSC provides "0+ operator services" and "1+ services" to business and
residential customers. The Company also provides custom cards for caller usage
to business and residential customers.
CSC provides these services from its office in Denver, Colorado.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts reported in the balance sheet for cash, accounts
receivable and accounts payable approximate fair value because of the immediate
or short-term maturity of these financial instruments.
NOTES RECEIVABLE, RELATED PARTY:
Notes receivable represent promissory notes from the Company's sole
stockholder. These notes have been repaid.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, which
range from three to seven years. Expenditures that significantly increase asset
values or extend useful lives are capitalized. Maintenance and repairs are
expensed as incurred. When property and equipment is retired, sold or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and gains and losses resulting from such transactions are reflected in
operations.
Lease property meeting certain criteria is capitalized and the present value
of the related lease payments is recorded as a liability. Amortization of
capitalized leased assets is computed on the straight-line method over the term
of the lease.
F-76
<PAGE>
COMMUNICATION SERVICES OF COLORADO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INTANGIBLE ASSETS:
Covenants not to compete are being amortized between three to five years
using the straight-line method.
LONG-LIVED ASSETS:
The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF. SFAS 121 requires an evaluation of indicators of impairment and future
undiscounted cash flows to be generated by those assets.
REVENUE RECOGNITION:
Revenue is recognized when services are provided.
INCOME TAXES:
No provision for income taxes is provided in the Company's financial
statements because it is a Subchapter S corporation. Income taxes are the
responsibility of the Company's stockholder.
EARNINGS PER SHARE:
The Company adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), Earnings per Share in 1997 and all prior periods have been restated.
SFAS 128 replaces the presentation of "primary" and "fully diluted" EPS with
"basic" and "diluted" EPS. Basic EPS is computed by dividing net income
available to common shareholders by the weighted average number of common shares
outstanding. Diluted EPS requires an adjustment to the denominator to include
the number of additional common shares that would have been outstanding if
dilutive potential common shares had been issued.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at March 31, 1998 and
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Vending machines....................................... $ 11,008 $ 11,008 $ --
Office equipment....................................... 3,391 4,198 4,198
Furniture and fixtures................................. 7,671 7,671 7,671
Dialers and related equipment.......................... 54,048 53,660 51,901
Machines and equipment................................. 153,431 152,968 147,254
----------- ----------- -----------
229,549 229,505 211,024
Less accumulated depreciation.......................... (189,954) (191,871) (197,370)
----------- ----------- -----------
Net property and equipment............................. $ 39,595 $ 37,634 $ 13,654
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-77
<PAGE>
COMMUNICATION SERVICES OF COLORADO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT: (CONTINUED)
Depreciation expense was $1,209, $2,915, $33,552 and $38,910 for the three
months ended March 31, 1998 and for the years ended December 31, 1997, 1996 and
1995, respectively.
Property and equipment under capital leases consists of the following at
March 31, 1998 and December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Property and equipment.................................... $ 37,084 $ 37,084 $ 25,536
Accumulated depreciation.................................. (17,792) (15,798) (11,998)
---------- ---------- ----------
Net property and equipment................................ $ 19,292 $ 21,286 $ 13,538
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
4. CAPITAL LEASES:
The Company leases certain equipment under a capital lease. The following is
a schedule of the minimum lease payments under the capital lease together with
the present value of the minimum lease payments as of March 31, 1998.
<TABLE>
<S> <C>
April 1, 1998 - March 31, 1999..................................... $ 10,356
April 1, 1999 - March 31, 2000..................................... 9,067
April 1, 2000 - March 31, 2001..................................... 4,600
April 1, 2001 - March 31, 2002 and thereafter...................... --
---------
Total minimum lease payments....................................... 24,023
Less amount representing interest.................................. 3,299
---------
Present value of minimum lease payments............................ 20,724
Less current portion............................................... 8,274
---------
Long-term portion.................................................. $ 12,450
---------
---------
</TABLE>
5. LINE OF CREDIT:
The Company had a $75,000 line of credit with a bank at December 31, 1997
and 1996. The line of credit was paid off in 1998.
F-78
<PAGE>
COMMUNICATION SERVICES OF COLORADO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS:
OPERATING LEASES:
The Company leases a portion of its buildings and equipment under operating
leases. Future minimum payments under operating leases are as follows:
<TABLE>
<S> <C>
April 1, 1998 - March 31, 1999.................................... $ 51,691
April 1, 1999 - March 31, 2000.................................... 51,403
April 1, 2000 - March 31, 2001.................................... 48,666
April 1, 2001 - March 31, 2002.................................... 8,111
April 1, 2002 - March 31, 2003 and thereafter..................... --
---------
$ 159,871
---------
---------
</TABLE>
Rent expense under operating leases was $11,687, $47,930, $38,600 and
$39,210, respectively, for the three months ended March 31, 1998 and for the
years ended December 31, 1997, 1996 and 1995.
7. STOCKHOLDER'S EQUITY:
In 1997, the Company's sole stockholder transferred the net liabilities of
another corporation which she owned to the Company. The net liabilities
transferred of $38,211 have been treated as a distribution to the stockholder.
8. SUBSEQUENT EVENTS:
On May 22, 1998, Convergent Communications, Inc. ("CCI") purchased all of
the Company's outstanding shares of common stock for $475,000 in cash and a
$530,000 one year note at 8%.
F-79
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING 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 BY THE COMPANY OR THE INITIAL
PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL TO, OR THE SOLICITATION OF ANY
OFFER TO BUY, ANY SECURITIES OTHER THAN THE UNITS OFFERED HEREBY OR TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. 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 THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 2
Risk Factors.............................................................. 14
Exchange Offer............................................................ 22
Use of Proceeds........................................................... 28
Capitalization............................................................ 29
Selected Financial Data................................................... 30
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 32
Business.................................................................. 39
Management................................................................ 54
Executive Compensation.................................................... 57
Principal Shareholders.................................................... 61
Certain Relationships and Related Transactions............................ 62
Certain Indebtedness...................................................... 63
Description of the Notes.................................................. 64
Book-Entry; Delivery and Form............................................. 92
Certain United States Federal Income Tax Considerations................... 94
Plan of Distribution...................................................... 98
Legal Matters............................................................. 98
Experts................................................................... 98
Glossary.................................................................. A-1
Index to Consolidated Financial Statements................................ F-1
</TABLE>
[LOGO]
CONVERGENT COMMUNICATIONS, INC.
OFFER FOR ALL OUTSTANDING
13% SENIOR NOTES DUE 2008
IN EXCHANGE FOR
13% SERIES B SENIOR NOTES DUE 2008
---------------------
PROSPECTUS
---------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to C.R.S. Section 7-108-102 (1994), which provides for
indemnification of directors, officers and other employees in certain
circumstances, and to C.R.S. Section 7-108-402 (1994), which provides for the
elimination or limitation of the personal liability for monetary damages of
directors under certain circumstances. The Articles of Incorporation of the
Company eliminates the personal liability for monetary damages of directors
under certain circumstances and provides indemnification to directors and
officers of the Company to the fullest extent permitted by the Colorado Business
Corporation Act. Among other things, these provisions provide indemnification
for officers and directors against liabilities for judgments in and settlements
of lawsuits and other proceedings and for the advance and payment of fees and
expenses reasonably incurred by the director or officer in defense of any such
lawsuit or proceeding.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NUMBER
- ----------- ------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
3.1* Amended and Restated Articles of Incorporation of the Company
3.2 Bylaws of the Company
4.1 Form of Old Note (See Exhibit 10.1)
4.2 Form of New Note (See Exhibit 10.1)
4.3 Indenture (See Exhibit 10.1)
4.4 Notes Registration Rights Agreement
4.5 Purchase Agreement, dated as of March 26, 1998, by and among Merrill Lynch & Co., Bear
Stearns & Co., Inc. BT Alex. Brown Incorporated, and the Company
5.1* Opinion of Gibson, Dunn & Crutcher LLP
8.1* Opinion of Gibson, Dunn & Crutcher LLP as to tax matters
10.1 Indenture, dated as of April 2, 1998, by and among the Company and Norwest Bank Colorado,
N.A.
10.2 Warrant Agreement, dated as of April 2, 1998
10.3 Warrant Registration Rights Agreement, dated as of April 2, 1998
10.4 Collateral Account Control Agreement, dated as of April 2, 1998
10.5 Custody and Security Agreement, dated as of April 2, 1998
10.6* Master Lease Agreement, dated November 11, 1997, between Comdisco, Inc. and the Company
10.7* Master Lease Agreement, dated November 17, 1997, between Convergent Capital Corporation and
the Company
10.8 Program Agreement, dated November 19, 1997, among Comdisco, Inc., Convergent Communications
Services, Inc. and the Company
10.9 Stock Purchase Agreement, dated October 31, 1996, between SONeTech and the Company
10.10 Stock Purchase Agreement dated March 1, 1997, among Integrated Communication Networks,
Inc., Communications Services of Iowa, Inc., John Shlepphorst and the Company
10.11 Agreement and Plan of Merger, dated August 29, 1997, among Convergent Communications
Services, Inc., A.T.T.Ex Corporation and the Company
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NUMBER
- ----------- ------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.12 Agreement and Plan of Merger, dated September 1, 1997, among Convergent Communications
Services, Inc., Vital Integration Solutions and the Company
10.13 Asset Purchase Agreement, dated October 1, 1997, between Big Planet, Inc. and Convergent
Communications Services, Inc.
10.14 Asset Purchase Agreement, dated December 3, 1997, between Sigmacom Corporation and
Convergent Communications Services, Inc.
10.15 Asset Purchase Agreement, dated February 1, 1998, between Peak Comm, Inc. d/b/a Telephone
Communications Company and Convergent Communications Services, Inc.
10.16 Agreement and Plan of Merger, dated March 13, 1998, among Convergent Communications
Services, Inc., Communication Services of Colorado, Inc., Donna Sipes and the Company
10.17 Asset Purchase Agreement, dated March 27, 1998, between Network Computing Solutions, LLC
and Convergent Communications Services, Inc.
10.18 Employment Agreement, dated December 15, 1996, between Keith V. Burge and the Company, as
amended April 13, 1998
10.19 Employment Agreement, dated December 15, 1996, between John R. Evans and the Company, as
amended April 13, 1998
10.20 Employment Agreement, dated December 15, 1996, between Philip G. Allen and the Company, as
amended April 13, 1998
10.21 Employment Agreement, dated August 7, 1997, between Martin E. Freidel and the Company
10.22 Employment Agreement, dated March 3, 1997, between John J. Phibbs and the Company, as
amended on April 13, 1998
10.23 Asset Purchase Agreement, dated May 15, 1990, among Convergent Communications Services,
Inc., H, H & H Communications Technologies, Inc.
10.24 Telephone Company Acquisition Agreement between Convergent Communications, Inc., First
Continental Group, L.C., and ICN, LLC dated July 1996
21.1 Subsidiaries of the Company
23.1 Consent of Coopers & Lybrand L.L.P. on Convergent Communications, Inc.
23.2 Consent of Coopers & Lybrand L.L.P. on Communications Services of Iowa, Inc.
23.3 Consent of Coopers & Lybrand L.L.P. on A.T.T.ex Corporation
23.4 Consent of Coopers & Lybrand L.L.P. on Vital Integration Solutions, Inc.
23.5 Consent of Coopers & Lybrand L.L.P. on Telephone Communications Corporation
23.6 Consent of Coopers & Lybrand L.L.P. on Communications Services of Colorado, Inc.
23.7 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1)
24.1 Power of Attorney
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939
of Norwest Bank Colorado, N.A.
27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal with respect to the Exchange Offer
99.2 Form of Notice of Guaranteed Delivery
</TABLE>
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* To be filed by amendment
II-2
<PAGE>
BYLAWS
OF
CONVERGENT COMMUNICATIONS, INC.
ARTICLE I
OFFICES
1. OFFICES. The principal office of the corporation shall be
designated from time to time by the corporation and may be within or outside
of Colorado.
The corporation may have such other offices, either within or
outside Colorado, as the board of directors may designate or as the business
of the corporation may require from time to time.
The registered office of the corporation required by the Colorado
Business Corporation Act to be maintained in Colorado may be, but need not
be, identical with the principal office, and the address of the registered
office may be changed from time to time by the board of directors.
ARTICLE II
SHAREHOLDERS
1. ANNUAL MEETING. The annual meeting of the shareholders shall
be held during the first or second fiscal quarters of the corporation of each
year on a date and at a time fixed by the board of directors of the
corporation (or by the president in the absence of action by the board of
directors), beginning with the year 1997, for the purpose of electing
directors and for the transaction of such other business as may come before
the meeting. If the election of directors is not held on the day fixed as
provided herein for any annual meeting of the shareholders, or any
adjournment thereof, the board of directors shall cause the election to be
held at a special meeting of the shareholders as soon thereafter as it may
conveniently be held.
A shareholder may apply to the district court in the county in
Colorado where the corporation's principal office is located or, if the
corporation has no principal office in Colorado, to the district court of the
county in which the corporation's registered office is located to seek an
order that a shareholder meeting be held (i) if an annual meeting was not
held within six months after the close of the corporation's most recently
ended fiscal year or fifteen months after its last annual meeting, whichever
is earlier, or (ii) if the shareholder participated in a proper call of or
proper demand for a special meeting and notice of the special meeting was not
given within thirty days after the date of the call or the date the last of
the demands necessary to require
<PAGE>
calling of the meeting was received by the corporation pursuant to Section
7-107-102(1)(b) of the Colorado Business Corporation Act, or the special
meeting was not held in accordance with the notice.
2. SPECIAL MEETINGS. Unless otherwise prescribed by statute,
special meetings of the shareholders may be called for any purpose by the
president or by the board of directors. The president shall call a special
meeting of the shareholders if the corporation receives one or more written
demands for the meeting, stating the purpose or purposes for which it is to
be held, signed and dated by holders of shares representing at least ten
percent of all the votes entitled to be cast on any issue proposed to be
considered at the meeting.
3. PLACE OF MEETING. The board of directors may designate any
place, either within or outside Colorado, as the place for any annual meeting
or any special meeting called by the board of directors. A waiver of notice
signed by all shareholders entitled to vote at a meeting may designate any
place, either within or outside Colorado, as the place for such meeting. If
no designation is made, or if a special meeting is called other than by the
board, the place of meeting shall be the principal office of the corporation.
4. NOTICE OF MEETING. Written notice stating the place, date,
and hour of the meeting shall be given not less than ten nor more than sixty
days before the date of the meeting, except that (i) if the number of
authorized shares is to be increased, at least thirty days' notice shall be
given, or (ii) any other longer notice period is required by the Colorado
Business Corporation Act. Notice of a special meeting shall include a
description of the purpose or purposes of the meeting. Notice of an annual
meeting need not include a description of the purpose or purposes of the
meeting except the purpose or purposes shall be stated with respect to (i) an
amendment to the articles of incorporation of the corporation, (ii) a merger
or share exchange in which the corporation is a party and, with respect to a
share exchange, in which the corporation's shares will be acquired, (iii) a
sale, lease, exchange or other disposition, other than in the usual and
regular course of business, of all or substantially all of the property of
the corporation or of another entity which this corporation controls, in each
case with or without the goodwill, (iv) a dissolution of the corporation, or
(v) any other purpose for which a statement of purpose is required by the
Colorado Business Corporation Act. Notice shall be given personally or by
mail, private carrier, telegraph, teletype, electronically transmitted
facsimile or other form of wire or wireless communication by or at the
direction of the president, the secretary, or the officer or persons calling
the meeting, to each shareholder of record entitled to vote at such meeting.
If mailed and if in a comprehensible form, such notice shall be deemed to be
given and effective when deposited in the United States mail, addressed to
the shareholder at his address as it appears in the corporation's current
record of shareholders, with postage prepaid. If notice is given other than
by mail, and provided that such notice is in a comprehensible form, the
notice is given and effective on the date received by the shareholder.
If requested by the person or persons lawfully calling such
meeting, the secretary shall give notice thereof at the corporation's
expense. No notice need be sent to any shareholder if three successive
notices mailed to the last known address of such shareholder have been
returned as undeliverable until such time as another address for such
shareholder is made known
<PAGE>
to the corporation by such shareholder. In order to be entitled to receive
notice of any meeting, a shareholder shall advise the corporation in writing
of any change in such shareholder's mailing address as shown on the
corporation's books and records.
When a meeting is adjourned to another date, time or place, notice
need not be given of the new date, time or place if the new date, time or
place of such meeting is announced before adjournment at the meeting at which
the adjournment is taken. At the adjourned meeting the corporation may
transact any business which may have been transacted at the original meeting.
If the adjournment is for more than 120 days, or if a new record date is
fixed for the adjourned meeting, a new notice of the adjourned meeting shall
be given to each shareholder of record entitled to vote at the meeting as of
the new record date.
A shareholder may waive notice of a meeting before or after the
time and date of the meeting by a writing signed by such shareholder. Such
waiver shall be delivered to the corporation for filing with the corporate
records. Further, by attending a meeting either in person or by proxy, a
shareholder waives objection to lack of notice or defective notice of the
meeting unless the shareholder objects at the beginning of the meeting to the
holding of the meeting or the transaction of business at the meeting because
of lack of notice or defective notice. By attending the meeting, the
shareholder also waives any objection to consideration at the meeting of a
particular matter not within the purpose or purposes described in the meeting
notice unless the shareholder objects to considering the matter when it is
presented.
5. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to (i) notice of or vote at any meeting of shareholders
or any adjournment thereof, (ii) receive distributions or share dividends, or
(iii) demand a special meeting, or to make a determination of shareholders
for any other proper purpose, the board of directors may fix a future date as
the record date for any such determination of shareholders, such date in any
case to be not more than seventy days, and, in case of a meeting of
shareholders, not less than ten days, prior to the date on which the
particular action requiring such determination of shareholders is to be
taken. If no record date is fixed by the directors, the record date shall be
the date on which notice of the meeting is mailed to shareholders, or the
date on which the resolution of the board of directors providing for a
distribution is adopted, as the case may be. When a determination of
shareholders entitled to vote at any meeting of shareholders is made as
provided in this Section, such determination shall apply to any adjournment
thereof unless the board of directors fixes a new record date, which it must
do if the meeting is adjourned to a date more than 120 days after the date
fixed for the original meeting.
Notwithstanding the above, the record date for determining the
shareholders entitled to take action without a meeting or entitled to be
given notice of action so taken shall be the date a writing upon which the
action is taken is first received by the corporation. The record date for
determining shareholders entitled to demand a special meeting shall be the
date of the earliest of any of the demands pursuant to which the meeting is
called.
6. VOTING LISTS. The secretary shall make, at the earlier of ten
days before each meeting of shareholders or two business days after notice of
the meeting has been given, a
<PAGE>
complete list of the shareholders entitled to be given notice of such meeting
or any adjournment thereof. The list shall be arranged by voting groups and
within each voting group by class or series of shares, shall be in
alphabetical order within each class or series, and shall show the address of
and the number of shares of each class or series held by each shareholder.
For the period beginning the earlier of ten days prior to the meeting or two
business days after notice of the meeting is given and continuing through the
meeting and any adjournment thereof, this list shall be kept on file at the
principal office of the corporation, or at a place (which shall be identified
in the notice) in the city where the meeting will be held. Such list shall
be available for inspection on written demand by any shareholder (including
for the purpose of this Section 6 any holder of voting trust certificates) or
his agent or attorney during regular business hours and during the period
available for inspection. The original stock transfer books shall be prima
facie evidence as to the shareholders entitled to examine such list or to
vote at any meeting of shareholders.
Any shareholder, his agent or attorney may copy the list during
regular business hours and during the period it is available for inspection,
provided (i) the shareholder has been a shareholder for at least three months
immediately preceding the demand or holds at least five percent of all
outstanding shares of any class of shares as of the date of the demand, (ii)
the demand is made in good faith and for a purpose reasonably related to the
demanding shareholder's interest as a shareholder, (iii) the shareholder
describes with reasonable particularity the purpose and the records the
shareholder desires to inspect, (iv) the records are directly connected with
the described purpose, and (v) the shareholder pays a reasonable charge
covering the costs of labor and material for such copies, not to exceed the
estimated cost of production and reproduction.
7. RECOGNITION PROCEDURE FOR BENEFICIAL OWNERS. The board of
directors may adopt by resolution a procedure whereby a shareholder of the
corporation may certify in writing to the corporation that all or a portion
of the shares registered in the name of such shareholder are held for the
account of a specified person or persons. The resolution may set forth (i)
the types of nominees to which it applies, (ii) the rights or privileges that
the corporation will recognize in a beneficial owner, which may include
rights and privileges other than voting, (iii) the form of certification and
the information to be contained therein, (iv) if the certification is with
respect to a record date, the time within which the certification must be
received by the corporation, (v) the period for which the nominee's use of
the procedure is effective, and (vi) such other provisions with respect to
the procedure as the board deems necessary or desirable. Upon receipt by the
corporation of a certificate complying with the procedure established by the
board of directors, the persons specified in the certification shall be
deemed, for the purpose or purposes set forth in the certification, to be the
registered holders of the number of shares specified in place of the
shareholder making the certification.
8. QUORUM AND MANNER OF ACTING. A majority of the votes entitled
to be cast on a matter by a voting group shall constitute a quorum of that
voting group for action on the matter. If less than a majority of such votes
are represented at a meeting, a majority of the votes so represented may
adjourn the meeting from time to time without further notice, for a period
not to exceed 120 days for any one adjournment. If a quorum is present at
such adjourned meeting,
<PAGE>
any business may be transacted which might have been transacted at the
meeting as originally noticed. The shareholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding
the withdrawal of enough shareholders to leave less than a quorum, unless the
meeting is adjourned and a new record date is set for the adjourned meeting.
If a quorum exists, action on a matter other than the election of
directors by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast within the voting group
opposing the action, unless the vote of a greater number or voting by classes
is required by law or the articles of incorporation.
9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy by signing an appointment form or similar writing, either
personally or by his duly authorized attorney-in-fact. A shareholder may
also appoint a proxy by transmitting or authorizing the transmission of a
telegram, teletype, or other electronic transmission providing a written
statement of the appointment to the proxy, a proxy solicitor, proxy support
service organization, or other person duly authorized by the proxy to receive
appointments as agent for the proxy, or to the corporation. The transmitted
appointment shall set forth or be transmitted with written evidence from
which it can be determined that the shareholder transmitted or authorized the
transmission of the appointment. The proxy appointment form or similar
writing shall be filed with the secretary of the corporation before or at the
time of the meeting. The appointment of a proxy is effective when received
by the corporation and is valid for eleven months unless a different period
is expressly provided in the appointment form or similar writing.
Any complete copy, including an electronically transmitted
facsimile, of an appointment of a proxy may be substituted for or used in
lieu of the original appointment for any purpose for which the original
appointment could be used.
Revocation of a proxy does not affect the right of the corporation
to accept the proxy's authority unless (i) the corporation had notice that
the appointment was coupled with an interest and notice that such interest is
extinguished is received by the secretary or other officer or agent
authorized to tabulate votes before the proxy exercises his authority under
the appointment, or (ii) other notice of the revocation of the appointment is
received by the secretary or other officer or agent authorized to tabulate
votes before the proxy exercises his authority under the appointment. Other
notice of revocation may, in the discretion of the corporation, be deemed to
include the appearance at a shareholders' meeting of the shareholder who
granted the proxy and his voting in person on any matter subject to a vote at
such meeting.
The death or incapacity of the shareholder appointing a proxy does
not affect the right of the corporation to accept the proxy's authority
unless notice of the death or incapacity is received by the secretary or
other officer or agent authorized to tabulate votes before the proxy
exercises his authority under the appointment.
The corporation shall not be required to recognize an appointment
made irrevocable if it has received a writing revoking the appointment signed
by the shareholder (including a shareholder who is a successor to the
shareholder who granted the proxy) either personally or by
<PAGE>
his attorney-in-fact, notwithstanding that the revocation may be a breach of
an obligation of the shareholder to another person not to revoke the
appointment.
Subject to Section 11 and any express limitation on the proxy's
authority appearing on the appointment form, the corporation is entitled to
accept the proxy's vote or other action as that of the shareholder making the
appointment.
10. VOTING OF SHARES. Each outstanding share, regardless of class,
shall be entitled to one vote, except in the election of directors, and each
fractional share shall be entitled to a corresponding fractional vote on each
matter submitted to a vote at a meeting of shareholders, except to the extent
that the voting rights of the shares of any class or classes are limited or
denied by the articles of incorporation as permitted by the Colorado Business
Corporation Act. Cumulative voting shall not be permitted in the election of
directors or for any other purpose. Each record holder of stock shall be
entitled to vote in the election of directors and shall have as many votes
for each of the shares owned by him as there are directors to be elected and
for whose election he has the right to vote.
At each election of directors, that number of candidates equaling the
number of directors to be elected, having the highest number of votes cast in
favor of their election, shall be elected to the board of directors.
Except as otherwise ordered by a court of competent jurisdiction upon a
finding that the purpose of this Section would not be violated in the
circumstances presented to the court, the shares of the corporation are not
entitled to be voted if they are owned, directly or indirectly, by a second
corporation, domestic or foreign, and the first corporation owns, directly or
indirectly, a majority of the shares entitled to vote for directors of the
second corporation except to the extent the second corporation holds the
shares in a fiduciary capacity.
Redeemable shares are not entitled to be voted after notice of
redemption is mailed to the holders and a sum sufficient to redeem the shares
has been deposited with a bank, trust company or other financial institution
under an irrevocable obligation to pay the holders the redemption price on
surrender of the shares.
11. CORPORATION'S ACCEPTANCE OF VOTES. If the name signed on a vote,
consent, waiver, proxy appointment, or proxy appointment revocation
corresponds to the name of a shareholder, the corporation, if acting in good
faith, is entitled to accept the vote, consent, waiver, proxy appointment or
proxy appointment revocation and give it effect as the act of the
shareholder. If the name signed on a vote, consent, waiver, proxy
appointment or proxy appointment revocation does not correspond to the name
of a shareholder, the corporation, if acting in good faith, is nevertheless
entitled to accept the vote, consent, waiver, proxy appointment or proxy
appointment revocation and to give it effect as the act of the shareholder if:
(i) the shareholder is an entity and the name signed purports to be
that of an officer or agent of the entity;
<PAGE>
(ii) the name signed purports to be that of an administrator, executor,
guardian or conservator representing the shareholder and, if the
corporation requests, evidence of fiduciary status acceptable to the
corporation has been presented with respect to the vote, consent,
waiver, proxy appointment or proxy appointment revocation;
(iii) the name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the corporation requests, evidence
of this status acceptable to the corporation has been presented with
respect to the vote, consent, waiver, proxy appointment or proxy
appointment revocation;
(iv) the name signed purports to be that of a pledgee, beneficial owner
or attorney-in-fact of the shareholder and, if the corporation requests,
evidence acceptable to the corporation of the signatory's authority to
sign for the shareholder has been presented with respect to the vote,
consent, waiver, proxy appointment or proxy appointment revocation;
(v) two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one
of the co-tenants or fiduciaries, and the person signing appears to be
acting on behalf of all the co-tenants or fiduciaries; or
(vi) the acceptance of the vote, consent, waiver, proxy appointment or
proxy appointment revocation is otherwise proper under rules established
by the corporation that are not inconsistent with this Section 11.
The corporation is entitled to reject a vote, consent, waiver, proxy
appointment or proxy appointment revocation if the secretary or other officer
or agent authorized to tabulate votes, acting in good faith, has reasonable
basis for doubt about the validity of the signature on it or about the
signatory's authority to sign for the shareholder.
Neither the corporation nor its officers nor any agent who accepts or
rejects a vote, consent, waiver, proxy appointment or proxy appointment
revocation in good faith and in accordance with the standards of this Section
is liable in damages for the consequences of the acceptance or rejection.
12. INFORMAL ACTION BY SHAREHOLDERS. Any action required or permitted to be
taken at a meeting of the shareholders may be taken without a meeting if a
written consent (or counterparts thereof) that sets forth the action so taken
is signed by all of the shareholders entitled to vote with respect to the
subject matter thereof and received by the corporation. Such consent shall
have the same force and effect as a unanimous vote of the shareholders and
may be stated as such in any document. Action taken under this Section 12 is
effective as of the date the last writing necessary to effect the action is
received by the corporation, unless all of the writings specify a different
effective date, in which case such specified date shall be the effective date
for such action. If any shareholder revokes his consent as provided for
herein prior to what would otherwise be the effective date, the action
proposed in the consent shall be invalid. The
<PAGE>
record date for determining shareholders entitled to take action without a
meeting is the date the corporation first receives a writing upon which the
action is taken.
Any shareholder who has signed a writing describing and consenting to
action taken pursuant to this Section 12 may revoke such consent by a writing
signed by the shareholder describing the action and stating that the
shareholder's prior consent thereto is revoked, if such writing is received
by the corporation before the effectiveness of the action.
13. MEETINGS BY TELECOMMUNICATION. Any or all of the shareholders may
participate in an annual or special shareholders' meeting by, or the meeting
may be conducted through the use of, any means of communication by which all
persons participating in the meeting may hear each other during the meeting.
A shareholder participating in a meeting by this means is deemed to be
present in person at the meeting.
ARTICLE III
BOARD OF DIRECTORS
1. GENERAL POWERS. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the corporation shall
be managed under the direction of its board of directors, except as otherwise
provided in the Colorado Business Corporation Act or the articles of
incorporation.
2. NUMBER, QUALIFICATIONS AND TENURE. The number of directors of the
corporation shall be fixed from time to time by the board of directors,
within a range of no fewer than one or more than nine. A director shall be a
natural person who is eighteen years of age or older. A director need not be
a resident of Colorado or a shareholder of the corporation.
Directors shall be elected at each annual meeting of shareholders. Each
director shall hold office until the next annual meeting of shareholders
following his election and thereafter until his successor shall have been
elected and qualified. Directors shall be removed in the manner provided by
the Colorado Business Corporation Act.
3. VACANCIES. Any director may resign at any time by giving written
notice to the corporation. Such resignation shall take effect at the time
the notice is received by the corporation unless the notice specifies a later
effective date. Unless otherwise specified in the notice of resignation, the
corporation's acceptance of such resignation shall not be necessary to make
it effective. Any vacancy on the board of directors may be filled by the
affirmative vote of a majority of the shareholders or the board of directors.
If the directors remaining in office constitute fewer than a quorum of the
board, the directors may fill the vacancy by the affirmative vote of a
majority of all the directors remaining in office. If elected by the
directors, the director shall hold office until the next annual shareholders'
meeting at which directors are elected. If elected by the shareholders, the
director shall hold office for the unexpired term of his predecessor in
office; except that, if the director's predecessor was elected by the
directors to fill
<PAGE>
a vacancy, the director elected by the shareholders shall hold office for the
unexpired term of the last predecessor elected by the shareholders.
4. REGULAR MEETINGS. A regular meeting of the board of directors
shall be held without notice immediately after and at the same place as the
annual meeting of shareholders. The board of directors may provide by
resolution the time and place, either within or outside Colorado, for the
holding of additional regular meetings without other notice.
5. SPECIAL MEETINGS. Special meetings of the board of directors may
be called by or at the request of the president or any two directors. The
person or persons authorized to call special meetings of the board of
directors may fix any place, either within or outside Colorado, as the place
for holding any special meeting of the board of directors called by them,
provided that no meeting shall be called outside the State of Colorado unless
a majority of the board of directors has so authorized.
6. NOTICE. Notice of any special meeting shall be given at least two
days prior to the meeting by written notice either personally delivered or
mailed to each director at his business address, or by notice transmitted by
telegraph, telex, electronically transmitted facsimile or other form of wire
or wireless communication. If mailed, such notice shall be deemed to be
given and to be effective on the earlier of (i) three days after such notice
is deposited in the United States mail, properly addressed, with postage
prepaid, or (ii) the date shown on the return receipt, if mailed by
registered or certified mail return receipt requested. If notice is given by
telex, electronically transmitted facsimile or other similar form of wire or
wireless communication, such notice shall be deemed to be given and to be
effective when sent, and with respect to a telegram, such notice shall be
deemed to be given and to be effective when the telegram is delivered to the
telegraph company. If a director has designated in writing one or more
reasonable addresses or facsimile numbers for delivery of notice to him,
notice sent by mail, telegraph, telex, electronically transmitted facsimile
or other form of wire or wireless communication shall not be deemed to have
been given or to be effective unless sent to such addresses or facsimile
numbers, as the case may be.
A director may waive notice of a meeting before or after the time and
date of the meeting by a writing signed by such director. Such waiver shall
be delivered to the corporation for filing with the corporate records.
Further, a director's attendance at or participation in a meeting waives any
required notice to him of the meeting unless at the beginning of the meeting,
or promptly upon his later arrival, the director objects to holding the
meeting or transacting business at the meeting because of lack of notice or
defective notice and does not thereafter vote for or assent to action taken
at the meeting. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
7. QUORUM. A majority of the number of directors fixed by the board
of directors pursuant to Section 2 or, if no number is fixed, a majority of
the number in office immediately before the meeting begins, shall constitute
a quorum for the transaction of business at any meeting of the board of
directors.
<PAGE>
If less than such majority is present at a meeting, a majority of the
directors present may adjourn the meeting from time to time without further
notice, for a period not to exceed sixty days at any one adjournment.
8. MANNER OF ACTING. The act of the majority of the directors present
at a meeting at which a quorum is present shall be the act of the board of
directors.
9. COMPENSATION. By resolution of the board of directors, any
director may be paid any one or more of the following: his expenses, if any,
of attendance at meetings, a fixed sum for attendance at each meeting, a
stated salary as director, or such other compensation as the corporation and
the director may reasonably agree upon. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
10. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the board of directors or committee of the board at
which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless (i) the director objects at the beginning
of the meeting, or promptly upon his arrival, to the holding of the meeting
or the transaction of business at the meeting and does not thereafter vote
for or assent to any action taken at the meeting, (ii) the director
contemporaneously requests that his dissent or abstention as to any specific
action taken be entered in the minutes of the meeting, or (iii) the director
causes written notice of his dissent or abstention as to any specific action
to be received by the presiding officer of the meeting before its adjournment
or by the corporation promptly after the adjournment of the meeting. A
director may dissent to a specific action at a meeting, while assenting to
others. The right to dissent to a specific action taken at a meeting of the
board of directors or a committee of the board shall not be available to a
director who voted in favor of such action.
11. COMMITTEES. By resolution adopted by a majority of all the
directors in office when the action is taken, the board of directors may
designate from among its members an executive committee and one or more other
committees, and appoint one or more members of the board of directors to
serve on them. To the extent provided in the resolution, each committee
shall have all the authority of the board of directors, except that no such
committee shall have the authority to (i) authorize distributions, (ii)
approve or propose to shareholders actions or proposals required by the
Colorado Business Corporation Act to be approved by shareholders, (iii) fill
vacancies on the board of directors or any committee thereof, (iv) amend
articles of incorporation, (v) adopt, amend or repeal the bylaws, (vi)
approve a plan of merger not requiring shareholder approval, (vii) authorize
or approve the reacquisition of shares unless pursuant to a formula or method
prescribed by the board of directors, or (viii) authorize or approve the
issuance or sale of shares, or contract for the sale of shares or determine
the designations and relative rights, preferences and limitations of a class
or series of shares, except that the board of directors may authorize a
committee or officer to do so within limits specifically prescribed by the
board of directors. The committee shall then have full power within the
limits set by the board of directors to adopt any final resolution setting
forth all preferences, limitations and relative rights of such class or
series and to authorize an amendment
<PAGE>
of the articles of incorporation stating the preferences, limitations and
relative rights of a class or series for filing with the Secretary of State
under the Colorado Business Corporation Act.
Sections 4, 5, 6, 7, 8 and 12 of Article III, which govern meetings,
notice, waiver of notice, quorum, voting requirements and action without a
meeting of the board of directors, shall apply to committees and their members
appointed under this Section 11.
Neither the designation of any such committee, the delegation of
authority to such committee, nor any action by such committee pursuant to its
authority shall alone constitute compliance by any member of the board of
directors or a member of the committee in question with his responsibility to
conform to the standard of care set forth in Article III, Section 14 of these
bylaws.
12. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at a meeting of the directors or any committee
designated by the board of directors may be taken without a meeting if a
written consent (or counterparts thereof) that sets forth the action so taken
is signed by all of the directors entitled to vote with respect to the action
taken. Such consent shall have the same force and effect as a unanimous vote
of the directors or committee members and may be stated as such in any
document. Unless the consent specifies a different effective date, action
taken under this Section 12 is effective at the time the last director signs
a writing describing the action taken, unless, before such time, any director
has revoked his consent by a writing signed by the director and received by
the president or the secretary of the corporation.
13. TELEPHONIC MEETINGS. The board of directors may permit any
director (or any member of a committee designated by the board) to
participate in a regular or special meeting of the board of directors or a
committee thereof through the use of any means of communication by which all
directors participating in the meeting can hear each other during the
meeting. A director participating in a meeting in this manner is deemed to
be present in person at the meeting.
14. STANDARD OF CARE. A director shall perform his duties as a
director, including without limitation his duties as a member of any
committee of the board, in good faith, in a manner he reasonably believes to
be in the best interests of the corporation, and with the care an ordinarily
prudent person in a like position would exercise under similar circumstances.
In performing his duties, a director shall be entitled to rely on
information, opinions, reports or statements, including financial statements
and other financial data, in each case prepared or presented by the persons
herein designated. However, he shall not be considered to be acting in good
faith if he has knowledge concerning the matter in question that would cause
such reliance to be unwarranted. A director shall not be liable to the
corporation or its shareholders for any action he takes or omits to take as a
director if, in connection with such action or omission, he performs his
duties in compliance with this Section 14.
The designated persons on whom a director is entitled to rely are
(i) one or more officers or employees of the corporation whom the director
reasonably believes to be reliable and
<PAGE>
competent in the matters presented, (ii) legal counsel, public accountant, or
other person as to matters which the director reasonably believes to be
within such person's professional or expert competence, or (iii) a committee
of the board of directors on which the director does not serve if the
director reasonably believes the committee merits confidence.
<PAGE>
ARTICLE IV
OFFICERS AND AGENTS
1. GENERAL. The officers of the corporation shall be a president and
a secretary, each of whom shall be a natural person eighteen years of age or
older. The board of directors or an officer or officers authorized by the
board may appoint such other officers, assistant officers, committees and
agents, including a chairman of the board, chief executive officer, chief
operating officer, chief financial officer, vice presidents, treasurer,
controller, assistant secretaries and assistant treasurers, as they may
consider necessary. The board of directors or the officer or officers
authorized by the board shall from time to time determine the procedure for
the appointment of officers, their term of office, their authority and duties
and their compensation. One person may hold more than one office. In all
cases where the duties of any officer, agent or employee are not prescribed
by the bylaws or by the board of directors, such officer, agent or employee
shall follow the orders and instructions of the president of the corporation.
2. APPOINTMENT AND TERM OF OFFICE. The officers of the corporation
shall be appointed by the board of directors at each annual meeting of the
board held after each annual meeting of the shareholders. If the appointment
of officers is not made at such meeting or if an officer or officers are to
be appointed by another officer or officers of the corporation, such
appointments shall be made as soon thereafter as conveniently may be. Each
officer shall hold office until the first of the following occurs: his
successor shall have been duly appointed and qualified, his death, his
resignation, or his removal in the manner provided in Section 3.
3. RESIGNATION AND REMOVAL. An officer may resign at any time by
giving written notice of resignation to the corporation. The resignation is
effective when the notice is received by the corporation unless the notice
specifies a later effective date.
Any officer or agent may be removed at any time with cause by the
board of directors or an officer or officers authorized by the board. Such
removal does not affect the contract rights, if any, of the corporation or of
the person so removed. The appointment of an officer or agent shall not in
itself create contract rights.
4. VACANCIES. A vacancy in any office, however occurring, may be
filled by the board of directors, or by the officer or officers authorized by
the board, for the unexpired portion of the officer's term. If an officer
resigns and his resignation is made effective at a later date, the board of
directors, or officer or officers authorized by the board, may permit the
officer to remain in office until the effective date and may fill the pending
vacancy before the effective date if the board of directors or officer or
officers authorized by the board provide that the successor shall not take
office until the effective date. In the alternative, the board of directors,
or officer or officers authorized by the board of directors, may remove the
officer at any time before the effective date and may fill the resulting
vacancy.
<PAGE>
5. PRESIDENT. Subject to the direction and supervision of the board
of directors, the president shall be the chief executive officer of the
corporation, and shall have general and active control of its affairs and
business and general supervision of its officers, agents and employees.
Unless otherwise directed by the board of directors, the president shall
attend in person or by substitute appointed by him, or shall execute on
behalf of the corporation written instruments appointing a proxy or proxies
to represent the corporation, at all meetings of the stockholders of any
other corporation in which the corporation holds any stock. On behalf of the
corporation, the president may in person or by substitute or by proxy execute
written waivers of notice and consents with respect to any such meetings. At
all such meetings and otherwise, the president, in person or by substitute or
proxy, may vote the stock held by the corporation, execute written consents
and other instruments with respect to such stock, and exercise any and all
rights and powers incident to the ownership of said stock, subject to the
instructions, if any, of the board of directors. The president shall have
custody of the treasurer's bond, if any.
6. VICE PRESIDENTS. When and if appointed, the vice presidents shall
assist the president and shall perform such duties as may be assigned to them
by the president or by the board of directors. In the absence of the
president, the vice president, if any (or, if more than one, the vice
presidents in the order designated by the board of directors, or if the board
makes no such designation, then the vice president designated by the
president, or if neither the board nor the president makes any such
designation, the senior vice president as determined by first election to
that office), shall have the powers and perform the duties of the president.
7. SECRETARY. The secretary shall (i) prepare and maintain as
permanent records the minutes of the proceedings of the shareholders and the
board of directors, a record of all actions taken by the shareholders or
board of directors without a meeting, a record of all actions taken by a
committee of the board of directors in place of the board of directors on
behalf of the corporation, and a record of all waivers of notice of meetings
of shareholders and of the board of directors or any committee thereof, (ii)
see that all notices are duly given in accordance with the provisions of
these bylaws and as required by law, (iii) serve as custodian of the
corporate records and of the seal of the corporation and affix the seal to
all documents when authorized by the board of directors, (iv) keep at the
corporation's registered office or principal place of business a record
containing the names and addresses of all shareholders in a form that permits
preparation of a list of shareholders arranged by voting group and by class
or series of shares within each voting group, that is alphabetical within
each class or series and that shows the address of, and the number of shares
of each class or series held by, each shareholder, unless such a record shall
be kept at the office of the corporation's transfer agent or registrar, (v)
maintain at the corporation's principal office the originals or copies of the
corporation's articles of incorporation, bylaws, minutes of all shareholders'
meetings and records of all action taken by shareholders without a meeting
for the past three years, all written communications within the past three
years to shareholders as a group or to the holders of any class or series of
shares as a group, a list of the names and business addresses of the current
directors and officers, a copy of the corporation's most recent corporate
report filed with the Secretary of State, and financial statements showing in
reasonable detail the corporation's assets and liabilities and results of
operations for the last three years, (vi) have general charge of the stock
transfer books of the corporation, unless the corporation has a transfer
agent, (vii) authenticate records of the
<PAGE>
corporation, and (viii) in general, perform all duties incident to the office
of secretary and such other duties as from time to time may be assigned to
him by the president or by the board of directors. Assistant secretaries, if
any, shall have the same duties and powers, subject to supervision by the
secretary. The directors and/or shareholders may however respectively
designate a person other than the secretary or assistant secretary to keep
the minutes of their respective meetings.
Any books, records, or minutes of the corporation may be in written
form or in any form capable of being converted into written form within a
reasonable time.
8. TREASURER. When and if appointed, the treasurer shall be the
principal financial officer of the corporation, shall have the care and
custody of all funds, securities, evidences of indebtedness and other
personal property of the corporation and shall deposit the same in accordance
with the instructions of the board of directors. He shall receive and give
receipts and acquittances for money paid in on account of the corporation,
and shall pay out of the corporation's funds on hand all bills, payrolls and
other just debts of the corporation of whatever nature upon maturity. He
shall perform all other duties incident to the office of the treasurer and,
upon request of the board, shall make such reports to it as may be required
at any time. He shall, if required by the board, give the corporation a bond
in such sums and with such sureties as shall be satisfactory to the board,
conditioned upon the faithful performance of his duties and for the
restoration to the corporation of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control
belonging to the corporation. He shall have such other powers and perform
such other duties as may from time to time be prescribed by the board of
directors or the president. The assistant treasurers, if any, shall have the
same powers and duties, subject to the supervision of the treasurer.
The treasurer shall also be the principal accounting officer of the
corporation. He shall prescribe and maintain the methods and systems of
accounting to be followed, keep complete books and records of account as
required by the Colorado Business Corporation Act, prepare and file all
local, state and federal tax returns, prescribe and maintain an adequate
system of internal audit and prepare and furnish to the president and the
board of directors statements of account showing the financial position of
the corporation and the results of its operations.
ARTICLE V
STOCK
1. CERTIFICATES. The board of directors shall be authorized to
issue any of its classes of shares with or without certificates. The fact
that the shares are not represented by certificates shall have no effect on
the rights and obligations of shareholders. If the shares are represented by
certificates, such shares shall be represented by consecutively numbered
certificates signed, either manually or by facsimile, in the name of the
corporation by one or more persons designated by the board of directors. In
case any officer who has signed or whose facsimile signature has been placed
upon such certificate shall have ceased to be such officer before such
certificate
<PAGE>
is issued, such certificate may nonetheless be issued by the corporation with
the same effect as if he were such officer at the date of its issue.
Certificates of stock shall be in such form and shall contain such
information consistent with law as shall be prescribed by the board of
directors. If shares are not represented by certificates, within a
reasonable time following the issue or transfer of such shares, the
corporation shall send the shareholder a complete written statement of all of
the information required to be provided to holders of uncertificated shares
by the Colorado Business Corporation Act.
2. CONSIDERATION FOR SHARES. Certificated or uncertificated
shares shall not be issued until the shares represented thereby are fully
paid. The board of directors may authorize the issuance of shares for
consideration consisting of any tangible or intangible property or benefit to
the corporation, including cash, promissory notes, services performed or
other securities of the corporation. Future services shall not constitute
payment or partial payment for shares of the corporation. The promissory
note of a subscriber or an affiliate of a subscriber shall not constitute
payment or partial payment for shares of the corporation unless the note is
negotiable and is secured by collateral, other than the shares being
purchased, having a fair market value at least equal to the principal amount
of the note. For purposes of this Section 2, "promissory note" means a
negotiable instrument on which there is an obligation to pay independent of
collateral and does not include a non-recourse note.
3. LOST CERTIFICATES. In case of the alleged loss, destruction
or mutilation of a certificate of stock, the board of directors may direct
the issuance of a new certificate in lieu thereof upon such terms and
conditions in conformity with law as the board may prescribe. The board of
directors may in its discretion require an affidavit of lost certificate
and/or a bond in such form and amount and with such surety as it may
determine before issuing a new certificate.
4. TRANSFER OF SHARES. Upon surrender to the corporation or to a
transfer agent of the corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and receipt of such documentary stamps as may be required by law
and evidence of compliance with all applicable securities laws and other
restrictions, the corporation shall issue a new certificate to the person
entitled thereto, and cancel the old certificate. Every such transfer of
stock shall be entered on the stock books of the corporation which shall be
kept at its principal office or by the person and the place designated by the
board of directors.
Except as otherwise expressly provided in Article II, Sections 7
and 11, and except for the assertion of dissenters' rights to the extent
provided in Article 113 of the Colorado Business Corporation Act, the
corporation shall be entitled to treat the registered holder of any shares of
the corporation as the owner thereof for all purposes, and the corporation
shall not be bound to recognize any equitable or other claim to, or interest
in, such shares or rights deriving from such shares on the part of any person
other than the registered holder, including without limitation any purchaser,
assignee or transferee of such shares or rights deriving from such shares,
unless and until such other person becomes the registered holder of such
shares, whether or not the corporation shall have either actual or
constructive notice of the claimed interest of such other person.
<PAGE>
5. TRANSFER AGENT, REGISTRARS AND PAYING AGENTS. The board may
at its discretion appoint one or more transfer agents, registrars and agents
for making payment upon any class of stock, bond, debenture or other security
of the corporation. Such agents and registrars may be located either within
or outside Colorado. They shall have such rights and duties and shall be
entitled to such compensation as may be agreed.
ARTICLE VI
INDEMNIFICATION OF CERTAIN PERSONS
1. INDEMNIFICATION. For purposes of Article VI, a "Proper
Person" means 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, and whether formal
or informal, by reason of the fact that he is or was a director, officer,
employee, fiduciary or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, partner, trustee,
employee, fiduciary or agent of any foreign or domestic profit or nonprofit
corporation or of any partnership, joint venture, trust, profit or nonprofit
unincorporated association, limited liability company, or other enterprise or
employee benefit plan. The corporation shall indemnify any Proper Person
against reasonably incurred expenses (including attorneys' fees), judgments,
penalties, fines (including any excise tax assessed with respect to an
employee benefit plan) and amounts paid in settlement reasonably incurred by
him in connection with such action, suit or proceeding if it is determined by
the groups set forth in Section 4 of this Article that he conducted himself
in good faith and that he reasonably believed (i) in the case of conduct in
his official capacity with the corporation, that his conduct was in the
corporation's best interests, or (ii) in all other cases (except criminal
cases), that his conduct was at least not opposed to the corporation's best
interests, or (iii) in the case of any criminal proceeding, that he had no
reasonable cause to believe his conduct was unlawful. A Proper Person will
be deemed to be acting in his official capacity while acting as a director,
officer, employee or agent on behalf of this corporation and not while acting
on this corporation's behalf for some other entity.
No indemnification shall be made under this Article VI to a Proper
Person with respect to any claim, issue or matter in connection with a
proceeding by or in the right of a corporation in which the Proper Person was
adjudged liable to the corporation or in connection with any proceeding
charging that the Proper Person derived an improper personal benefit, whether
or not involving action in an official capacity, in which he was adjudged
liable on the basis that he derived an improper personal benefit. Further,
indemnification under this Section in connection with a proceeding brought by
or in the right of the corporation shall be limited to reasonable expenses,
including attorneys' fees, incurred in connection with the proceeding.
2. RIGHT TO INDEMNIFICATION. The corporation shall indemnify any
Proper Person who was wholly successful, on the merits or otherwise, in
defense of any action, suit, or proceeding as to which he was entitled to
indemnification under Section l of this Article VI against expenses
(including attorneys' fees) reasonably incurred by him in connection with the
proceeding without the necessity of any action by the corporation other than
the determination in good faith that the defense has been wholly successful.
<PAGE>
3. EFFECT OF TERMINATION OF ACTION. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction, or
upon a plea of nolo contendere or its equivalent shall not of itself create a
presumption that the person seeking indemnification did not meet the
standards of conduct described in Section l of this Article VI. Entry of a
judgment by consent as part of a settlement shall not be deemed an
adjudication of liability, as described in Section 2 of this Article VI.
4. GROUPS AUTHORIZED TO MAKE INDEMNIFICATION DETERMINATION.
Except where there is a right to indemnification as set forth in Sections 1
or 2 of this Article or where indemnification is ordered by a court in
Section 5, any indemnification shall be made by the corporation only as
authorized in the specific case upon a determination by a proper group that
indemnification of the Proper Person is permissible under the circumstances
because he has met the applicable standards of conduct set forth in Section l
of this Article. This determination shall be made by the board of directors
by a majority vote of those present at a meeting at which a quorum is
present, which quorum shall consist of directors not parties to the
proceeding ("Quorum"). If a Quorum cannot be obtained, the determination
shall be made by a majority vote of a committee of the board of directors
designated by the board, which committee shall consist of two or more
directors not parties to the proceeding, except that directors who are
parties to the proceeding may participate in the designation of directors for
the committee. If a Quorum of the board of directors cannot be obtained and
the committee cannot be established, or even if a Quorum is obtained or the
committee is designated and a majority of the directors constituting such
Quorum or committee so directs, the determination shall be made by (i)
independent legal counsel selected by a vote of the board of directors or the
committee in the manner specified in this Section 4 or, if a Quorum of the
full board of directors cannot be obtained and a committee cannot be
established, by independent legal counsel selected by a majority vote of the
full board (including directors who are parties to the action) or (ii) a vote
of the shareholders.
5. COURT-ORDERED INDEMNIFICATION. Any Proper Person may apply
for indemnification to the court conducting the proceeding or to another
court of competent jurisdiction for mandatory indemnification under Section 2
of this Article, including indemnification for reasonable expenses incurred
to obtain court-ordered indemnification. If the court determines that such
Proper Person is fairly and reasonably entitled to indemnification in view of
all the relevant circumstances, whether or not he met the standards of
conduct set forth in Section l of this Article or was adjudged liable in the
proceeding, the court may order such indemnification as the court deems
proper except that if the Proper Person has been adjudged liable,
indemnification shall be limited to reasonable expenses incurred in
connection with the proceeding and reasonable expenses incurred to obtain
court-ordered indemnification.
6. ADVANCE OF EXPENSES. Reasonable expenses (including
attorneys' fees) incurred in defending an action, suit or proceeding as
described in Section 1 may be paid by the corporation to any Proper Person in
advance of the final disposition of such action, suit or proceeding upon
receipt of (i) a written affirmation of such Proper Person's good faith
belief that he has met the standards of conduct prescribed by Section l of
this Article VI, (ii) a written
<PAGE>
undertaking, executed personally or on the Proper Person's behalf, to repay
such advances if it is ultimately determined that he did not meet the
prescribed standards of conduct (the undertaking shall be an unlimited
general obligation of the Proper Person but need not be secured and may be
accepted without reference to financial ability to make repayment), and (iii)
a determination is made by the proper group (as described in Section 4 of
this Article VI) that the facts as then known to the group would not preclude
indemnification. Determination and authorization of payments shall be made in
the same manner specified in Section 4 of this Article VI.
7. WITNESS EXPENSES. The sections of this Article VI do not
limit the corporation's authority to pay or reimburse expenses incurred by a
director in connection with an appearance as a witness in a proceeding at a
time when he has not been made a named defendant or respondent in the
proceeding.
8. REPORT TO SHAREHOLDERS. Any indemnification of or advance of
expenses to a director in accordance with this Article VI, if arising out of
a proceeding by or on behalf of the corporation, shall be reported in writing
to the shareholders with or before the notice of the next shareholders'
meeting. If the next shareholder action is taken without a meeting at the
instigation of the board of directors, such notice shall be given to the
shareholders at or before the time the first shareholder signs a writing
consenting to such action.
ARTICLE VII
PROVISION OF INSURANCE
By action of the board of directors, notwithstanding any interest
of the directors in the action, the corporation may purchase and maintain
insurance, in such scope and amounts as the board of directors deems
appropriate, on behalf of any person who is or was a director, officer,
employee, fiduciary or agent of the corporation, or who, while a director,
officer, employee, fiduciary or agent of the corporation, is or was serving
at the request of the corporation as a director, officer, partner, trustee,
employee, fiduciary or agent of any other foreign or domestic corporation or
of any partnership, joint venture, trust, profit or nonprofit unincorporated
association, limited liability company or other enterprise or employee
benefit plan, against any liability asserted against, or incurred by, him in
that capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under the provisions of Article VI or applicable law. Any such insurance may
be procured from any insurance company designated by the board of directors
of the corporation, whether such insurance company is formed under the laws
of Colorado or any other jurisdiction of the United States or elsewhere,
including any insurance company in which the corporation has an equity
interest or any other interest, through stock ownership or otherwise.
ARTICLE VIII
MISCELLANEOUS
<PAGE>
1. SEAL. The corporate seal of the corporation shall be circular
in form and shall contain the name of the corporation and the words, "Seal,
Colorado."
2. FISCAL YEAR. The fiscal year of the corporation shall be as
established by the board of directors.
3. AMENDMENTS. The board of directors shall have power, to the
maximum extent permitted by the Colorado Business Corporation Act, to make,
amend and repeal the bylaws of the corporation at any regular or special
meeting of the board unless the shareholders, in making, amending or
repealing a particular bylaw, expressly provide that the directors may not
amend or repeal such bylaw. The shareholders also shall have the power to
make, amend or repeal the bylaws of the corporation at any annual meeting or
at any special meeting called for that purpose.
4. GENDER. The masculine gender is used in these bylaws as a
matter of convenience only and shall be interpreted to include the feminine
and neuter genders as the circumstances indicate.
5. CONFLICTS. In the event of any irreconcilable conflict
between these bylaws and either the corporation's articles of incorporation
or applicable law, the latter shall control.
6. DEFINITIONS. Except as otherwise specifically provided in
these bylaws, all terms used in these bylaws shall have the same definition
as in the Colorado Business Corporation Act.
ADOPTED: APRIL 18, 1996.
<PAGE>
NOTES REGISTRATION RIGHTS AGREEMENT
Dated as of April 2, 1998
among
Convergent Communications, Inc.,
Issuer
and
Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Bear, Stearns & Co. Inc.,
BT Alex. Brown Incorporated
Initial Purchasers
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1933 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1934 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Exchange Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Exchange Offer Registration. . . . . . . . . . . . . . . . . . . . . . . 2
Exchange Offer Registration Statement. . . . . . . . . . . . . . . . . . 2
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Initial Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Majority Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Original Issue Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Registrable Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Registration Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . 4
SEC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Shelf Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Shelf Registration Statement . . . . . . . . . . . . . . . . . . . . . . 4
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. Registration Under the 1933 Act . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Exchange Offer Registration . . . . . . . . . . . . . . . . . . . . 4
(b) Shelf Registration. . . . . . . . . . . . . . . . . . . . . . . . . 6
(c) Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(d) Effective Registration Statement. . . . . . . . . . . . . . . . . . 8
(e) Accrual and Payment of Additional In. . . . . . . . . . . . . . . . 9
(f) Specific Enforcement. . . . . . . . . . . . . . . . . . . . . . . . 10
3. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4. Underwritten Registrations. . . . . . . . . . . . . . . . . . . . . . . . . . 18
5. Indemnification and Contribution. . . . . . . . . . . . . . . . . . . . . . . 18
<PAGE>
6. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(a) Rule 144 and Rule 144A. . . . . . . . . . . . . . . . . . . . . . . 22
(b) No Inconsistent Agreements. . . . . . . . . . . . . . . . . . . . . 22
(c) Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . 22
(d) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(e) Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . 23
(f) Third Party Beneficiary . . . . . . . . . . . . . . . . . . . . . . 23
(g) Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(h) Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(i) GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(j) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
<PAGE>
NOTES REGISTRATION RIGHTS AGREEMENT
THIS NOTES REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is made and
entered into as of April 2, 1998, by and among CONVERGENT COMMUNICATIONS, INC.,
a Colorado corporation (the "COMPANY"), and MERRILL LYNCH & CO., MERRILL LYNCH,
PIERCE, FENNER & SMITH INCORPORATED ("MERRILL LYNCH"), BEAR, STEARNS & CO.
INC.("BEAR, STEARNS") and BT ALEX. BROWN INCORPORATED ("BT" and, together with
Merrill Lynch and Bear, Stearns, the "INITIAL PURCHASERS").
This Agreement is made pursuant to the Purchase Agreement dated March
26, 1998 among the Company and the Initial Purchasers (the "PURCHASE
AGREEMENT"), with respect to the issue and sale by the Company and the purchase
by the Initial Purchasers of the respective number of the Company's Units (the
"UNITS"), each Unit consisting of $1,000 principal amount of the Company's 13%
Senior Notes due 2008 (the "NOTES") and four warrants (the "WARRANTS"), each
Warrant initially entitling the holder thereof to purchase 2.7 shares of common
stock, no par value (the "COMMON STOCK"), of the Company. In order to induce
the Initial Purchasers to enter into the Purchase Agreement, the Company has
agreed to provide to the Initial Purchasers and their respective direct and
indirect transferees and assigns the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. DEFINITIONS. As used in this Agreement, the following
capitalized defined terms shall have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended from time
to time, and the rules and regulations of the SEC promulgated thereunder.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations of the SEC promulgated
thereunder.
"DEPOSITARY" shall mean The Depository Trust Company, or any other
depositary appointed by the Issuer; PROVIDED, HOWEVER, that any such
depositary must have an address in the Borough of Manhattan, in the City of
New York.
"EXCHANGE NOTES" shall mean 13% Series B Senior Notes due 2008 of the
Company, issued under the Indenture containing terms identical to the
respective Notes (except that (i) interest on the Exchange Notes shall
accrue from the last date on which interest was paid on the Notes or, if no
such interest has been paid, from April 2,
<PAGE>
1998, (ii) the transfer restrictions thereon shall be eliminated and
(iii) certain provisions relating to payment of additional interest
shall be eliminated) to be offered to Holders of Notes in exchange for
Notes pursuant to the Exchange Offer.
"EXCHANGE OFFER" shall mean the exchange offer by the Company of
Exchange Notes for Registrable Notes pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the 1933
Act effected pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"HOLDERS" shall mean the Initial Purchasers, for so long as they own
any Registrable Notes, and each of their respective successors, assigns and
direct and indirect transferees who become registered owners of Registrable
Notes under the Indenture.
"INDENTURE" shall mean the Indenture relating to the Notes dated as of
April 2, 1998, between the Company and Norwest Bank Colorado, N.A., as
trustee (the "TRUSTEE"), and as the same may be amended from time to time
in accordance with the terms thereof.
"INITIAL PURCHASERS" shall have the meaning set forth in the preamble
of this Agreement.
"MAJORITY HOLDERS" shall mean the Holders of a majority of the
aggregate principal amount of Registrable Notes outstanding; PROVIDED that
whenever the consent or approval of Holders of a specified percentage of
Registrable Notes is required hereunder, Registrable Notes held by the
Company or any of its affiliates (as such term is defined in Rule 405 under
the 1933 Act) shall be disregarded in determining whether such consent or
approval was given by the Holders of such required percentage or amount.
"ORIGINAL ISSUE DATE" shall mean the date of original issuance of the
Notes.
"PERSON" shall mean any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
2
<PAGE>
"PROSPECTUS" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Notes covered by a Shelf Registration Statement,
and by all other amendments and supplements to a prospectus, including
post-effective amendments, and in each case including all material
incorporated by reference therein.
"PURCHASE AGREEMENT" shall have the meaning set forth in the preamble
of this Agreement.
"REGISTRABLE NOTES" shall mean the Notes; PROVIDED, HOWEVER, that the
Notes shall cease to be Registrable Notes when (i) a Registration Statement
with respect to such Notes shall have been declared effective under the
1933 Act and such Notes shall have been disposed of pursuant to such
Registration Statement, (ii) such Notes shall have been sold to the public
pursuant to Rule 144 (or any similar provision then in force, but not Rule
144A) under the 1933 Act, (iii) such Notes shall have ceased to be
outstanding or (iv) such Notes have been exchanged for Exchange Notes upon
consummation of the Exchange Offer.
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. ("NASD") registration and filing fees, (ii) all
fees and expenses incurred in connection with compliance with state or
other securities or blue sky laws and compliance with the rules of the NASD
(including, without limitation, reasonable fees and disbursements of United
States and local counsel for any underwriters and Holders in connection
with state or other securities or blue sky qualification of any of the
Exchange Notes or Registrable Notes), (iii) all expenses (including without
limitation all word processing, duplicating and printing expenses,
messenger and delivery expenses) of any Persons in preparing, printing and
distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales
agreements, certificates representing the Exchange Notes and other
documents relating to the performance of and compliance with this
Agreement, (iv) all rating agency fees, (v) all fees and expenses incurred
in connection with the listing, if any, of any of the Registrable Notes on
any securities exchange or exchanges, (vi) all fees and disbursements
relating to the qualification of the Indenture under applicable securities
laws, (vii) the reasonable fees and disbursements of counsel for the Issuer
and of the independent public accountants of the Issuer, including the
expenses of any special audits or "cold comfort" letters required by or
incident to such performance and compliance, (viii) premiums and other
costs of policies of insurance against liabilities arising out of the
public offering of the
3
<PAGE>
Registrable Notes being registered, (ix) the fees and expenses of a
"qualified independent underwriter" as defined by Conduct Rule 2720 of
the NASD, if required by the NASD rules, in connection with the offering
of the Registrable Notes, and (x) the reasonable fees and expenses of
the Trustee, including its counsel, and any escrow agent or custodian.
Notwithstanding the foregoing, the holders of the Registrable Notes
being registered shall pay all agency or brokerage fees and commissions
and underwriting discounts and commissions attributable to the sale of
such Registrable Notes and the fees and disbursements of any counsel or
other advisors or experts retained by such holders (severally or
jointly), other than in the case of a Shelf Registration Statement under
Section 2(b) hereof, the reasonable fees and disbursements of (A) one
counsel for the Holders (which counsel shall be selected by a majority
of the Holders and may be counsel for the Initial Purchasers) and (B)
experts retained by the Company in connection with any Registration
Statement, transfer taxes on resale of any of the Registrable Notes by
such holders and any advertising expenses customarily required to be
paid by issuers or sellers of securities.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Issuer which covers any of the Exchange Notes or Registrable Notes pursuant
to the provisions of this Agreement, and all amendments and supplements to
any such Registration Statement, including post-effective amendments, in
each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"SHELF REGISTRATION" shall mean a registration effected pursuant to
Section 2(b) hereof.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of this
Agreement which covers all of the Registrable Notes on an appropriate form
under Rule 415 under the 1933 Act, or any similar rule that may be adopted
by the SEC, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"TRUSTEE" shall mean the Trustee under the Indenture.
2. REGISTRATION UNDER THE 1933 ACT. (a) EXCHANGE OFFER
REGISTRATION. To the extent not prohibited by any applicable law or applicable
interpretation of the staff of the SEC, the Company shall (A) file an Exchange
Offer Registration Statement with the SEC within 90 days after the Original
Issue
4
<PAGE>
Date covering the offer by the Company to the Holders to exchange Exchange
Notes for all of their Registrable Notes, (B) use its best efforts to cause
such Exchange Offer Registration Statement to be declared effective under the
1933 Act within 150 days after the Original Issue Date and (C) use its best
efforts to consummate the Exchange Offer within 180 days after the Original
Issue Date. Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Exchange Offer, it being
the objective of such Exchange Offer to enable each Holder (other than
Participating Broker-Dealers (as defined in Section 3(f))) eligible and
electing to exchange Registrable Notes for Exchange Notes (assuming that such
Holder is not an affiliate of the Issuer within the meaning of Rule 405 under
the 1933 Act, acquires the Exchange Notes in the ordinary course of such
Holder's business and has no arrangements or understandings with any person
to participate in the Exchange Offer for the purpose of distributing the
Exchange Notes) to trade such Exchange Notes from and after their receipt
without any limitations or restrictions under the 1933 Act and without
material restrictions under the securities laws of a substantial proportion
of the several states of the United States.
In connection with the 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;
(ii) keep the 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 the services of the Depositary for the Exchange Offer
with respect to Notes evidenced by global certificates;
(iv) permit Holders to withdraw tendered Registrable Notes at any
time prior to the close of business, New York City time, on the last
business day on which the Exchange Offer shall remain open, by sending
to the institution specified in the notice, a telegram, telex, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Registrable Notes delivered for exchange, and a statement that
such Holder is withdrawing its election to have such Notes exchanged; and
(v) otherwise comply with all applicable laws relating to the
Exchange Offer.
As soon as practicable after the close of the Exchange Offer, the
Company shall:
(i) accept for exchange Registrable Notes duly tendered and not
validly
5
<PAGE>
withdrawn pursuant to the 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 all Registrable Notes so accepted for exchange by the Company;
and
(iii) cause the Trustee promptly to authenticate and deliver
Exchange Notes to each Holder of Registrable Notes equal in principal
amount to the principal amount of the Registrable Notes of such Holder so
accepted for exchange.
Interest will accrue on each Exchange Note exchanged for a Note
from the last date on which interest was paid on the Notes surrendered in
exchange therefor. The Exchange Offer shall not be subject to any conditions,
other than (i) that the Exchange Offer, or the making of any exchange by a
Holder, does not violate applicable law or any applicable interpretation of
the staff of the SEC and (ii) the tendering of Registrable Notes in
accordance with the Exchange Offer. Each Holder of Registrable Notes (other
than Participating Broker-Dealers) who wishes to exchange such Registrable
Notes for Exchange Notes in the Exchange Offer shall have represented that
(i) it is not an affiliate (as defined in Rule 405 under the 1933 Act) of the
Company, (ii) any Exchange Notes to be received by it were acquired in the
ordinary course of its business, (iii) at the time of the commencement of the
Exchange Offer it has no arrangement with any person to participate in the
distribution (within the meaning of the 1933 Act) of the Exchange Notes and
(iv) it shall have made such other representations as may be reasonably
necessary under applicable SEC rules, regulations or interpretations to
render the use of Form S-4 or another appropriate form under the 1933 Act
available. To the extent permitted by law and ascertainable by the Company,
the Company shall inform the Initial Purchasers of the names and addresses of
the Holders to whom the Exchange Offer is made, and the Initial Purchasers
shall have the right to contact such Holders and otherwise facilitate the
tender of Registrable Notes in the Exchange Offer.
(b) SHELF REGISTRATION. (i) If, because of any change in law or
applicable interpretations thereof by the staff of the SEC, the Company is
not permitted to effect the Exchange Offer as contemplated by Section 2(a)
hereof, or (ii) if for any other reason the Exchange Offer is not consummated
within 180 days following the Original Issue Date, or (iii) if any Holder
(other than an Initial Purchaser) is not eligible to participate in the
Exchange Offer or (iv) upon the request of any Initial Purchaser following
the consummation of the Exchange Offer if such Initial Purchaser shall hold
Registrable Notes which it acquired directly from the Company and if such
Initial Purchaser was not permitted, in the opinion of counsel to such
Initial Purchaser, pursuant to applicable law or applicable interpretation of
the staff of the SEC to participate in the Exchange Offer, the Company shall,
at its cost:
(A) as promptly as practicable, file with the SEC a Shelf
Registration Statement relating to the offer and sale of the Registrable
Notes by the Holders
6
<PAGE>
from time to time in accordance with the methods of distribution elected
by the Majority Holders of such Registrable Notes and set forth in such
Shelf Registration Statement, and use its best efforts to cause such
Shelf Registration Statement to be declared effective under the Securities
Act within 180 days after the Original Issue Date, PROVIDED THAT, with
respect to Exchange Notes received by a broker-dealer in exchange for any
securities that were acquired by such broker-dealer as a result of market
making or other trading activities, 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 Regulation S-K Items 507 and/or 508, as
applicable, in satisfaction of its obligations under this paragraph (A)
solely with respect to broker-dealers who acquired their Notes as a result
of market making or other trading activities, 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. In the event that the Company is required to file a Shelf
Registration Statement upon the request of any Holder (other than an
Initial Purchaser) not eligible to participate in the Exchange Offer
pursuant to clause (iii) above or upon the request of any Initial Purchaser
pursuant to clause (iv) above, the Company shall file and use its best
efforts to have declared effective by the SEC both an Exchange Offer
Registration Statement pursuant to Section 2(a) with respect to all
Registrable Notes and a Shelf Registration Statement (which may be a
combined Registration Statement with the Exchange Offer Registration
Statement) with respect to offers and sales of Registrable Notes held by
such Holder or such Initial Purchaser, as applicable, after completion of
the Exchange Offer;
(B) use its best efforts to keep the Shelf Registration Statement
continuously effective in order to permit the Prospectus forming part
thereof to be usable by Holders for a period of two years after its
effective date (or until one year after the effective date of the Shelf
Registration Statement if such Shelf Registration Statement is filed upon
the request of any Initial Purchaser pursuant to clause (iv) above) or such
shorter period which will terminate when all of the Registrable Notes
covered by the Shelf Registration Statement have been sold pursuant to the
Shelf Registration Statement; and
(C) notwithstanding any other provisions hereof, use its best efforts
to ensure that (i) any Shelf Registration Statement and any amendment
thereto and any Prospectus forming a part thereof and any supplement
thereto complies in all material respects with the 1933 Act and the rules
and regulations thereunder, (ii) any Shelf 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 not
misleading, and (iii) any Prospectus forming part of any Shelf Registration
Statement, and any supplement to such Prospectus (as amended or
supplemented from time to time), does not include an untrue statement of a
material fact or omit to state a material fact necessary in order
7
<PAGE>
to make the statements therein, in light of the circumstances under which
they were made, not misleading.
The Company further agrees, if necessary, to supplement or amend
the Shelf Registration Statement if reasonably requested by the Majority
Holders with respect to information relating to the Holders and otherwise as
required by Section 3(b) below, to use all reasonable efforts to cause any
such amendment to become effective and such Shelf Registration to become
usable as soon as practicable thereafter and to furnish to the Holders of
Registrable Notes copies of any such supplement or amendment promptly after
its being used or filed with the SEC.
(c) EXPENSES. The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2(a) and 2(b) and, in the
case of any Shelf Registration Statement, will reimburse the Holders or the
Initial Purchasers for the reasonable fees and disbursements of one counsel (in
addition to any local counsel) designated in writing by the Majority Holders to
act as counsel for the Holders of the Registrable Notes in connection therewith.
Each Holder shall pay all expenses of its counsel other than as set forth in the
preceding sentence, underwriting discounts and commissions and transfer taxes,
if any, relating to the sale or disposition of such Holder's Registrable Notes
pursuant to the Shelf Registration Statement.
(d) EFFECTIVE REGISTRATION STATEMENT. (i) The Company will be
deemed not to have used its best efforts to cause a Registration Statement to
become, or to remain, effective during the requisite periods set forth herein
if the Company takes any action that could reasonably be expected to result
in any such Registration Statement not being declared effective or in the
Holders of Registrable Notes covered thereby not being able to exchange or
offer and sell such Registrable Notes during that period unless (A) such
action is required by applicable law or (B) such action is taken by the
Company in good faith and for valid business reasons (but not including
avoidance of the Company's obligations hereunder), including a material
corporate transaction, so long as the Company promptly complies with the
requirements of Section 3(k) hereof, if applicable.
(ii) An Exchange Offer Registration Statement pursuant to Section
2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof
will not be deemed to have become effective unless it has been declared
effective by the SEC; PROVIDED, HOWEVER, that if, after it has been declared
effective, the offering of Registrable Notes pursuant to a Registration
Statement is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have been effective during the
period of such interference, until the offering of Registrable Notes pursuant
to such Registration Statement may legally resume.
8
<PAGE>
(iii) During any 365-day period, the Company may suspend the
availability of a Shelf Registration Statement and the use of the related
Prospectus, as provided in Section 3(e)(vi) and the penultimate paragraph of
Section 3 hereof, for up to two periods of up to 45 consecutive days (except
for the consecutive 45-day period immediately prior to maturity of the
Notes), but no more than an aggregate 60 days during any 365-day period, if
any event shall occur as a result of which it shall be necessary, in the good
faith determination of the board of directors of the Company, to amend the
Shelf Registration Statement or amend or supplement any prospectus or
prospectus supplement thereunder in order that each such document not include
any untrue statement of fact or omit to state a material fact necessary to
make the statements therein not misleading in light of the circumstances
under which they were made.
(e) ACCRUAL AND PAYMENT OF ADDITIONAL INTEREST. In the event that
(i) the Exchange Offer Registration Statement is not filed with the SEC on or
prior to the 90th calendar day following the Original Issue Date, (ii) the
Exchange Offer Registration Statement is not declared effective on or prior
to the 150th calendar day following the Original Issue Date, (iii) the
Exchange Offer is not consummated or, if required, a Shelf Registration
Statement with respect to the Notes is not declared effective on or prior to
the 180th calendar day following the Original Issue Date or (iv) the Exchange
Offer Registration Statement or the Shelf Registration Statement is declared
effective but thereafter ceases to be effective or usable except in
accordance with Section 2(d)(iii) hereof (each event referred to in clauses
(i) through (iv) above, a "REGISTRATION DEFAULT"), then the Company shall pay
additional interest on the Notes (in addition to the interest otherwise due
on the Notes) in cash in arrears on each Interest Payment Date (as defined in
the Indenture) in an amount equal to one-half of one percent (0.5%) per annum
of the principal amount of the Notes, with respect to the first 90-day period
following such Registration Default. The amount of such additional interest
will increase by an additional one-half of one percent (0.5%) to a maximum of
one and one-half percent (1.5%) per annum for each subsequent 90-day period
until such Registration Default has been cured. Upon (w) the filing of the
Exchange Offer Registration Statement after the 90-day period described in
clause (i) above, (x) the effectiveness of the Exchange Offer Registration
Statement after the 150-day period described in clause (ii) above, (y) the
consummation of the Exchange Offer or the effectiveness of a Shelf
Registration Statement, as the case may be, after the 180-day period
described in clause (iii) above, or (z) the cure of any Registration Default
described in clause (iv) above, such additional interest shall cease to
accrue on the Notes from the date of such filing, effectiveness, consummation
or cure, as the case may be, if the Company is otherwise in compliance with
this paragraph; PROVIDED, HOWEVER, that if, after any such additional
interest ceases to accrue, a different event specified in clause (i), (ii),
(iii) or (iv) above occurs, such additional interest shall begin to accrue
again pursuant to the foregoing provisions.
The Company shall notify the Trustee within five business days after
each event specified in clause (i), (ii), (iii) or (iv) above. The Company
shall pay the additional interest
9
<PAGE>
due on the Registrable Notes by depositing with the Trustee, in trust, for
the benefit of the Holders thereof, by 12:00 noon, New York City time, on or
before the applicable semi-annual Interest Payment Date for the Registrable
Notes, immediately available funds in sums sufficient to pay the additional
interest then due. The additional interest amount due shall be payable on
each Interest Payment Date to the record Holder of Registrable Notes entitled
to receive the interest payment to be made on such date as set forth in the
Indenture
(f) SPECIFIC ENFORCEMENT. Without limiting the remedies available
to the Initial Purchasers and the Holders, the Company acknowledges that any
failure by it to comply with its obligations under Sections 2(a) and 2(b)
hereof may result in material irreparable injury to the Initial Purchasers or
the Holders for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the
event of any such failure, the Initial Purchasers or any Holder may obtain
such relief as may be required to specifically enforce the Company's
obligations under Sections 2(a) and 2(b).
3. REGISTRATION PROCEDURES. In connection with the obligations
of the Company with respect to the Registration Statements pursuant to
Sections 2(a) and 2(b) hereof, the Company shall:
(a) prepare and file with the SEC a Registration Statement, within
the time period specified in Section 2, on the appropriate form under the
1933 Act, which form (i) shall be selected by the Company, (ii) shall, in
the case of a Shelf Registration, be available for the sale of the
Registrable Notes by the selling Holders thereof and (iii) shall comply as
to form in all material respects with the requirements of the applicable
form and include or incorporate by reference all financial statements
required by the SEC to be filed therewith, and use its best efforts to
cause such Registration Statement to become effective and remain effective
in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary under
applicable law to keep such Registration Statement effective for the
applicable period; cause each Prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed pursuant to Rule
424 under the 1933 Act; and comply with the provisions of the 1933 Act with
respect to the disposition of all securities covered by each Registration
Statement during the applicable period in accordance with the intended
method or methods of distribution by the selling Holders thereof;
10
<PAGE>
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Notes, at least ten days prior to filing, that a Shelf
Registration Statement with respect to the Registrable Notes is being filed
and advising such Holders that the distribution of Registrable Notes will
be made in accordance with the method elected by the Majority Holders; and
(ii) furnish to each Holder of Registrable Notes, to counsel for the
Initial Purchasers, to counsel for the Holders and to each underwriter of
an underwritten offering of Registrable Notes, if any, without charge, as
many copies of each Prospectus, including each preliminary Prospectus, and
any amendment or supplement thereto and such other documents as such Holder
or underwriter may reasonably request, including financial statements and
schedules and, if the Holder so requests, all exhibits (including those
incorporated by reference) in order to facilitate the public sale or other
disposition of the Registrable Notes; and (iii) subject to the penultimate
paragraph of this Section 3, hereby consent to the use of the Prospectus,
including each preliminary Prospectus, or any amendment or supplement
thereto by each of the selling Holders of Registrable Notes in connection
with the offering and sale of the Registrable Notes covered by the
Prospectus or any amendment or supplement thereto;
(d) use its reasonable best efforts to register or qualify the
Registrable Notes under all applicable state securities or "blue sky" laws
of such jurisdictions as any Holder of Registrable Notes covered by a
Registration Statement and each underwriter of an underwritten offering of
Registrable Notes shall reasonably request by the time the Registration
Statement is declared effective by the SEC, to cooperate with the Holders
in connection with any filings required to be made with the NASD and do any
and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in each such
jurisdiction of such Registrable Notes owned by such Holder; PROVIDED,
HOWEVER, that the Company shall not be required to (i) qualify as a foreign
corporation or as a dealer in securities in any jurisdiction where it would
not otherwise be required to qualify but for this Section 3(d) or (ii) take
any action which would subject it to general service of process or taxation
in any such jurisdiction if it is not then so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Notes and counsel for such Holders promptly and, if requested
by such Holder or counsel, confirm such advice in writing promptly (i) when
a Registration Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (ii) of any request by
the SEC or any state securities authority for post-effective amendments and
supplements to a Registration Statement and Prospectus or for additional
information after the Registration Statement has become effective, (iii) of
the issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation
of any proceedings for that purpose, (iv) if, during the period a
Registration Statement is effective, the representations and warranties of
the Company contained in any underwriting agreement, securities sales
agreement or other similar agreement, if any,
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<PAGE>
relating to such offering cease to be true and correct in all material
respects, (v) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable Notes
for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, (vi) of the happening of any event or the
discovery of any facts during the period a Shelf Registration Statement
is effective (including as contemplated in Section 2(d)(iii) hereof)
which makes any statement made in such Registration Statement or the
related Prospectus untrue in any material respect or which requires the
making of any changes in such Registration Statement or Prospectus in
order to make the statements therein not misleading and (vii) of any
determination by the Company that a post-effective amendment to a
Registration Statement would be appropriate;
(f) (A) in the case of the Exchange Offer, (i) include in the
Exchange Offer Registration Statement a "Plan of Distribution" section
covering the use of the Prospectus included in the Exchange Offer
Registration Statement by broker-dealers who have exchanged their
Registrable Notes for Exchange Notes for the resale of such Exchange Notes,
(ii) furnish to each broker-dealer who desires to participate in the
Exchange Offer, without charge, as many copies of each Prospectus included
in the Exchange Offer Registration Statement, including any preliminary
Prospectus, and any amendment or supplement thereto, as such broker-dealer
may reasonably request, (iii) include in the Exchange Offer Registration
Statement a statement that any broker-dealer who holds Registrable Notes
acquired for its own account as a result of market-making activities or
other trading activities (a "PARTICIPATING BROKER-DEALER"), and who
receives Exchange Notes for Registrable Notes pursuant to the Exchange
Offer, may be a statutory underwriter and must deliver a prospectus meeting
the requirements of the 1933 Act in connection with any resale of such
Exchange Notes, (iv) subject to the penultimate paragraph of Section 3,
hereby consent to the use of the Prospectus forming part of the Exchange
Offer Registration Statement or any amendment or supplement thereto, by any
broker-dealer in connection with the sale or transfer of the Exchange Notes
covered by the Prospectus or any amendment or supplement thereto, and (v)
include in the transmittal letter or similar documentation to be executed
by an exchange offeree in order to participate in the Exchange Offer the
following provision:
"If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes. If the undersigned is a broker-dealer
that will receive Exchange Notes for its own account in exchange for
Registrable Notes, it represents that the Registrable Notes to be
exchanged for Exchange Notes were acquired by it as a result of
market-making activities or other trading activities and acknowledges
that it will deliver a prospectus meeting the requirements of the 1933
Act in connection with any resale of such Exchange Notes pursuant to
the Exchange Offer; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the
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<PAGE>
meaning of the 1933 Act;"
(B) to the extent any Participating Broker-Dealer participates in the
Exchange Offer, the Company shall use its best efforts to cause to be
delivered at the request of an entity representing the Participating
Broker-Dealers (which entity shall be one of the Initial Purchasers, unless
it elects not to act as such representative) a "cold comfort" letter with
respect to the Prospectus in the form existing on the last date for which
exchanges are accepted pursuant to the Exchange Offer and with respect to
each subsequent amendment or supplement, if any, effected during the period
specified in clause (C) below; and
(C) to the extent any Participating Broker-Dealer participates in the
Exchange Offer, the Company shall use its best efforts to maintain the
effectiveness of the Exchange Offer Registration Statement for a period of
180 days following the closing of the Exchange Offer; and
(D) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement as
would otherwise be contemplated by Section 3(b) hereof, or take any
other action as a result of this Section 3(f), for a period exceeding
180 days after the last date for which exchanges are accepted pursuant
to the Exchange Offer (as such period may be extended by the Company)
and Participating Broker-Dealers shall not be authorized by the Company
to, and shall not, deliver such Prospectus after such period in
connection with resales contemplated by this Section 3.
(g) (A) in the case of an Exchange Offer, furnish counsel for the
Initial Purchasers and (B) in the case of a Shelf Registration, furnish
counsel for the Holders of Registrable Notes copies of any request by the
SEC or any state securities authority for amendments or supplements to a
Registration Statement and Prospectus or for additional information;
(h) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the
earliest possible moment and provide immediate notice to each Holder of the
withdrawal of any such order;
(i) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(j) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Notes to facilitate the timely preparation and
delivery of certificates representing Registrable Notes to be sold and not
bearing any restrictive legends; and
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<PAGE>
cause such Registrable Notes to be in such denominations (consistent
with the provisions of the Indenture) in a form eligible for deposit
with the Depositary and registered in such names as the selling Holders
or the underwriters, if any, may reasonably request in writing at least
one business day prior to the closing of any sale of Registrable Notes;
(k) in the case of a Shelf Registration, upon the occurrence of
any event or the discovery of any facts, each as contemplated by Section
3(e)(vi) hereof, use their best efforts to prepare a supplement or
post-effective amendment to a Registration Statement or the related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the
purchasers of the Registrable Notes, such Prospectus will not contain at
the time of such delivery any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading. The Company agrees to notify each Holder to suspend use of
the Prospectus as promptly as practicable after the occurrence of such
an event, and each Holder hereby agrees to suspend use of the Prospectus
until the Company has amended or supplemented the Prospectus to correct
such misstatement or omission. At such time as such public disclosure
is otherwise made or the Company determines that such disclosure is not
necessary, in each case to correct any misstatement of a material fact
or to include any omitted material fact, the Company agrees promptly to
notify each Holder of such determination and to furnish each Holder such
numbers of copies of the Prospectus, as amended or supplemented, as such
Holder may reasonably request;
(l) obtain CUSIP numbers for all Exchange Notes, or Registrable
Notes, as the case may be, not later than the effective date of a
Registration Statement, and provide the Trustee with printed certificates
for the Exchange Notes in a form eligible for deposit with the Depositary;
(m) (i) cause the Indenture to be qualified under the Trust Indenture
Act of 1939, as amended (the "TIA"), in connection with the registration of
the Exchange Notes, or Registrable Notes, as the case may be,
(ii) cooperate with the Trustee and the Holders to effect such changes to
the Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and (iii) execute, and use its best
efforts to cause the Trustee to execute, all documents as may be required
to effect such changes, and all other forms and documents required to be
filed with the SEC to enable the Indenture to be so qualified in a timely
manner;
(n) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and
appropriate actions (including those reasonably requested by the holders of
a majority in principal amount of the Registrable Notes being sold) in
order to expedite or facilitate the disposition of such Registrable Notes
and in such connection, whether or not an underwriting
14
<PAGE>
agreement is entered into and whether or not the registration is an
underwritten registration:
(i) make such representations and warranties to the Holders of
such Registrable Notes and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters
in similar underwritten offerings as may be reasonably requested by
them;
(ii) 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,
and the holders of a majority in principal amount of the Registrable
Notes being sold) addressed to each selling Holder and the
underwriters, if any, covering the matters customarily covered in
opinions requested in sales of securities or underwritten offerings
and such other matters as may be reasonably requested by such Holders
and underwriters;
(iii) obtain "cold comfort" letters and updates thereof from
the Company's independent certified public accountants addressed to
the underwriters, if any, and have such letters addressed to the
selling Holders of Registrable Notes, such letters to be in customary
form and covering matters of the type customarily covered in "cold
comfort" letters to underwriters in connection with similar
underwritten offerings and such other matters as may be reasonably
requested by such selling Holders and underwriters;
(iv) enter into a securities sales agreement with the Holders
and an agent of the Holders providing for, among other things, the
appointment of such agent for the selling Holders for the purpose
of soliciting purchases of Registrable Notes, which agreement shall
be in form, substance and scope customary for similar offerings;
(v) if an underwriting agreement is entered into in the case of
an underwritten offering, cause the same to set forth indemnification
provisions and procedures substantially equivalent to the
indemnification provisions and procedures set forth in Section 5
hereof with respect to the underwriters and all other parties to be
indemnified pursuant to Section 5 hereof; and
(vi) deliver such documents and certificates as may be
reasonably requested and as are customarily delivered in similar
offerings.
The above shall be done at (i) the effectiveness of such Registration
Statement (and, if appropriate, each post-effective amendment thereto) and
(ii) each closing under any underwriting or similar agreement as and to the
extent required thereunder. In the case
15
<PAGE>
of any underwritten offering, the Company shall provide written notice
to the Holders of all Registrable Notes of such underwritten offering at
least 30 days prior to the filing of a prospectus supplement for such
underwritten offering. Such notice shall (x) offer each such Holder the
right to participate in such underwritten offering, (y) specify a date,
which shall be no earlier than 10 days following the date of such
notice, by which such Holder must inform the Company of its intent to
participate in such underwritten offering and (z) include the
instructions such Holder must follow in order to participate in such
underwritten offering;
(o) in the case of a Shelf Registration, make available for
inspection by representatives of the Holders of the Registrable Notes and
any underwriters participating in any disposition pursuant to a Shelf
Registration Statement and any special counsel or accountant retained by
such Holders or underwriters, all financial and other records, pertinent
corporate documents and properties of the Company reasonably requested by
any such Persons, and cause the respective officers, directors, employees,
and any other agents of the Company to supply all information reasonably
requested by any such representative, underwriter, special counsel or
accountant in connection with a Registration Statement; PROVIDED that the
foregoing inspection and informtation gathering shall be coordinated on
behalf of the Holders by Merrill Lynch; PROVIDED FURTHER that any such
records, documents, properties and such information that is designated in
writing by the Company, in good faith, as confidential at the time of
delivery of such records, documents, properties or information shall be
kept confidential by any such representative, underwriter, special counsel
or accountant and shall be used only in connection with such Registration
Statement, unless disclosure thereof is made in connection with a court
proceeding or required by law, or such information has become available
(not in violation of this agreement) to the public generally or through a
third party without an accompanying obligation of confidentiality, and the
Company shall be entitled to request that such representative, underwriter,
special counsel or accountant sign a confidentiality agreement to the
foregoing effect;
(p) (i) in the case of an Exchange Offer, a reasonable time prior to
the filing of any Exchange Offer Registration Statement, any Prospectus
forming a part thereof, any amendment to an Exchange Offer Registration
Statement or amendment or supplement to a Prospectus, provide copies of
such document to the Initial Purchasers, and make such changes in any such
document prior to the filing thereof as the Initial Purchasers or their
counsel may reasonably request; (ii) in the case of a Shelf Registration, a
reasonable time prior to filing any Shelf Registration Statement, any
Prospectus forming a part thereof, any amendment to such Shelf Registration
Statement or amendment or supplement to such Prospectus, provide copies of
such document to the Holders of Registrable Notes, to the Initial
Purchasers, to counsel on behalf of the Holders and to the underwriter or
underwriters of an underwritten offering of Registrable Notes, if any, and
make such changes in any such document prior to the filing thereof as
counsel to the Initial Purchasers or any underwriter may request; and
16
<PAGE>
(iii) cause the representatives of the Company to be available for
discussion of such document as shall be reasonably requested by the Holders
of Registrable Notes, the Initial Purchasers on behalf of such Holders or
any underwriter, and shall not at any time make any filing of any such
document of which such Holders, the Initial Purchasers on behalf of such
Holders, their counsel or any underwriter shall not have previously been
advised and provided with an opportunity to review during the drafting of
any such document or to which such Holders, the Initial Purchasers on
behalf of such Holders, their counsel or any underwriter shall reasonably
object in writing during the preparation of any such document;
(q) in the case of a Shelf Registration, use its best efforts to
cause all Registrable Notes to be listed on any securities exchange on
which similar debt securities issued by the Company are then listed if
requested by the Majority Holders or by the underwriter or underwriters of
an underwritten offering of Registrable Notes, if any;
(r) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make available to its security
holders, as soon as reasonably practicable (but not until the end of the
first full fiscal quarter following effectiveness), an earnings statement
covering at least 12 months which shall satisfy the provisions of
Section 11(a) of the 1933 Act and Rule 158 thereunder; and
(s) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter and its counsel.
In the case of a Shelf Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Registrable Notes to furnish to the Company such information regarding
such Holder and the proposed distribution by such Holder of such Registrable
Notes as the Company may from time to time reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any
event or the discovery of any facts, each of the kind described in Section
3(e)(ii)-(vii) hereof, such Holder will forthwith discontinue disposition of
Registrable Notes pursuant to a Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated
by Section 3(k) hereof, and, if so directed by the Company, such Holder will
deliver to the Company (at the Company's expense) all copies in its
possession, other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Registrable Notes current at the
time of receipt of such notice. Each Holder agrees to keep confidential the
cause of any such notice of suspension or other information provided to them
by the Company with respect thereto or any other event which would materially
adversely affect the Company. If
17
<PAGE>
the Company shall give any such notice to suspend the disposition of
Registrable Notes pursuant to a Shelf Registration Statement as a result of
the happening of any event or the discovery of any facts, each of the kind
described in Section 3(e)(vi) hereof, the Company shall be deemed to have
used its best efforts to keep the Shelf Registration Statement effective
during such period of suspension; PROVIDED that (i) such period of suspension
shall not exceed the time periods provided in Section 2(d)(iii) hereof and
(ii) the Company shall use its best efforts to file and have declared
effective (if an amendment) as soon as practicable an amendment or supplement
to the Shelf Registration Statement and shall extend the period during which
the Registration Statement shall be maintained effective pursuant to this
Agreement by the number of days during the period from and including the date
of the giving of such notice to and including the date when the Holders shall
have received copies of the supplemented or amended Prospectus necessary to
resume such dispositions.
If any such Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (I) the insertion therein of language, in form and
substance satisfactory to such Holder, to the effect that the holding by such
Holder of such securities is not to be construed as a recommendation by such
Holder of the investment quality of the Company's securities covered thereby and
that such holding does not imply that such Holder will assist in meeting any
future financial requirements of the Company, or (II) in the event that such
reference to such Holder by name or otherwise is not required by the Securities
Act or any similar federal statute then in force, the deletion of the reference
to such Holder.
4. UNDERWRITTEN REGISTRATIONS. If any of the Registrable Notes
covered by any Shelf Registration are to be sold in an underwritten offering,
the investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the Majority Holders of such Registrable
Notes included in such offering, provided such banker or manager is acceptable
to the Company, acting reasonably.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
5. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each Initial Purchaser, each Holder, including
Participating Broker-Dealers, each underwriter who participates in an offering
of Registrable Notes, their respective affiliates, and their respective
directors, officers, employees, agents and each Person, if any, who controls any
of such parties within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934
18
<PAGE>
Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
(or any amendment thereto) pursuant to which Exchange Notes or Registrable
Notes were registered under the 1933 Act, including all documents
incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever, in each case, based upon any such untrue statement or omission,
or any such alleged untrue statement or omission; PROVIDED that (subject to
Section 5(d) below) any such settlement is effected with the written
consent of the Company; and
(iii) against any and all expenses whatsoever, as incurred
(including the reasonable fees and disbursements of one counsel chosen by
any indemnified party), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding by any
court or governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense
is not paid under subparagraph (i) or (ii) of this Section 5(a);
PROVIDED, HOWEVER, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent (i) arising out of an
untrue statement or omission or alleged untrue statement or omission (A) made
in or omitted from a preliminary Prospectus or registration statement and
corrected or included in a subsequent Prospectus or registration statement or
any amendment or supplement thereto made in reliance upon and in conformity
with written information furnished to the Company by the Initial Purchasers,
any Holder, including Participating Broker-Dealers, or any underwriter
expressly for use in the Registration Statement (or any amendment thereto) or
the Prospectus (or any amendment or supplement thereto) or (B) resulting from
the use of the Prospectus during a period when the use of the Prospectus has
been suspended in accordance with Section 2(d)(iii), Section 3(e)(vi) and the
penultimate paragraph of Section 3 hereof, provided, in each case, that
Holders received prior notice of such suspension.
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<PAGE>
(b) In the case of a Shelf Registration, each Holder agrees,
severally and not jointly, to indemnify and hold harmless the Company, each
Initial Purchaser, each underwriter who participates in an offering of
Registrable Notes and the other selling Holders and each of their respective
directors and officers (including each officer of the Company who signed the
Registration Statement) and each Person, if any, who controls the Company,
any Initial Purchaser, any underwriter or any other selling Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against
any and all loss, liability, claim, damage and expense described in the
indemnity contained in Section 5(a) hereof, as incurred, but only with
respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto) or
the Prospectus (or any amendment or supplement thereto) in reliance upon and
in conformity with written information furnished to the Company by such
Holder expressly for use in the Registration Statement (or any amendment
thereto), or the Prospectus (or any amendment or supplement thereto);
PROVIDED, HOWEVER, that no such Holder shall be liable for any claims
hereunder in excess of the amount of net proceeds received by such Holder
from the sale of Registrable Notes pursuant to such Shelf Registration
Statement.
(c) In case any action shall be commenced involving any Person in
respect of which indemnity may be sought pursuant to either paragraph (a) or
(b) above, such Person (the "INDEMNIFIED PARTY") shall give notice as
promptly as reasonably practicable to each Person against whom such indemnity
may be sought (the "INDEMNIFYING PARTY"), but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any
liability hereunder to the extent it is not materially prejudiced as a result
thereof and in any event shall not relieve it from any liability which it may
have otherwise than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of such action;
PROVIDED, HOWEVER, that counsel to the indemnifying party shall not (except
with the consent of the indemnified party) also be counsel to the indemnified
party. In no event shall the indemnifying party or parties be liable for the
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection
with any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.
No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be
sought under this Section 5 (whether or not the indemnified parties are
actual or potential parties thereof), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from
all liability arising out of such litigation, investigation, proceeding or
claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying
20
<PAGE>
party agrees that it shall be liable for any settlement of the nature
contemplated by Section 5(a)(ii) hereof effected without its written consent
if (i) such settlement is entered into more than 45 days after receipt by
such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least 30
days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party in accordance with
such request prior to the date of such settlement.
(e) If the indemnification provided for in any of the indemnity
provisions set forth in this Section 5 is for any reason unavailable to or
insufficient to hold harmless an indemnified party in respect of any losses,
liabilities, claims, damages or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party,
as incurred, in such proportion as is appropriate to reflect the relative
fault of such indemnifying party or parties on the one hand, and such
indemnified party or parties on the other hand, in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative fault of such indemnifying party or parties on the one hand, and
such indemnified party or parties on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by such indemnifying party or
parties or such indemnified party or parties and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Initial Purchasers and
the Holders of the Registrable Notes agree that it would not be just and
equitable if contribution pursuant to this Section 5 were determined by PRO
RATA allocation (even if the Initial Purchasers were treated as one entity,
and the Holders were treated as one entity, for such purpose) or by another
method of allocation which does not take account of the equitable
considerations referred to above in Section 5. The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 5 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 5, each
Person, if any, who controls an Initial Purchaser or Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as such Initial Purchaser or Holder, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each Person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act shall have the same rights to contribution as the Company.
Notwithstanding the provisions of this Section 5(e), no Holder shall be
required to contribute
21
<PAGE>
any amount in excess of the amount by which the net proceeds received by such
Holder from the sale of Registrable Notes exceeds the amount of any damages
that such Holder has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission.
6. MISCELLANEOUS. (a) RULE 144 AND RULE 144A. For so long as
the Company is subject to the reporting requirements of Section 13 or 15(d)
of the 1934 Act, the Company covenants that it will file the reports required
to be filed by it under Section 13(a) or 15(d) of the 1934 Act and the rules
and regulations adopted by the SEC thereunder, and that if it ceases to be so
required to file such reports, it will upon the request of any Holder of
Registrable Notes (i) make publicly available such information as is
necessary to permit sales pursuant to Rule 144 under the 1933 Act, (ii)
deliver such information to a prospective purchaser as is necessary to permit
sales pursuant to Rule 144A under the 1933 Act and take such further action
as any Holder of Registrable Notes may reasonably request, and (iii) take
such further action that is reasonable in the circumstances, in each case, to
the extent required from time to time to enable such Holder to sell its
Registrable Notes without registration under the 1933 Act within the
limitation of the exemptions provided by (x) Rule 144 under the 1933 Act, as
such Rule may be amended from time to time, (y) Rule 144A under the 1933 Act,
as such Rule may be amended from time to time, or (z) any similar rules or
regulations hereafter adopted by the SEC. Upon the written request of any
Holder of Registrable Notes, the Company will deliver to such Holder a
written statement as to whether it has complied with such requirements.
(b) NO INCONSISTENT AGREEMENTS. The Company has not entered into
nor will it on or after the date of this Agreement enter into any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Notes in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders hereunder do not in any way conflict with
and are not inconsistent with the rights granted to the holders of the
Company's other issued and outstanding securities under any such agreements.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given unless the Company has obtained the written consent
of Holders of at least a majority in aggregate principal amount of the
outstanding Registrable Notes affected by such amendment, modification,
supplement, waiver or departure; PROVIDED, HOWEVER, that no amendment,
modification, supplement or waiver or consent to any departure from the
provisions of Section 5 hereof shall be effective as against any Holder of
Registrable Notes unless consented to in writing by such Holder.
(d) NOTICES. All notices and other
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communications provided for or permitted hereunder shall be made in
writing by hand-delivery, registered first-class mail, telecopier, or any
courier guaranteeing overnight delivery (i) if to a Holder (other than an
Initial Purchaser), at the most current address set forth on the records of
the Registrar under the Indenture, (ii) if to an Initial Purchaser, at the
most current address given by such Initial Purchaser to the Company by means
of a notice given in accordance with the provisions of this Section 6(d),
which address initially is the address set forth in the Purchase Agreement;
and (iii) if to the Company, initially at the address set forth in the
Purchase Agreement and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 6(d).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if telecopied; and on the next business day if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of
each of the parties, including, without limitation and without the need for
an express assignment, subsequent Holders; PROVIDED that nothing herein shall
be deemed to permit any assignment, transfer or other disposition of
Registrable Notes in violation of the terms hereof or of the Purchase
Agreement or the Indenture. If any transferee of any Holder shall acquire
Registrable Notes, in any manner, whether by operation of law or otherwise,
such Registrable Notes shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Notes, such Person
shall be conclusively deemed to have agreed to be bound by and to perform all
of the terms and provisions of this Agreement, including the restrictions on
resale set forth in this Agreement and, if applicable, the Purchase
Agreement, and such Person shall be entitled to receive the benefits hereof.
(f) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right
to enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights or the rights of Holders
hereunder.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
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(h) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding between the Company and each other party hereto
relating to the subject matter hereof and supersedes all prior agreements and
understandings relating to such subject matter.
(k) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
[signature page follows]
24
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
CONVERGENT COMMUNICATIONS, INC.
By /s/ Keith V. Burge
-----------------------------------------
Name: Keith V. Burge Title: President
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BEAR, STEARNS & CO. INC.
BT ALEX. BROWN INCORPORATED
By: MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Joseph B. Sheehan
--------------------------------------
Authorized Signatory
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
(a Colorado corporation)
PURCHASE AGREEMENT
March 26, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
BT Alex. Brown Incorporated
as Representatives of the several Initial Purchasers
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Convergent Communications, Inc., a Colorado corporation (the "COMPANY"),
confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("MERRILL LYNCH") and each of the other Initial Purchasers
named in Schedule A hereto (collectively, the "INITIAL PURCHASERS", which term
shall also include any initial purchaser substituted as hereinafter provided in
Section 11 hereof), for whom Merrill Lynch, Bear, Stearns & Co. Inc. ("BEAR,
STEARNS") and BT Alex. Brown Incorporated ("BT") are acting as representatives
(in such capacity, the "REPRESENTATIVES"), with respect to the issue and sale by
the Company and the purchase by the Initial Purchasers, acting severally and not
jointly, of the respective number of units (the "UNITS") set forth in said
Schedule A, consisting in the aggregate of $160.0 million principal amount of
the Company's 13% Series A Senior Notes due 2008 (the "INITIAL NOTES") and
640,000 Warrants (the "WARRANTS") entitling the holders thereof to purchase an
aggregate of 1,728,000 shares (the "WARRANT SHARES") of Common Stock of the
Company, no par value (the "COMMON STOCK"). The Initial Notes are to be issued
pursuant to an indenture dated as of April 2, 1998 (the "INDENTURE") between the
Company and Norwest Bank Colorado,
<PAGE>
N.A., as trustee (the "TRUSTEE"). The Initial Notes and the Exchange Notes
(as defined below) issuable in exchange therefor are collectively referred to
herein as the "NOTES." Concurrently with the closing under this Agreement,
the Company will deposit in the Collateral Account (as defined in the
Collateral Account Control Agreement (the "CONTROL AGREEMENT"), dated as of
April 2, 1998, between the Company and Norwest Bank Colorado, N.A., as
custodian) an amount in cash or U.S. Government Securities (as defined in the
Indenture) or a combination thereof, that, together with the interest
received thereon, will be sufficient to pay when due the first six scheduled
interest payments on the Notes. The Notes will be collateralized by a first
priority security interest in the Collateral Account pursuant to the Custody
and Security Agreement (the "SECURITY AGREEMENT"), dated as of April 2, 1998,
between the Company and Norwest Bank Colorado, N.A., as custodian). The
Warrants will be issued pursuant to a warrant agreement dated as of April 2,
1998 (the "WARRANT AGREEMENT") between the Company and American Stock
Transfer & Trust Company, as warrant agent (the "WARRANT AGENT"). The Notes
and Warrants will not be separately transferable until the Separability Date
(as defined in the Indenture). The Units, the Notes, the Warrants and the
Warrant Shares are collectively referred to herein as the "SECURITIES".
Securities issued in book-entry form will be issued to Cede & Co. as nominee
of The Depository Trust Company ("DTC") pursuant to a letter agreement, to be
dated as of the Closing Time (as defined in Section 2(b)) (the "DTC
AGREEMENT"), among the Company, the Trustee, the Warrant Agent and DTC.
The Company understands that the Initial Purchasers propose to make an
offering of the Units on the terms and in the manner set forth herein and agrees
that the Initial Purchasers may resell, subject to the conditions set forth
herein, all or a portion of the Units to purchasers ("SUBSEQUENT PURCHASERS") at
any time after the date of this Agreement. The Units are to be offered and sold
through the Initial Purchasers without being registered under the 1933 Act, in
reliance upon exemptions therefrom. Pursuant to the terms of the Securities,
the Indenture and the Warrant Agreement, investors that acquire Securities may
only resell or otherwise transfer such Securities if such Securities are
hereafter registered under the 1933 Act or if an exemption from the registration
requirements of the 1933 Act is available (including the exemption afforded by
Rule 144A ("RULE 144A") or Regulation S ("REGULATION S") of the rules and
regulations promulgated under the 1933 Act by the Securities and Exchange
Commission (the "COMMISSION")).
Holders (including subsequent transferees) of the Notes will have the
registration rights set forth in the Notes Registration Rights Agreement (the
"NOTES REGISTRATION RIGHTS AGREEMENT") to be dated as of the Closing Time among
the Company and the Initial Purchasers and holders (including subsequent
transferees) of the Warrants will have the registration rights set forth in the
Warrant Registration Rights Agreement (the "WARRANT REGISTRATION RIGHTS
AGREEMENT") to be dated as of the Closing Time among the Company and the Initial
Purchasers, for so long as such Notes, Warrants or any Warrant Shares constitute
"TRANSFER RESTRICTED SECURITIES" (as defined in each such agreement,
respectively). Pursuant to the Notes Registration Rights Agreement, the Company
will agree to file with Commission, under the circumstances set forth therein,
(i) a registration statement under the 1933 Act (the "EXCHANGE OFFER
REGISTRATION STATEMENT") relating to the Company's 13% Series B Senior Notes due
2008 (the "EXCHANGE NOTES"), to be offered in exchange for the Notes (such offer
to exchange being referred to as the "EXCHANGE OFFER") and (ii) if, because of
any change in law or applicable interpretations thereof by
2
<PAGE>
the staff of the Commission, the Company is not permitted to effect the
Exchange Offer as contemplated by the Notes Registration Rights Agreement, or
if for any other reason the Exchange Offer is not consummated within 180 days
following the issue date of the Notes, or if any holder of the Notes (other
than an Initial Purchaser) is not eligible to participate in the Exchange
Offer, or upon the request of any Initial Purchaser following the
consummation of the Exchange Offer if such Initial Purchaser shall hold
Registrable Notes (as defined in the Notes Registration Rights Agreement)
which it acquired directly from the Company and if such Initial Purchaser was
not permitted, in the opinion of counsel to such Initial Purchaser, pursuant
to applicable law or applicable interpretation of the staff of the Commission
to participate in the Exchange Offer, the Company shall, at its cost, file a
shelf registration statement pursuant to Rule 415 under the 1933 Act (the
"SHELF REGISTRATION STATEMENT" and, together with the Exchange Offer
Registration Statement, the "NOTES REGISTRATION STATEMENTS") relating to the
resale by certain holders of the Notes and to use its best efforts to cause
such Notes Registration Statements to be declared and remain effective and
usable for the periods specified in the Notes Registration Rights Agreement
and to consummate the Exchange Offer. Pursuant to the Warrant Registration
Rights Agreement, the holders of a number of Warrants, Warrant Shares and
Registrable Securities (as defined in the Warrant Registration Rights
Agreement) (collectively, the "SUBJECT EQUITY") equivalent to at least a
majority of the outstanding Subject Equity will have the right, after an
Exercise Event (as defined in the Warrant Agreement), to require the Company
to effect one demand registration under the 1933 Act and will also have
certain tag-along and drag-along rights.
The Company has prepared and delivered to each Initial Purchaser copies of
a preliminary offering memorandum dated March 12, 1998 (the "PRELIMINARY
OFFERING MEMORANDUM") and has prepared and will deliver to each Initial
Purchaser, on the date hereof or the next succeeding day, copies of a final
offering memorandum dated March 26, 1998 (the "FINAL OFFERING MEMORANDUM"), each
for use by such Initial Purchaser in connection with its solicitation of
purchases of, or offering of, the Units. "OFFERING MEMORANDUM" means, with
respect to any date or time referred to in this Agreement, the most recent
offering memorandum (whether the Preliminary Offering Memorandum or the Final
Offering Memorandum, or any amendment or supplement to either such document),
including exhibits thereto and any documents incorporated therein by reference,
which has been prepared and delivered by the Company to the Initial Purchasers
in connection with their solicitation of purchases of, or offering of, the
Units.
This Agreement, the DTC Agreement, the Indenture, the Warrant Agreement,
the Notes Registration Rights Agreement, the Warrant Registration Rights
Agreement, the Security Agreement, the Control Agreement, the Units, the Notes,
the Warrants, the Warrant Shares and all other documents or instruments executed
by the Company in connection with the transactions contemplated thereby and
hereby are referred to herein as the "OPERATIVE DOCUMENTS."
All references in this Agreement to financial statements and schedules and
other information which is "contained," "included" or "stated" in the Offering
Memorandum (or other references of like import) shall be deemed to mean and
include all such financial statements and schedules and other information which
are incorporated by reference in the Offering Memorandum.
3
<PAGE>
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company represents
and warrants to each Initial Purchaser as of the date hereof and as of the
Closing Time referred to in Section 2(b) hereof, and agrees with each Initial
Purchaser as follows:
(i) SIMILAR OFFERINGS. The Company has not, directly or
indirectly, solicited any offer to buy or offered to sell, and will not,
directly or indirectly, solicit any offer to buy or offer to sell, in the
United States or to any United States citizen or resident, any security
which is or would be integrated with the sale of the Units, the Notes or
the Warrants in a manner that would require the Units, the Notes or the
Warrants to be registered under the 1933 Act.
(ii) OFFERING MEMORANDUM. The Offering Memorandum does not, and
at the Closing Time will not, include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that this representation, warranty and
agreement shall not apply to statements in or omissions from the Offering
Memorandum made in reliance upon and in conformity with information
furnished to the Company in writing by any Initial Purchaser through the
Representatives expressly for use in the Offering Memorandum.
(iii) INDEPENDENT ACCOUNTANTS. The accountants who certified
the financial statements and supporting schedules included in the Offering
Memorandum are independent certified public accountants with respect to the
Company and its subsidiaries within the meaning of Regulation S-X under the
1933 Act.
(iv) FINANCIAL STATEMENTS. The financial statements, together
with the related schedules and notes, included in the Offering Memorandum
present fairly in all material respects in accordance with generally
accepted accounting principles ("GAAP") the financial position of the
Company and its consolidated subsidiaries at the dates indicated and the
statement of operations, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with GAAP applied on a
consistent basis throughout the periods involved, except as disclosed
therein. The selected financial data and the summary financial information
included in the Offering Memorandum present fairly in all material respects
in accordance with GAAP the information shown therein and have been
compiled on a basis consistent with that of the audited financial
statements included in the Offering Memorandum.
(v) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the
respective
4
<PAGE>
dates as of which information is given in the Offering Memorandum,
except as otherwise stated therein, (A) there has been no material
adverse change in the financial condition, or in the earnings, business
affairs or, to the best knowledge of any of the executive officers of
the Company after due inquiry, in the business prospects of the Company
and its subsidiaries considered as one enterprise (a "Material Adverse
Effect"), whether or not arising in the ordinary course of business, (B)
there have been no transactions entered into by the Company or any of
its subsidiaries, other than those in the ordinary course of business,
which are material with respect to the Company and its subsidiaries
considered as one enterprise, and (C) there has been no dividend or
distribution of any kind declared, paid or made by the Company on any
class of its capital stock.
(vi) GOOD STANDING OF THE COMPANY. The Company has been duly
organized and is validly existing as a corporation in good standing under
the laws of the State of Colorado and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Offering Memorandum and to enter into and perform its
obligations under this Agreement; and the Company is duly qualified as a
foreign corporation to transact business and is in good standing in each
other jurisdiction set forth on Schedule C hereto in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify
or to be in good standing would not result in a Material Adverse Effect.
(vii) GOOD STANDING OF SUBSIDIARIES. Each "significant
subsidiary" of the Company (as such term is defined in Rule 1-02 of
Regulation S-X) and each other subsidiary of the Company, each as set
forth on Schedule D hereto (each a "SUBSIDIARY" and, collectively, the
"SUBSIDIARIES"), have each been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation (as set forth on such Schedule), has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Offering Memorandum and is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required (as set forth on such
Schedule), whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the Offering Memorandum, all of the issued and
outstanding capital stock of each Subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable and is owned by the
Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity, except with
respect to (i) the Small Business Administration loan with an outstanding
balance of approximately $0.3 million and (ii) the NationsCredit Commercial
Corporation credit facility with an outstanding balance of up to
approximately $1.5 million, each as described in the Offering Memorandum;
none of the outstanding shares of capital stock of the Subsidiaries was
issued in violation of any preemptive or similar rights arising by
operation of law, or under the charter or by-laws of any Subsidiary
5
<PAGE>
or under any agreement to which the Company or any Subsidiary is a party.
The subsidiaries of the Company other than the Subsidiaries, considered in
the aggregate as a single subsidiary, do not constitute a "significant
subsidiary" as defined in Rule 1-02 of Regulation S-X.
(viii) CAPITALIZATION. The authorized, issued and
outstanding capital stock of the Company is as set forth in the Offering
Memorandum in the column entitled "Actual" under the caption
"Capitalization" (except for subsequent issuances, if any, pursuant to
this Agreement, pursuant to employee benefit plans referred to in the
Offering Memorandum or pursuant to the exercise of convertible
securities or options referred to in the Offering Memorandum).
(ix) AUTHORIZATION OF AGREEMENT. This Agreement has been
duly authorized, executed and delivered by the Company.
(x) AUTHORIZATION OF THE INDENTURE. The Indenture has
been duly authorized by the Company and, at the Closing Time, will have
been duly executed and delivered by the Company and will constitute a
valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency (including, without limitation,
all laws relating to fraudulent transfers), reorganization, moratorium
or other similar laws relating to or affecting enforcement of creditors'
rights generally, or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
(xi) AUTHORIZATION OF THE WARRANT AGREEMENT. The Warrant
Agreement has been duly authorized by the Company and, at the Closing
Time, will have been duly executed and delivered by the Company and will
constitute a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms except as the
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by general
principles of equity (regardless of whether enforcement is considered in
a proceeding in equity are at law).
(xii) AUTHORIZATION OF THE UNITS. The Units have been duly
authorized by the Company. At the Closing Time, the Units will conform
in all material respects to the description thereof contained in the
Offering Memorandum.
(xiii) AUTHORIZATION OF THE INITIAL NOTES. The Initial Notes
have been duly authorized and, at the Closing Time, will have been duly
executed by the Company and, when authenticated in the manner provided
for in the Indenture and delivered against
6
<PAGE>
payment of the purchase price therefor will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws relating
to fraudulent transfers) reorganization, moratorium or other similar
laws relating to or affecting enforcement of creditors' rights
generally, or by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law), and will
be in the form contemplated by, and entitled to the benefits of, the
Indenture. At the Closing Time, the Initial Notes will conform in all
material respects to the description thereof contained in the Offering
Memorandum.
(xiv) AUTHORIZATION OF THE EXCHANGE NOTES. The Exchange
Notes have been duly authorized by the Company. When the Exchange Notes
are issued, executed and authenticated in the manner provided for by the
terms of the Exchange Offer and the Indenture, the Exchange Notes will
constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by general
principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law), and will be in the form contemplated
by, and entitled to the benefits of, the Indenture.
(xv) AUTHORIZATION OF THE WARRANTS. The Warrants have been
duly authorized and at the Closing Time, will have been duly executed by
the Company, and when issued in the manner provided for in the Warrant
Agreement and delivered against payment of the purchase price therefor
will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to
or affecting enforcement of creditors' rights generally, or by general
principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law), and will be in the form contemplated
by, and entitled to the benefits, of the Warrant Agreement. At the
Closing Time, the Warrants will conform in all material respects to the
description thereof contained in the Offering Memorandum.
(xvi) AUTHORIZATION OF THE WARRANTS SHARES. The Warrants
are exercisable into Warrant Shares in accordance with the terms of the
Warrant Agreement. The Company has duly authorized and reserved for
issuance the Warrant Shares and, when issued and paid for upon exercise
of the Warrants in accordance with the terms thereof, the Warrant Shares
will be validly issued, fully paid and nonassessable, free of any
preemptive or similar rights. At the Closing Time, the Warrant Shares
will conform in all material respects to the description thereof
contained in the Offering Memorandum.
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(xvii) AUTHORIZATION OF THE NOTES REGISTRATION RIGHTS
AGREEMENT. The Notes Registration Rights Agreement has been duly authorized
by the Company and, at the Closing Time, will have been duly executed and
delivered by the Company and will constitute a valid and binding agreement
of the Company, enforceable against the Company in accordance with its
terms except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law). At the Closing Time, the Notes
Registration Rights Agreement will conform in all material respects to the
description thereof contained in the Offering Memorandum.
(xviii) AUTHORIZATION OF THE WARRANT REGISTRATION RIGHTS
AGREEMENT. The Warrant Registration Rights Agreement has been duly
authorized by the Company and, at the Closing Time, will have been duly
executed and delivered by the Company and will constitute a valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms except as the enforcement thereof may be limited
by bankruptcy, insolvency (including, without limitation, all laws relating
to fraudulent transfers), reorganization, moratorium or other similar laws
relating to or affecting enforcement of creditors' rights generally, or by
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law). At the Closing Time, the
Warrant Registration Rights Agreement will conform in all material respects
to the description thereof contained in the Offering Memorandum.
(xix) DESCRIPTION OF THE SECURITIES AND THE INDENTURE. The
Securities and the Indenture will conform in all material respects to the
respective statements relating thereto contained in the Offering
Memorandum.
(xx) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the
Company nor any of its subsidiaries is in violation of its charter or
by-laws or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which any of them may be bound, or to
which any of the property or assets of the Company or any of its
subsidiaries is subject (collectively, "AGREEMENTS AND INSTRUMENTS")
except for such defaults that would not result in a Material Adverse
Effect; and the execution, delivery and performance of this Agreement,
the Indenture, the Warrant Agreement, the Units, the Notes, the
Warrants, the Notes Registration Rights Agreement, the Warrant
Registration Rights Agreement and any other agreement or instrument
entered into or issued or to be entered into or issued by the Company in
connection with the transactions contemplated hereby or thereby or in
the Offering Memorandum and the consummation of the transactions
contemplated herein and in the Offering Memorandum (including the
issuance and sale of the Securities and the use of the proceeds from the
sale of the Securities as described in the Offering Memorandum under the
caption "Use of
8
<PAGE>
Proceeds") and compliance by the Company with its obligations hereunder
have been duly authorized by all necessary corporate action and do not and
will not, whether with or without the giving of notice or passage of time
or both, conflict with or constitute a breach of, or default or a Repayment
Event (as defined below) under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Company
or any of its subsidiaries pursuant to, the Agreements and Instruments
except for such conflicts, breaches or defaults or liens, charges or
encumbrances that, singly or in the aggregate, would not result in a
Material Adverse Effect, nor will such action result in any violation of
the provisions of the charter or by-laws of the Company or any of its
subsidiaries or any applicable law (including the Communications Act of
1934, as amended, and the Telecommunications Act of 1996, as amended (the
"1996 ACT"), and the public utilities laws of the various states in which
the Company and its subsidiaries do business), statute, rule, regulation
(including the rules, regulations and policies of the Federal
Communications Commission (the "FCC") and the public utilities commissions
of the various states in which the Company and its subsidiaries do
business), judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or any of their assets or properties.
As used herein, a "REPAYMENT EVENT" means any event or condition which
gives the holder of any note, debenture or other evidence of indebtedness
(or any person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company or any of its subsidiaries.
(xxi) ABSENCE OF LABOR DISPUTE. No labor dispute with the
employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its or
any of its subsidiaries' principal suppliers, manufacturers, customers or
contractors, which, in either case, may reasonably be expected to result in
a Material Adverse Effect.
(xxii) ABSENCE OF PROCEEDINGS. Except as disclosed in the
Offering Memorandum, there is no action, suit, proceeding, inquiry or
investigation before or by any court or governmental agency or body,
domestic or foreign, now pending, or, to the knowledge of the Company,
threatened, against or affecting the Company or any subsidiary thereof
which might reasonably be expected to result in a Material Adverse Effect,
or which might reasonably be expected to materially and adversely affect
the properties or assets of the Company or any of its subsidiaries or the
consummation of this Agreement or the performance by the Company of its
obligations hereunder. The aggregate of all pending legal or governmental
proceedings to which the Company or any subsidiary thereof is a party or of
which any of their respective property or assets is the subject which are
not described in the Offering Memorandum, including ordinary routine
litigation incidental to the business, is not reasonably likely to result
in a Material Adverse Effect.
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(xxiii) POSSESSION OF INTELLECTUAL PROPERTY. The Company and
its subsidiaries own or possess, or can acquire on reasonable terms,
adequate 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, trade names or other intellectual property
(collectively, "INTELLECTUAL PROPERTY") necessary to carry on the business
now operated by them, except to the extent that any failure to so own,
possess or acquire such items, either singly or in the aggregate, would not
have a Material Adverse Effect, and neither the Company nor any of its
subsidiaries has received any notice or is otherwise aware of any
infringement of or conflict with asserted rights of others with respect to
any Intellectual Property or of any facts or circumstances which would
render any Intellectual Property invalid or inadequate to protect the
interest of the Company or any of its subsidiaries therein, and which
infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in the aggregate,
is reasonably likely to result in a Material Adverse Effect.
(xxiv) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale of
the Units hereunder or the consummation of the transactions contemplated by
this Agreement (except (i) such as have been obtained, (ii) such as may be
required under the securities or Blue Sky laws of various states and (iii)
such as may be required under securities laws in connection with the
Exchange Offer or the Shelf Registration Statement).
(xxv) POSSESSION OF LICENSES AND PERMITS. The Company and
its subsidiaries possess such permits, licenses, approvals, consents and
other authorizations issued by the appropriate federal, state, local or
foreign regulatory agencies or bodies (including the FCC, the public
utilities commission, or any equivalent body, of each state in which the
Company and its subsidiaries do business and any other relevant state and
local authorities (the "LOCAL AUTHORITIES")) necessary to conduct the
business now operated by them (collectively, "GOVERNMENTAL LICENSES"),
except to the extent that any failure to so possess such Governmental
Licenses, either singly or in the aggregate, would not have a Material
Adverse Effect; the Company and its subsidiaries are in compliance with the
terms and conditions of all such Governmental Licenses, except where the
failure so to comply would not, singly or in the aggregate, have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental Licenses
or the failure of such Governmental Licenses to be in full force and effect
would not have a Material Adverse Effect; there is no outstanding adverse
judgment, decree or order that has been issued by the FCC or any of the
Local Authorities against the Company or any of its subsidiaries and which,
singly or in the aggregate,
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would result in a Material Adverse Effect; and neither the Company nor
any of its subsidiaries has received any notice of proceedings relating
to the revocation or modification of any such Governmental Licenses
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a Material Adverse Effect.
(xxvi) TITLE TO PROPERTY. The Company and its subsidiaries
have good and marketable title to all real property owned by the Company
and its subsidiaries owned by them, in each case, free and clear of all
mortgages, pledges, liens, security interests, claims, restrictions or
encumbrances of any kind except such as (a) are described in the Offering
Memorandum or (b) do not, singly or in the aggregate, materially affect the
value of such property and do not interfere with the use made and proposed
to be made of such property by the Company or any of its subsidiaries; and
all of the leases and subleases material to the business of the Company and
its subsidiaries, considered as one enterprise, and under which the Company
or any of its subsidiaries holds properties described in the Offering
Memorandum, are in full force and effect, and neither the Company nor any
of its subsidiaries has any notice of any material claim of any sort that
has been asserted by anyone adverse to the rights of the Company or any of
its subsidiaries under any of the leases or subleases mentioned above, or
affecting or questioning the rights of such the Company or any subsidiary
thereof to the continued possession of the leased or subleased premises
under any such lease or sublease.
(xxvii) TAX RETURNS. The Company and its subsidiaries have
filed all federal, state, local and foreign tax returns that are required
to be filed or have duly requested extensions thereof and have paid all
taxes required to be paid by any of them and any related assessments, fines
or penalties, except for any such tax, assessment, fine or penalty that is
being contested in good faith and by appropriate proceedings; and adequate
charges, accruals and reserves have been provided for in the financial
statements referred to in Section 1(a)(iv) above in respect of all federal,
state, local and foreign taxes for all periods as to which the tax
liability of the Company or any of its subsidiaries has not been finally
determined or remains open to examination by applicable taxing authorities.
(xxviii) ENVIRONMENTAL LAWS. Except as described in the
Offering Memorandum and except for such matters as would not, singly or in
the aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its subsidiaries is in violation of any federal, state, local or
foreign statute, law, rule, regulation, ordinance, code, policy or rule of
common law or any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "HAZARDOUS MATERIALS") or to
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the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"ENVIRONMENTAL LAWS"), (B) to the Company's best knowledge after due
inquiry, the Company and its subsidiaries have all permits,
authorizations and approvals required under any applicable Environmental
Laws and are each in compliance with their requirements, (C) to the
Company's best knowledge after due inquiry, there are no pending or
threatened administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental
Law against the Company or any of its subsidiaries and (D) to the
Company's best knowledge after due inquiry, there are no events or
circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by
any private party or governmental body or agency, against or affecting
the Company or any of its subsidiaries relating to Hazardous Materials
or Environmental Laws.
(xxix) INVESTMENT COMPANY ACT. The Company is not, and upon
the issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Offering
Memorandum will not be, an "investment company" required to register under
the Investment Company Act of 1940, as amended (the "1940 ACT"), or an
entity "controlled" by an "investment company" required to register under
the 1940 Act as each of the foregoing terms are defined in the 1940 Act.
(xxx) RULE 144A ELIGIBILITY. Solely with respect to matters
relating to the eligibility of the Securities for resale pursuant to Rule
144A which are under the Company's control, the Securities are eligible for
resale pursuant to Rule 144A, will not be, at the Closing Time, of the same
class as securities listed on a national securities exchange registered
under Section 6 of the Securities Exchange Act of 1934, as amended (the
"1934 ACT"), or quoted in a U.S. automated interdealer quotation system and
otherwise are in conformance with the requirements set forth in Rule
144A(d).
(xxxi) NO GENERAL SOLICITATION. None of the Company, its
affiliates, as such term is defined in Rule 501(b) under the 1933 Act
("AFFILIATES"), or any person acting on its or any of their behalf (other
than the Initial Purchasers, as to whom the Company makes no
representation) has engaged or will engage, in connection with the offering
of the Units, in any form of general solicitation or general advertising
within the meaning of Rule 502(c) under the 1933 Act.
(xxxii) NO REGISTRATION REQUIRED. Subject to compliance by the
Initial Purchasers with the representations and warranties set forth in
Section 2 and the procedures set forth in Section 6 hereof, it is not
necessary in connection with the offer, sale and delivery of the Units to
the Initial Purchasers by the Company and to each Subsequent Purchaser by
the Initial Purchasers in the manner contemplated by this
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Agreement and the Offering Memorandum to register the Securities under
the 1933 Act or to qualify the Indenture under the Trust Indenture Act
of 1939, as amended (the "1939 ACT").
(xxxiii) NO DIRECTED SELLING EFFORTS. With respect to those
Securities sold in reliance on Regulation S, (A) none of the Company, its
Affiliates or any person acting on its or their behalf (other than the
Initial Purchasers, as to whom the Company makes no representation) has
engaged or will engage in any directed selling efforts within the meaning
of Regulation S and (B) each of the Company and its Affiliates and any
person acting on its or their behalf (other than the Initial Purchasers, as
to whom the Company makes no representation) has complied and will comply
with the offering restrictions requirement of Regulation S.
(xxxiv) SUBSCRIPTION RIGHTS. Except as described in the
Offering Memorandum, neither the Company nor any of its subsidiaries has
any outstanding options to purchase, or any preemptive rights or other
rights to subscribe for or purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, any of
its equity interests or any such options, rights, convertible securities or
obligations.
(xxxv) RANKING. When issued, the Notes will rank PARI PASSU
in right of payment with all senior Indebtedness (as defined in the
Indenture) of the Company and will rank senior in right of payment to all
subordinated Indebtedness of the Company.
(xxxvi) PERSONAL PROPERTY OF THE COMPANY. At the Closing Time,
the Company will have good and marketable title to all personal property
(which includes all property which is not real property) owned by the
Company which is material to the business of the Company, free and clear of
any security interest, mortgage, pledge, lien, encumbrance, claim or equity
and defects, except with respect to (i) the Small Business Administration
loan with an outstanding balance of approximately $0.3 million and (ii) the
NationsCredit Commercial Corporation credit facility with an outstanding
balance of up to approximately $1.5 million, each as described in the
Offering Memorandum, and except such as do not materially affect the value
of such property and do not interfere with the use made and proposed to be
made of such property by the Company in connection with its business as
described in the Offering Memorandum.
(xxxvii) ACCOUNTING SYSTEM. The Company and its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance with
management's general or specific authorization, (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets, (C) access to assets is permitted only in
accordance with management's general or specific authorization and (D) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate
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action is taken with respect to any differences.
(xxxviii) INSURANCE. As of the Closing Time, the Company and its
subsidiaries are insured by and maintain insurance covering, or are the
named beneficiaries of insurance maintained by third parties covering,
their respective properties, with 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; and
neither the Company nor its subsidiaries has any reason to believe that
such insurance coverage cannot be renewed as and when such coverage expires
or that similar coverage could not be obtained from similar insurers at a
cost that would not have a Material Adverse Effect.
(xxxix) NO AGREEMENT FOR FILING A REGISTRATION STATEMENT.
Except as disclosed in the Offering Memorandum, there are no persons with
registration rights or other similar rights to have any securities
registered pursuant to any registration statement or otherwise registered
by the Company under the 1933 Act, except persons having such rights
pursuant to the Notes Registration Rights Agreement or the Warrant
Registration Rights Agreement.
(xl) COMPLIANCE WITH FEDERAL RESERVE SYSTEM REGULATIONS.
Neither the Company, any of its subsidiaries or any agent thereof
acting on the behalf of any of them, has taken, and none of them will
take, any action that might cause this Agreement or the issuance or
sale of the Units to violate Regulation G (12 C.F.R. Part 207),
Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221)
or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the
Federal Reserve System.
(xli) COMPLIANCE WITH RULE 144A. Each of the Preliminary
Offering Memorandum and the Final Offering Memorandum, as of its date,
contains all the information specified in, and meeting the requirements of,
Rule 144A(d)(4) under the 1933 Act.
(xlii) ERISA. To the Company's best knowledge after due
inquiry, neither the Company nor any of its subsidiaries has violated any
provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the rules and regulations promulgated thereunder,
except for such violations which, singly or in the aggregate, would not
have a Material Adverse Effect. If any such plan is adopted, the execution
and delivery of this Agreement and the sale of the Units will not involve
any non-exempt prohibited transaction within the meaning of Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended.
The representations made in the preceding sentence are made in reliance
upon and subject to the accuracy of, and compliance with, the
representations and covenants
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made or deemed made by the Initial Purchasers as set forth in the Offering
Memorandum under "NOTICE TO INVESTORS."
(xliii) SOLVENCY. Neither the Company nor any of its
subsidiaries intend to, nor do any of them believe that they will incur,
debts beyond their ability to pay such debts as they mature. As of the
date hereof, the present fair market value of the assets of the Company and
each of its subsidiaries exceeds, and at the Closing Time, the present
market value of the assets of the Company and its subsidiaries will exceed,
the amounts that will be required to be paid on or in respect of their
existing debts and other liabilities (including contingent liabilities)
when as they become absolute and matured. The assets of the Company and
its subsidiaries do not constitute unreasonably small capital to carry out
their respective businesses, as conducted or proposed to be conducted.
(b) OFFICER'S CERTIFICATES. Any certificate signed by any officer of the
Company or any of its subsidiaries delivered to the Representatives or to
counsel for the Initial Purchasers shall be deemed a representation and warranty
by the Company to each Initial Purchaser as to the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO INITIAL PURCHASERS; CLOSING.
(a) UNITS. On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
agrees to sell to each Initial Purchaser, severally and not jointly, and each
Initial Purchaser, severally and not jointly, agrees to purchase from the
Company, at the price set forth in Schedule B, the number of Units set forth in
Schedule A opposite the name of such Initial Purchaser, plus any additional
Units which such Initial Purchaser may become obligated to purchase pursuant to
the provisions of Section 11 hereof.
(b) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Units shall be made at the office of Skadden, Arps, Slate,
Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022 or at such other
place as shall be agreed upon by the Representatives and the Company, at
9:00 A.M. New York City time on the fifth business day after the date hereof
(unless postponed in accordance with the provisions of Section 11), or such
other time not later than ten business days after such date as shall be agreed
upon by the Representatives and the Company (such time and date of payment and
delivery being herein called the "CLOSING TIME").
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representatives for the respective accounts of the Initial Purchasers of
certificates for the Units to be purchased by them. It is understood that each
Initial Purchaser has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the Units
which it has agreed to purchase. Merrill Lynch, individually and not as
representative of the Initial Purchasers,
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may (but shall not be obligated to) make payment of the purchase price for
the Securities to be purchased by any Initial Purchaser whose funds have not
been received by the Closing Time, but such payment shall not relieve such
Initial Purchaser from its obligations hereunder.
(c) QUALIFIED INSTITUTIONAL BUYER. Each Initial Purchaser severally
and not jointly represents and warrants to, and agrees with, the Company that
it is a "qualified institutional buyer" within the meaning of Rule 144A under
the 1933 Act (a "QUALIFIED INSTITUTIONAL BUYER") and an "accredited investor"
within the meaning of Rule 501(a) under the 1933 Act (an "ACCREDITED
INVESTOR").
(d) DENOMINATIONS; REGISTRATION. One or more Units representing the
Initial Notes and the Warrants in definitive global form, registered in the
name of Cede & Co., as nominee of DTC, having an aggregate amount
corresponding to the aggregate amount of the Units sold to Subsequent
Purchasers (collectively, the "GLOBAL UNIT"), shall be delivered by the
Company to the Representatives (or as the Representatives direct) in each
case with any transfer taxes thereon duly paid by the Company, against
payment by the Representatives of the purchase price therefor in accordance
with this Section 2. The Global Unit shall be made available for examination
and packaging by the Representatives in The City of New York not later than
10:00 a.m. on the last business day prior to the Closing Time.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each
Initial Purchaser as follows:
(a) OFFERING MEMORANDUM. The Company, as promptly as possible, will
furnish to each Initial Purchaser, without charge, such number of copies of
the Preliminary Offering Memorandum, the Final Offering Memorandum and any
amendments and supplements thereto and documents incorporated by reference
therein as such Initial Purchaser may reasonably request.
(b) NOTICE AND EFFECT OF MATERIAL EVENTS. The Company will immediately
notify each Initial Purchaser, and confirm such notice in writing, of (x) any
filing made by the Company of information relating to the offering of the
Units with any securities exchange or any other regulatory body in the United
States or any other jurisdiction, and (y) prior to the completion of the
placement of the Units by the Initial Purchasers as evidenced by a notice in
writing from the Initial Purchasers to the Company, any material changes in
or affecting the earnings, business affairs or business prospects of the
Company and its subsidiaries which (i) make any statement in the Offering
Memorandum false or misleading or (ii) are not disclosed in the Offering
Memorandum. In such event or if during such time any event shall occur as a
result of which it is necessary, in the reasonable opinion of the Company,
its counsel, the Initial Purchasers or counsel for the Initial Purchasers, to
amend or supplement the Final Offering Memorandum in order that the Final
Offering Memorandum not include any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein not misleading in the light of the circumstances then existing, the
Company will forthwith amend or supplement the Final Offering Memorandum by
preparing and furnishing to each Initial Purchaser an amendment or
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amendments of, or a supplement or supplements to, the Final Offering
Memorandum (in form and substance satisfactory in the reasonable opinion of
counsel for the Initial Purchasers) so that, as so amended or supplemented,
the Final Offering Memorandum will not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time it
is delivered to a Subsequent Purchaser, not misleading.
(c) AMENDMENT TO OFFERING MEMORANDUM AND SUPPLEMENTS. The Company will
advise each Initial Purchaser promptly of any proposal to amend or supplement
the Offering Memorandum and will not effect any amendment or supplement to
which the Initial Purchasers shall reasonably object in writing. Neither the
consent of the Initial Purchasers, nor the Initial Purchaser's delivery of
any such amendment or supplement, shall constitute a waiver of any of the
conditions set forth in Section 5 hereof.
(d) QUALIFICATION OF UNITS FOR OFFER AND SALE. The Company will use
its best efforts, in cooperation with the Initial Purchasers, to qualify the
Units for offering and sale under the applicable securities laws of such
jurisdictions as the Representatives may designate and will maintain such
qualifications in effect as long as required for the sale of the Units;
provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation
or as a dealer in securities in any jurisdiction in which it is not so
qualified or to subject itself to taxation in respect of doing business in
any jurisdiction in which it is not otherwise so subject.
(e) DTC. 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 facilities of DTC.
(f) USE OF PROCEEDS. The Company will use the net proceeds received by
it from the sale of the Units in the manner specified in the Offering
Memorandum under "USE OF PROCEEDS".
(g) RESTRICTION ON SALE OF SECURITIES. During a period of 90 days from
the date of the Offering Memorandum, the Company will not, without the prior
written consent of Merrill Lynch, directly or indirectly, issue, sell, offer
or agree to sell, grant any option for the sale of, or otherwise dispose of,
any debt or equity securities of the Company or securities of the Company
that are convertible into, or exchangeable for, the Units, the Notes, the
Warrants, the Warrant Shares or any such other debt or equity securities
(other than in connection with the Exchange Offer or the Shelf Registration
Statement)(except for options granted pursuant to the 1996 and 1997 Incentive
and Non-Statutory Option Plans and the 1998 Stock Option Plan and the
issuance of shares of Common Stock upon exercise of options or warrants
outstanding prior to this Offering, each as described in the Offering
Memorandum).
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(h) EXERCISE OF WARRANTS. The Company will reserve and to continue to
reserve, so long as any Warrants are outstanding, a sufficient number of
shares of Common Stock for issuance upon exercise of the Warrants.
(i) COMPLY WITH AGREEMENTS. To comply with all of its respective
agreements set forth in each of the Notes Registration Rights Agreement and
the Warrant Registration Rights Agreement.
(j) FURNISH REPORTS. So long as any Securities are outstanding, to
furnish to the Initial Purchasers as promptly as practicable after they are
available copies of all reports or other communications furnished to or filed
with the Commission or any national securities exchange on which any class of
securities of the Company is listed and such other publicly available
information concerning the Company and/or its subsidiaries as the Initial
Purchasers may reasonably request.
(k) PORTAL REGISTRATION. To use its best efforts to effect the
inclusion of the Units, the Notes and the Warrants in PORTAL and to maintain
the listing of the Units, the Notes and the Warrants on PORTAL for so long as
any of such Units, Notes or Warrants are outstanding.
(l) PERFORMANCE OF DUTIES. To use its best efforts (i) to do and
perform all things required or necessary to be done and performed under this
Agreement by it prior to the Closing Time and (ii) to satisfy all conditions
precedent to the delivery of the Units.
SECTION 4. PAYMENT OF EXPENSES.
(a) EXPENSES. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and any filing of the Offering Memorandum (including
financial statements and any schedules or exhibits and any document
incorporated therein by reference) and of each amendment or supplement
thereto, (ii) the preparation, printing and delivery to the Initial
Purchasers of this Agreement, any Agreement among Initial Purchasers, the
Indenture, the Warrant Agreement, the Notes Registration Rights Agreement,
the Warrant Registration Rights Agreement and such other documents as may be
required in connection with the offering, purchase, sale and delivery of the
Units, (iii) the preparation, issuance and delivery of the certificates for
the Units to the Initial Purchasers, including any charges of DTC in
connection therewith; (iv) the fees and disbursements of the Company's
counsel, accountants and other advisors, (v) the qualification of the Units
under securities laws in accordance with the provisions of Section 3(d)
hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Initial Purchasers in connection therewith and in connection
with the preparation of the Blue Sky Survey, any supplement thereto and any
Legal Investment Survey, (vi) the fees and expenses of the Trustee, including
the fees and disbursements of counsel for the Trustee in connection with the
Indenture and the Notes, (vii) the fees and expenses of the Warrant Agent,
including the fees and disbursements of counsel for the Warrant Agent in
connection with the Warrant Agreement, the Warrants and the Warrant Shares,
(viii) any fees payable with respect to the review by the
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National Association of Securities Dealers, Inc. (the "NASD") in connection
with the initial and continued designation of the Securities as PORTAL
securities under the PORTAL Market Rules pursuant to NASD Rule 5322, (ix) all
costs and expenses of the Exchange Offer and any Registration Statement, as
set forth in and subject to the Notes Registration Rights Agreement, and
(x) all costs and expenses of any demand registration statement required to
be paid pursuant to the Warrant Registration Rights Agreement; provided,
however, that, except as set forth in Sections 4(a)(v) and 4(b) hereof, the
Initial Purchasers shall pay their own costs and expenses of their counsel.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or
Section 10(a)(i) hereof, the Company shall reimburse the Initial Purchasers
for all of their out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the Initial Purchasers.
SECTION 5. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The
obligations of the several Initial Purchasers hereunder are subject to the
accuracy of the representations and warranties of the Company contained in
Section 1 hereof or in certificates of any officer of the Company or any of
its subsidiaries delivered pursuant to the provisions hereof, to the
performance by the Company of its covenants and other obligations hereunder,
and to the following further conditions:
(a) OPINION OF COUNSEL FOR COMPANY.
(i) At the Closing Time, the Representatives shall have received
the favorable opinion, dated as of the Closing Time, of Gibson, Dunn &
Crutcher LLP, counsel for the Company, in form and substance satisfactory to
counsel for the Initial Purchasers, to the effect set forth in Exhibit A
hereto and to such further effect as counsel to the Initial Purchasers may
reasonably request.
(ii) At the Closing Time, the Representatives shall have received
the favorable opinion, dated as of the Closing Time, of Martin E. Freidel,
Esq., Executive Vice President and General Counsel for the Company, in form
and substance satisfactory to counsel for the Initial Purchasers, to the
effect set forth in Exhibit B hereto and to such further effect as counsel to
the Initial Purchasers may reasonably request.
(iii) At the Closing Time, the Representatives shall have received
the favorable opinion, dated as of the Closing Time, of Harris, Wiltshire &
Grannis LLP, counsel for the Company, in form and substance satisfactory to
counsel for the Initial Purchasers, to the effect set forth in Exhibit C
hereto and to such further effect as counsel to the Initial Purchasers may
reasonably request.
(b) OPINION OF COUNSEL FOR INITIAL
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PURCHASERS. At the Closing Time, the Representatives shall have received the
favorable opinion, dated as of the Closing Time, of Skadden, Arps, Slate,
Meagher & Flom LLP, counsel for the Initial Purchasers, with respect to the
matters set forth in (iv) through (xii), inclusive, (xv) (solely as to the
information in the Offering Memorandum under "Description of the Units,"
"Description of the Notes" and "Description of the Warrants") and the
penultimate paragraph of Exhibit A hereto. In giving such opinion such
counsel may rely, as to all matters governed by the laws of jurisdictions
other than the law of the State of New York and the federal law of the United
States, upon the opinions of counsel satisfactory to the Representatives.
Such counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon certificates
of officers of the Company and its subsidiaries and certificates of public
officials.
(c) OFFICERS' CERTIFICATE. At the Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Offering Memorandum, any material adverse change
in the financial condition, or in the earnings, business affairs or, to the
best knowledge of any of the executive officers of the Company after due
inquiry, in the business prospects of the Company and its subsidiaries
considered as one enterprise, whether or not arising in the ordinary course
of business, and the Representatives shall have received a certificate of the
Company executed by its Chief Financial Officer and its President, dated as
of the Closing Time, to the effect that (i) there has been no such material
adverse change, (ii) the representations and warranties in Section 1 hereof
are true and correct with the same force and effect as though expressly made
at and as of the Closing Time, and (iii) the Company has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Time.
(d) ACCOUNTANT'S COMFORT LETTER. At the time of the execution of this
Agreement, the Representatives shall have received from Coopers & Lybrand LLP
a letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter for
each of the other Initial Purchasers containing statements and information of
the type ordinarily included in accountants' "comfort letters" to Initial
Purchasers with respect to the financial statements and certain financial
information contained in the Offering Memorandum.
(e) BRING-DOWN COMFORT LETTER. At the Closing Time, the
Representatives shall have received from Coopers & Lybrand LLP a letter,
dated as of the Closing Time, to the effect that they reaffirm the statements
made in the letter furnished pursuant to subsection (d) of this Section,
except that the specified date referred to shall be a date not more than
three business days prior to the Closing Time.
(f) PORTAL. At the Closing Time, the Units, the Notes and the Warrants
shall have been designated for trading on PORTAL.
(g) ADDITIONAL DOCUMENTS. At the Closing Time, counsel for the Initial
Purchasers shall have been furnished
20
<PAGE>
with such documents and opinions as they may require for the purpose of
enabling them to pass upon the issuance and sale of the Units as herein
contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection with
the issuance and sale of the Units as herein contemplated shall be
satisfactory in form and substance to the Representatives and counsel for the
Initial Purchasers.
(h) TERMINATION OF AGREEMENT. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement may be terminated by the Representatives by notice to the
Company at any time at or prior to the Closing Time, and such termination
shall be without liability of any party to any other party except as provided
in Section 4 and except that Sections 1, 7 and 8 shall survive any such
termination and remain in full force and effect.
SECTION 6. SUBSEQUENT OFFERS AND RESALES OF THE UNITS.
(a) OFFER AND SALE PROCEDURES. Each of the Initial Purchasers and the
Company hereby establish and agree to observe the following procedures in
connection with the offer and sale of the Units:
(i) OFFERS AND SALES ONLY TO QUALIFIED INSTITUTIONAL BUYERS.
Offers and sales of the Units will be made only by the Initial
Purchasers or Affiliates thereof qualified to do so in the
jurisdictions in which such offers or sales are made. Each such offer
or sale shall only be made (A) to persons whom the offeror or seller
reasonably believes to be Qualified Institutional Buyers or (B) to
non-U.S. persons outside the United States to whom the offeror or
seller reasonably believes offers and sales of the Securities may be
made in reliance upon Regulation S under the 1933 Act.
(ii) NO GENERAL SOLICITATION. The Units will be offered by
approaching prospective Subsequent Purchasers on an individual basis. No
general solicitation or general advertising (within the meaning of Rule
502(c) under the 1933 Act) will be used in the United States in connection
with the offering of the Units.
(iii) PURCHASES BY NON-BANK FIDUCIARIES. In the case of a
non-bank Subsequent Purchaser of a Unit acting as a fiduciary for one or
more third parties, in connection with an offer and sale to such purchaser
pursuant to clause (a) above, each third party shall, in the judgment of
the applicable Initial Purchaser, be a Qualified Institutional Buyer or a
non-U.S. person outside the United States.
(iv) SUBSEQUENT PURCHASER NOTIFICATION. Each Initial Purchaser
will take
21
<PAGE>
reasonable steps to inform, and cause each of its U.S. Affiliates to
take reasonable steps to inform, persons acquiring Units from such Initial
Purchaser or affiliate, as the case may be, in the United States that the
Units (A) have not been and will not be registered under the 1933 Act, (B)
are being sold to them without registration under the 1933 Act in reliance
on Rule 144A or in accordance with another exemption from registration
under the 1933 Act, as the case may be, and (C) may not be offered, sold or
otherwise transferred except (1) to the Company, (2) outside the United
States in accordance with Rule 904 of Regulation S, or (3) inside the
United States in accordance with (x) Rule 144A to a person whom the seller
reasonably believes is a Qualified Institutional Buyer that is purchasing
such Units for its own account or for the account of a Qualified
Institutional Buyer to whom notice is given that the offer, sale or
transfer is being made in reliance on Rule 144A or (y) the exemption from
registration under the 1933 Act provided by Rule 144, if available.
(v) RESTRICTIONS ON TRANSFER. The transfer restrictions and the
other provisions set forth in Section 311 of the Indenture, including the
legends required by the Indenture, shall apply to the Units and the Notes
except as otherwise agreed by the Company and the Initial Purchasers.
Following the sale of the Units by the Initial Purchasers to Subsequent
Purchasers pursuant to the terms hereof, the Initial Purchasers shall not
be liable or responsible to the Company for any losses, damages or
liabilities suffered or incurred by the Company, including any losses,
damages or liabilities under the 1933 Act, arising from or relating to any
resale or transfer of any Unit.
(vi) DELIVERY OF OFFERING MEMORANDUM. Each Initial Purchaser will
deliver to each purchaser of the Units from such Initial Purchaser, in
connection with its original distribution of the Units, a copy of the
Offering Memorandum, as amended and supplemented at the date of such
delivery.
(b) COVENANTS OF THE COMPANY. The Company covenants with each Initial
Purchaser as follows:
(i) DUE DILIGENCE. In connection with the original distribution
of the Units, the Company agrees that, prior to any offer or resale of
the Units by the Initial Purchasers, the Initial Purchasers and
counsel for the Initial Purchasers shall have the right to make
reasonable inquiries into the business of the Company and its
subsidiaries. The Company also agrees to provide answers to each
prospective Subsequent Purchaser of Units who so requests concerning
the Company and its subsidiaries (to the extent that such information
is available or can be acquired and made available to prospective
Subsequent Purchasers without unreasonable effort or expense and to
the extent the provision thereof is not prohibited by applicable law)
and the terms and conditions of the offering of the Units, as provided
in the Offering Memorandum.
22
<PAGE>
(ii) INTEGRATION. The Company agrees that it will not and will
cause its Affiliates not to make any offer or sale of securities of
the Company of any class if, as a result of the doctrine of
"integration" referred to in Rule 502 under the 1933 Act, such offer
or sale would render invalid (for the purpose of (i) the sale of the
Units by the Company to the Initial Purchasers, (ii) the resale of the
Units by the Initial Purchasers to Subsequent Purchasers or (iii) the
resale of the Units by such Subsequent Purchasers to others) the
exemption from the registration requirements of the 1933 Act provided
by Section 4(2) thereof or by Rule 144A or by Regulation S thereunder
or otherwise.
(iii) RULE 144A INFORMATION. The Company agrees that, in order to
render the Securities eligible for resale pursuant to Rule 144A under the
1933 Act, while any of the Securities remain outstanding, it will make
available, upon request, to any holder of Securities or prospective
purchasers of Securities the information specified in Rule 144A(d)(4),
unless the Company furnishes information to the Commission pursuant to
Section 13 or 15(d) of the 1934 Act (such information, whether made
available to holders or prospective purchasers or furnished to the
Commission, is herein referred to as "ADDITIONAL INFORMATION").
(iv) RESTRICTION ON REPURCHASES. Until the expiration of two years
after the original issuance of the Units, the Company will not, and will
cause its Affiliates not to, purchase or agree to purchase or otherwise
acquire any Securities which are "restricted securities" (as such term is
defined under Rule 144(a)(3) under the 1933 Act), whether as beneficial
owner or otherwise (except as agent acting as a securities broker on behalf
of and for the account of customers in the ordinary course of business in
unsolicited broker's transactions) unless, immediately upon any such
purchase, the Company or any Affiliate shall submit such Securities to the
Trustee or the Warrant Agent, as the case may be, for cancellation.
(c) RESALE PURSUANT TO RULE 903 OF REGULATION S OR RULE 144A. Each
Initial Purchaser understands that the Units have not been and will not be
registered under the 1933 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 1933 Act or pursuant to an exemption
from the registration requirements of the 1933 Act. Each Initial Purchaser
represents and agrees, that, except as permitted by Section 6(a) above, it
has offered and sold Units, consisting of the Notes and the Warrants, and
will offer and sell Units (i) as part of their distribution at any time and
(ii) otherwise until forty days or one year after the later of the date upon
which the offering of the Notes and the Warrants, respectively, commences and
the Closing Time, only in accordance with Rule 903 of Regulation S or Rule
144A under the 1933 Act. Accordingly, neither the Initial Purchasers, their
affiliates nor any persons acting on their behalf have engaged or will engage
in any directed selling efforts with respect to Units, and the Initial
Purchasers, their affiliates and any person acting on their behalf have
complied and will comply with the offering restriction requirements of
Regulation S. Each Initial Purchaser agrees that, at or prior to
confirmation of a sale of Units (other than a sale of Units pursuant to Rule
144A), it will have sent to each distributor, dealer or person receiving a
selling concession, fee or
23
<PAGE>
other remuneration that purchases Units from it or through it during the
distribution compliance period a confirmation or notice to substantially the
following effect:
"The Units, consisting of the Notes and the Warrants,
covered hereby have not been registered under the United
States Securities Act of 1933 (the "SECURITIES 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 and (ii) otherwise until forty days
or one year after the later of the date upon which the
offering of the Notes and the Warrants, respectively,
commenced and the date of closing, except in either case in
accordance with Regulation S or Rule 144A under the
Securities Act. Terms used above have the meaning given to
them by Regulation S."
Terms used in the above paragraph have the meanings given to them by
Regulation S.
(d) Each Initial Purchaser represents and agrees that (i) it has not
offered or sold and, prior to the date six months after the Closing Time,
will not offer or sell, directly or indirectly, any Securities in the United
Kingdom other than to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances
which do not constitute an offer to the public in the United Kingdom for the
purposes of the Public Offers of Securities Regulations 1995;(ii) it has
complied and will comply with all applicable provisions of the Public Offers
of Securities Regulations 1995 and the Financial Services Act 1986 with
respect to anything done by it in relation to the Securities in, from or
otherwise involving the United Kingdom, including any stabilization
activities as referred to in the Offering Memorandum, 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 (as amended) or
to a person to whom the document may otherwise lawfully be issued or passed
on.
Each Initial Purchaser severally represents and agrees that it has not
entered and will not enter into any contractual arrangements with respect to
the distribution of the Units, except with its affiliates or with the prior
written consent of the Company.
SECTION 7. INDEMNIFICATION.
(a) INDEMNIFICATION OF INITIAL PURCHASERS. The Company agrees to
indemnify and hold harmless each Initial Purchaser and each person, if any,
who controls any Initial Purchaser within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as
24
<PAGE>
incurred, arising out of any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Offering Memorandum or
as the Final Offering Memorandum (or any amendment or supplement thereto),
or the omission or alleged omission therefrom of a material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
7(d) below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill Lynch),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or (ii)
above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any Initial Purchaser through Merrill Lynch expressly for use in
the Offering Memorandum (or any amendment thereto); provided, further, that
the Company will not be liable to an Initial Purchaser with respect to any
Preliminary Offering Memorandum to the extent that the Company shall sustain
the burden of proving that any such loss, liability, claim, damage or expense
resulted from the fact that such Initial Purchaser, in contravention of a
requirement of this Purchase Agreement or applicable law, sold Units to a
person to whom such Initial Purchaser failed to send or give, at or prior to
the Closing Time, a copy of the Final Offering Memorandum, as then amended or
supplemented, if (i) the Company has previously furnished copies thereof
(sufficiently in advance of the Closing Time to allow for distribution by the
Closing Time) to the Initial Purchasers and the loss, liability, claim,
damage or expense of such Initial Purchaser resulted from an untrue statement
or omission or alleged untrue statement or omission of a material fact
contained in or omitted from the Preliminary Offering Memorandum which was
corrected in the Final Offering Memorandum or, if applicable, amended or
supplemented prior to the Closing Time and such Offering Memorandum was
required by this Purchase Agreement or by law to be delivered at or prior to
the written confirmation of sale to such person and (ii) such failure to give
or send such Final Offering Memorandum by the Closing Time to the party or
parties asserting such loss, liability, claim, damage or expense would have
constituted a defense to the claim asserted by such person.
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS. Each Initial
Purchaser severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Offering Memorandum, and each
person, if any, who controls the
25
<PAGE>
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Offering Memorandum in reliance
upon and in conformity with written information furnished to the Company by
such Initial Purchaser through Merrill Lynch expressly for use in the
Offering Memorandum.
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it
is not materially prejudiced as a result thereof and in any event shall not
relieve it from any liability which it may have otherwise than on account of
this indemnity agreement. In the case of parties indemnified pursuant to
Section 7(a) above, counsel to the indemnified parties shall be selected by
Merrill Lynch, and, in the case of parties indemnified pursuant to Section
7(b) above, counsel to the indemnified parties shall be selected by the
Company. An indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the
indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent
to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 7 or Section 8 hereof
(whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising
out of such litigation, investigation, proceeding or claim and (ii) does not
include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time
an indemnified party shall have requested an indemnifying party to reimburse
the indemnified party for fees and expenses of counsel, such indemnifying
party agrees that it shall be liable for any settlement of the nature
contemplated by Section 7(a)(ii) effected without its written consent if (i)
such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party
shall have received notice of the terms of such settlement at least 30 days
prior to such settlement being entered into and (iii) such indemnifying party
shall not have reimbursed such indemnified party in accordance with such
request prior to the date of such settlement.
SECTION 8. CONTRIBUTION. If the
26
<PAGE>
indemnification provided for in Section 7 hereof is for any reason
unavailable to or insufficient to hold harmless an indemnified party in
respect of any losses, liabilities, claims, damages or expenses referred to
therein, then each indemnifying party shall contribute to the aggregate
amount of such losses, liabilities, claims, damages and expenses incurred by
such indemnified party, as incurred, (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company on the one hand and
the Initial Purchasers on the other hand from the offering of the Units
pursuant to this Agreement or (ii) if the allocation provided by clause (i)
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and of the Initial
Purchasers on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as
well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Initial Purchasers on the other hand in connection with the offering of the
Units pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Units pursuant
to this Agreement (before deducting expenses) received by the Company and the
total underwriting discount received by the Initial Purchasers, bear to the
aggregate initial offering price of the Units.
The relative fault of the Company on the one hand and the Initial
Purchasers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Initial Purchasers and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Initial Purchasers agree that it would not be just
and equitable if contribution pursuant to this Section 8 were determined by
pro rata allocation (even if the Initial Purchasers were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
Section 8. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this
Section 8 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue or alleged untrue statement or omission or alleged
omission.
Notwithstanding the provisions of this Section 8, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which
the total price at which the Units underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which
such Initial Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of
27
<PAGE>
the 1933 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, if any, who controls an
Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as such Initial
Purchaser, and each director of the Company, each officer of the Company who
signed the Offering Memorandum, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company. The
Initial Purchasers' respective obligations to contribute pursuant to this
Section 8 are several in proportion to the principal amount of Units set
forth opposite their respective names in Schedule A hereto and not joint.
SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement, in addition to any representations, warranties and agreements
contained in certificates of officers of the Company submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of
any investigation made by or on behalf of any Initial Purchaser or
controlling person, or by or on behalf of the Company, and shall survive
delivery of the Units to the Initial Purchasers.
SECTION 10. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing
Time (i) if there has been, since the time of execution of this Agreement or
since the respective dates as of which information is given in the Offering
Memorandum, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States, any
outbreak of hostilities or escalation thereof or other calamity or crisis or
any change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the
Representatives, impracticable to market the Units or to enforce contracts
for the sale of the Units, or (iii) if trading in any securities of the
Company has been suspended or limited by the Commission, or if trading
generally on the American Stock Exchange or the New York Stock Exchange or on
The Nasdaq National Market has been suspended or limited, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of said exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority, or (iv) if a banking moratorium has been declared by
either Federal, New York or Colorado authorities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as
28
<PAGE>
provided in Section 4 hereof, and provided further that Sections 1, 7 and 8
shall survive such termination and remain in full force and effect.
SECTION 11. DEFAULT BY ONE OR MORE OF THE INITIAL PURCHASERS. If one
or more of the Initial Purchasers shall fail at the Closing Time to purchase
the Units which it or they are obligated to purchase under this Agreement
(the "DEFAULTED SECURITIES"), the Representatives shall have the right, but
not the obligation, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting Initial Purchasers, or any other Initial
Purchasers, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein
set forth; if, however, the Representatives shall not have completed such
arrangements within such 24-hour period, then this Agreement shall terminate
without liability on the part of any non-defaulting Initial Purchaser.
No action pursuant to this Section shall relieve any defaulting Initial
Purchaser from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement, either the Representatives or the Company shall have the
right to postpone the Closing Time for a period not exceeding seven days in
order to effect any required changes in the Offering Memorandum or in any
other documents or arrangement.
SECTION 12. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Initial Purchasers shall be directed to the Representatives at North Tower,
World Financial Center, New York, New York 10281-1201, attention of Joe
Sheehan; notices to the Company shall be directed to it at Convergent
Communications, Inc., 67 Inverness Drive East, Suite 100, Englewood, Colorado
80112, attention: Martin E. Freidel, Esq.
SECTION 13. PARTIES. This Agreement shall each inure to the benefit of
and be binding upon the Initial Purchasers and the Company and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Initial Purchasers and the Company and their respective successors
and the controlling persons and officers and directors referred to in
Sections 7 and 8 and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained. This Agreement and all conditions and provisions
hereof are intended to be for the sole and exclusive benefit of the Initial
Purchasers and the Company and their respective successors, and said
controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation.
No purchaser of Units from any Initial Purchaser shall be deemed to be a
successor by reason merely of such purchase.
29
<PAGE>
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. EFFECT OF HEADINGS. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not
affect the construction hereof.
30
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Initial Purchasers and the Company in accordance with
its terms.
Very truly yours,
CONVERGENT COMMUNICATIONS,
INC.
By /s/ Keith V. Burge
-----------------------------
Name: Keith V. Burge
Title: President
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BEAR, STEARNS & CO. INC.
BT ALEX. BROWN INCORPORATED
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/ Joseph B. Sheehan
------------------------------------
Authorized Signatory
For themselves and as Representatives of the other Initial Purchasers named in
Schedule A hereto.
31
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Name of Initial Purchaser Number of
------------------------- Units
----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . 88,000
Bear, Stearns & Co. Inc. . . . . . . . . . . . . . . . . . 56,000
BT Alex. Brown Incorporated. . . . . . . . . . . . . . . . 16,000
-------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . 160,000
-------
-------
</TABLE>
Sch A - 1
<PAGE>
SCHEDULE B
CONVERGENT COMMUNICATIONS, INC.
160,000 Units consisting in the aggregate of $160,000,000 principal
amount of Senior Notes due 2008 of Convergent Communications, Inc. (the
"NOTES") and 640,000 Warrants (the "WARRANTS") to purchase an aggregate of
1,728,000 shares of Common Stock of Convergent Communications, Inc.
1. The initial public offering price of the Units shall be $1,000 per
Unit, plus accrued interest on the Notes, if any, from the date of issuance.
2. The purchase price to be paid by the Initial Purchasers for the
Units shall be $970 per Unit.
3. The interest rate on the Notes shall be 13% per annum.
4. Optional Redemption/Call Schedule. The Notes are redeemable, in
whole or in part, at any time on or after April 1, 2003 at the redemption
prices (expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest to the redemption date, if redeemed during the
12-month period beginning April 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Redemption
---- Price
----------
<S> <C>
2003 . . . . . . . . . . . . . . . . . . . . . 106.50%
2004. . . . . . . . . . . . . . . . . . . . . . 104.33%
2005 . . . . . . . . . . . . . . . . . . . . . 102.17%
2006 and thereafter . . . . . . . . . . . . . . 100.00%
</TABLE>
5. Equity Clawback. On or prior to April 1, 2001, the Company may redeem
up to 35% of the aggregate principal amount of Notes originally issued at a
redemption price of 113% of the principal amount thereof, together with accrued
and unpaid interest to the date of redemption.
Sch B - 1
<PAGE>
SCHEDULE C
JURISDICTIONS IN WHICH
CONVERGENT COMMUNICATIONS, INC.
IS QUALIFIED TO DO BUSINESS
California
Colorado
New York
Utah
<PAGE>
SCHEDULE D
SUBSIDIARIES OF
CONVERGENT COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
Jurisdiction of Jurisdictions in Which Percentage Ownership
Subsidiary Incorporation Qualified to do Business by the Company
---------- --------------- ------------------------ --------------------
<S> <C> <C> <C>
Convergent Colorado Arizona, California, Georgia, 100%
Communications Florida, Iowa, Idaho, Illinois,
Services, Inc. Indiana, Kansas, Massachusetts,
Maine, Michigan, Minnesota,
Missouri, Montana, Nebraska, New
Mexico, New York, Ohio, Oklahoma,
Oregon, Pennsylvania, Texas, Utah,
Washington and Wisconsin
Convergent Capital Colorado Arizona, California, Georgia, 100%
Corporation Florida, Iowa, Idaho, Illinois,
Indiana, Kansas, Massachusetts,
Maryland, Michigan, Minnesota,
Missouri, Montana, Nebraska, New
Mexico, Nevada, New York, Ohio,
Oklahoma, Oregon, Pennsylvania,
Texas, Utah, Washington and
Wisconsin
</TABLE>
<PAGE>
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(i)
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Colorado.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Offering Memorandum and to enter into and perform its obligations under the
Purchase Agreement.
(iii) Each Subsidiary has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Offering
Memorandum; all of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and, to the best of our knowledge, is owned by the Company of
record, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity, except with
respect to (i) the Small Business Administration loan with an outstanding
balance of approximately $0.3 million and (ii) the NationsCredit Commercial
Corporation credit facility with an outstanding balance of up to
approximately $1.5 million, each as described in the Offering Memorandum.
(iv) The Notes are in the form contemplated by the Indenture, have been
duly authorized by the Company and, when executed by the Company and
authenticated by the Trustee in the manner provided in the Indenture
(assuming the due authorization, execution and delivery of the Indenture by
the Trustee) and delivered against payment of the purchase price therefor
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium
(including, without limitation, all laws relating to fraudulent transfers),
or other similar laws relating to or affecting enforcement of creditor's
rights generally, or by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law), and will be
entitled to the benefits of the Indenture.
(v) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
(vi) The Indenture has been duly authorized, executed and delivered by
the Company and (assuming the due authorization, execution and delivery
thereof by the Trustee) constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally, or by general principles of
equity (regardless of
A-1
<PAGE>
whether enforcement is considered in a proceeding in equity or at law).
(vii) The Notes Registration Rights Agreement has been duly authorized,
executed and delivered by the Company and constitutes a valid and binding
agreement of the Company enforceable against the Company in accordance with
its terms, and upon due execution and authentication of the Exchange Notes
and delivery thereof in accordance with the terms of the Exchange Offer
contemplated by the Notes Registration Rights Agreement against receipt of
the Notes exchanged therefor, the Exchange Notes will be valid and binding
obligations of the Company entitled to the benefit of the Indenture,
enforceable against the Company in accordance with their terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally, or by general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law).
(viii) The Warrants are in the form contemplated by the Warrant
Agreement, have been duly authorized by the Company and, when executed by the
Company and issued by the Warrant Agent in the manner provided in the Warrant
Agreement (assuming the due authorization, execution and delivery of the
Warrant Agreement by the Warrant Agent) and delivered against payment of the
purchase price therefore will constitute valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms,
except as the enforcement thereof may be limited to bankruptcy, insolvency
(including without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally, or by general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law), and will be entitled to the benefits of the Warrant
Agreement.
(ix) The issuance of the Warrant Shares has been duly authorized by all
requisite corporate action of the Company; and upon issuance thereof and
payment therefor in accordance with the terms of the Warrant Agreement, the
Warrant Shares will be duly authorized, validly issued, fully paid and
nonassessable and free of preemptive or similar rights. The Company has
reserved the number of Warrant shares contemplated by the Warrant Agreement
for issuance under the Warrants.
(x) The Warrant Agreement has been duly authorized, executed and
delivered by the Company and (assuming the due authorization, execution and
delivery thereof by the Warrant Agent) constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance with
its terms except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
(xi) The Warrant Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and constitutes a valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms except as the enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or other similar laws
relating to or affecting enforcement of creditors' rights generally, or by
general principles of equity (regardless of whether enforcement is considered
in a proceeding in equity or at law).
A-2
<PAGE>
(xii) The Operative Documents conform in all material respects to the
descriptions thereof contained in the Offering Memorandum.
(xiii) The provisions of the Security Agreement are effective to create,
in favor of the Trustee to secure the Secured Obligations (as defined in the
Security Agreement), a valid security interest in the Company's rights in
that portion of the Collateral (as defined in the Security Agreement)
constituting security entitlements within the meaning of Article 8 of the
Uniform Commercial Code in effect on the date hereof in the State of New
York.
(xiv) The provisions of the Collateral Account and Control Agreement
are effective to perfect the security interest of the Trustee for the benefit
of the holders of the Notes in that portion of the Collateral constituting
security entitlements within the meaning of Article 8 of the Uniform
Commercial Code in effect on the date hereof in the State of New York.
(xv) The information in the Offering Memorandum under "Description of
Capital Stock" (but only to the extent such information relates to provisions
of the articles of incorporation or by-laws of the Company), "Description of
the Units," "Description of the Notes," "Description of the Warrants" and
"Certain United States Federal Income Tax Considerations," to the extent that
it constitutes matters of law, summaries of legal matters, summaries of
securities, instruments, agreements, or other documents, the Company's
articles of incorporation and by-laws or legal proceedings, or legal
conclusions, has been reviewed by them and fairly summarize such provisions
in all material respects.
(xvi) To the best of our knowledge, no authorization, approval, consent
or order of any court or governmental authority or agency (other than such as
may be required under the applicable securities laws of the various
jurisdictions in which the Securities will be offered or sold, as to which we
need express no opinion) is required in connection with the due
authorization, execution and delivery of the Purchase 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 to the Initial
Purchasers or the resale by the Initial Purchasers in accordance with the
Purchase Agreement.
(xvii) Assuming the accuracy of the representations and warranties and
compliance with the agreements of the Company and the Initial Purchasers in
the Purchase Agreement and those referred to under the captions "Plan of
Distribution" and "Notice to Investors" in the Offering Memorandum, in
connection with (A) the offer, sale and delivery of the Units at the Closing
Time to the Initial Purchasers pursuant to the Purchase Agreement or (B) the
initial resale of the Units delivered at the Closing Time by the Initial
Purchasers as contemplated by the Purchase Agreement and the Offering
Memorandum, it is not necessary to register the Units, the Notes or the
Warrants under the 1933 Act (it being understood that no opinion is expressed
as to any subsequent resale of any Units) or to qualify the Indenture under
the Trust Indenture Act.
(xviii) The execution, delivery and performance of the Operative
Documents and the consummation of the transactions contemplated in the
Purchase Agreement and in the Offering Memorandum (including the use of the
proceeds from the sale of the Units as described in the Offering Memorandum
under the caption "Use Of Proceeds") and compliance by the Company with its
obligations under the Operative Documents will not, whether with or without
the giving of notice or lapse of time or both, conflict with or constitute a
breach of, or default or Repayment Event (as defined in Section 1(a)(xx) of
the Purchase Agreement) under or result in the creation or imposition of any
lien, charge or
A-3
<PAGE>
encumbrance upon any property or assets of the Company or any subsidiary
thereof pursuant to any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or any other agreement or instrument,
identified to us in a certificate provided by an officer of the Company and
attached hereto as Exhibit [ ], to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound, or to
which any of the property or assets of the Company or any subsidiary thereof
is subject (except for such conflicts, breaches or defaults or liens, charges
or encumbrances that would not have a Material Adverse Effect), nor will such
action result in any violation of the provisions of the charter or by-laws of
the Company or any of its subsidiaries, or any statute or regulation of the
United States, New York or Colorado law or any judgment, decree or order of
any court or other governmental authority or any arbitrator known to us and
applicable to the Company or any of the Subsidiaries, except for such
violations of laws, judgments, decrees or orders that would not have a
Material Adverse Effect and would not adversely affect in any material
respect the ability of the Company to perform its obligations under the
Purchase Agreement.
(xix) The Company is not, and upon the issuance and sale of the
Securities as contemplated and the application of the net proceeds therefrom
as described in the Offering Memorandum will not be, an "investment company"
required to register under the Investment Company Act of 1940, as amended
(the "1940 Act"), or an entity "controlled" by an "investment company"
required to register under the 1940 Act as each of the foregoing terms are
defined in the 1940 Act.
We have participated in conferences with officers and other representatives
of the Company, representatives of the independent public accountants for the
Company, representatives of the Initial Purchasers and counsel for the Initial
Purchasers, at which conferences the contents of the Offering Memorandum and
related matters were discussed. Because the purpose of our professional
engagement was not to establish or confirm factual matters and because the scope
of our examination of the affairs of the Company is not designed to verify the
accuracy, completeness or fairness of the statements set forth in the Offering
Memorandum, we are not passing upon, and do not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in the
Offering Memorandum (except to the extent set forth in paragraph (xv) above).
On the basis of the foregoing, no facts have come to our attention which lead us
to believe that the Offering Memorandum, on the date thereof or the date hereof,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading (it being
understood that we express no view with respect to the financial statements and
the notes thereto and the other financial data and accounting data included in
the Offering Memorandum).
In rendering such opinion, such counsel may rely, as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
A-4
<PAGE>
Exhibit B
FORM OF OPINION OF COMPANY'S GENERAL COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(ii)
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Colorado.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Offering Memorandum and to enter into and perform its obligations under the
Purchase Agreement.
(iii) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify
or to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Offering Memorandum in the column entitled
"Actual" under the caption "Capitalization" (except for subsequent issuances,
if any, pursuant to the Purchase Agreement or pursuant to reservations,
agreements, employee benefit plans or the exercise of convertible securities
or options referred to in the Offering Memorandum); the shares of issued and
outstanding capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; and none of the
outstanding shares of capital stock of the Company was issued in violation of
the preemptive or other similar rights of any securityholder of the Company.
(v) Each Subsidiary has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Offering
Memorandum and is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify
or to be in good standing would not result in a Material Adverse Effect; all
of the issued and outstanding capital stock of each Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and, to the
best of our knowledge and information, is owned by the Company, directly or
through subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity except with respect to (i) the
Small Business Administration loan with an outstanding balance of
approximately $0.3 million and (ii) the NationsCredit Commercial Corporation
credit facility with an outstanding balance of up to approximately $1.5
million, each as described in the Offering Memorandum.
(vi) There is not pending or, to the best of my knowledge after due
inquiry, threatened any action, suit, proceeding, inquiry or investigation,
to which the Company or any subsidiary is a party, or to which the property
of the Company or any subsidiary thereof is subject, before or brought by any
court or
B-1
<PAGE>
governmental agency or body, which might reasonably be expected to result in
a Material Adverse Effect, or which might reasonably be expected to
materially and adversely affect the properties or assets thereof or the
consummation of the transactions contemplated in the Purchase Agreement or
the performance by the Company of its obligations thereunder or the
transactions contemplated by the Offering Memorandum;
(vii) The information in the Offering Memorandum under
"Business-Competition," "-Acquisitions," "-Office Facilities," "-Legal
Proceedings," "Executive Compensation," "Principal Shareholders," "Certain
Relationships and Related Transactions," "Certain Indebtedness" and
"Description of Capital Stock," to the extent that it constitutes matters of
law, summaries of legal matters, summaries of securities, instruments,
agreements or other documents, the Company's articles of incorporation and
by-laws or legal proceedings, or legal conclusions, has been reviewed by me
and is correct in all material respects.
(viii) All descriptions in the Offering Memorandum of contracts and
other documents to which the Company or any of its subsidiaries are a party
accurately present the information required to make the statements therein
not misleading in any material respect; to the best of our knowledge, there
are no franchises, contracts, indentures, mortgages, loan agreements, notes,
leases or other instruments that would be required to be described in the
Offering Memorandum that are not described or referred to in the Offering
Memorandum other than those described or referred to therein or incorporated
by reference thereto, and the descriptions thereof or references thereto are
correct in all material respects.
(ix) Neither the Company nor any of its subsidiaries is in
violation of its charter or by-laws and, to the best of our knowledge, no
default by the Company or any of its subsidiaries exists in the due
performance or observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement,
note, lease or other agreement or instrument that is described or referred to
in the Offering Memorandum.
(x) The Company and its subsidiaries have obtained all necessary
state consents, approvals, licenses, permits and other authorizations ("STATE
AUTHORIZATIONS"), as set forth in Exhibit [ ] attached hereto, to provide
the respective telecommunications services as described in the Offering
Memorandum, except where such failure to obtain such items will not have a
Material Adverse Effect. These State Authorizations are in full force and
effect and have not been revoked, suspended, cancelled or modified in any
adverse way and are not subject to any conditions or requirements that are
(a) not generally imposed by states upon the holders of such State
Authorizations, or (b) reasonably likely to have a Material Adverse Effect.
The Company and its subsidiaries have paid all fees and have made all reports
and filings, including all required tariffs applicable to the provision of
the respective telecommunications services, required by state laws,
regulations, and rules for provision of the respective telecommunications
services by the Company and its subsidiaries as described in the Offering
Memorandum, except where the failure to file any reports or pay such fees
will not have a Material Adverse Effect.
(xi) There are no pending or, to the best of my knowledge,
threatened complaints, proceedings, investigations, protests, petitions or
other written objections, formal or informal, against the State
Authorizations in the respective states or against the Company or its
subsidiaries at the FCC.
(xii) No approvals are required in connection with the execution of
the Purchase Agreement or the consummation of the transactions contemplated
thereby and the Company's execution and delivery of, and its performance of
its obligations under, the Purchase Agreement from the state public service
B-2
<PAGE>
commission ("PSC") of any state in which the Company or one or more of its
subsidiaries does business, and the consummation of the transactions
contemplated thereby do not and, when such performance is required pursuant
to the terms thereof, will not violate or conflict with any judgment, decree,
order, statute, rule or regulation of any such state PSC relating to the
respective telecommunications businesses of the Company or its subsidiaries
and will not cause any cancellation, termination, revocation, forfeiture or
material impairment of any of the State Authorizations which, in the
aggregate, would have a Material Adverse Effect.
Nothing has come to my attention that leads me to believe that the
Offering Memorandum (except for financial statements and schedules and other
financial data included or incorporated by reference therein as to which I
make no statement), contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Offering Memorandum
or any amendment or supplement thereto (except for financial statements and
schedules and other financial data included or incorporated by reference
therein, as to which I need make no statement), at the time the Offering
Memorandum was issued, at the time any such amended or supplemented Offering
Memorandum was issued or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely, as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials.
Such opinion shall not state that it is to be governed or qualified by, or
that it is otherwise subject to, any treatise, written policy or other
document relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991).
B-3
<PAGE>
Exhibit C
FORM OF OPINION OF COMPANY'S REGULATORY
COUNSEL TO BE DELIVERED PURSUANT TO
SECTION 5(a)(iii)
(1) Based on the representations set forth in paragraphs ___ of the
Company's certificate dated ________, 1998 (Exhibit __ hereto) regarding the
telecommunications services rendered by the Company and its subsidiaries in
each of the states in which any of them operates, the Company and its
subsidiaries do not require any consents, approvals, authorizations,
licenses, or permits of or from the FCC (collectively, "Licenses") to
conduct their respective telecommunications businesses as described in the
Offering Memorandum. The Company and its subsidiaries have paid all fees and
have made all reports and filings, including all required tariffs applicable
to such services, required by the FCC for the provision of the respective
telecommunications services described in the Offering Memorandum, except
where the failure to timely file would not have a Material adverse Effect on
the Company.
(2) Based on the representations set forth in paragraphs ___ of the
Company's certificate dated ________, 1998 (Exhibit __ hereto) and upon a
review of the public files of the FCC, we confirm that (i) there are no
Licenses held by the Company or its subsidiaries, and (ii) attached as
Exhibit __ is a list of all Licenses applied for by the Company and its
subsidiaries, but not yet acted upon by the FCC.
(3) Based on the representations set forth in paragraphs ___ of the
Company's certificate dated ________, 1998 (Exhibit __ hereto) and upon a
review of the public files of the FCC, we confirm that there are no pending
or threatened complaints, proceedings, investigations, protests, petitions or
other written objections, formal or informal, against the Company or its
subsidiaries at the FCC which might reasonably be expected to result in a
Material Adverse Effect on the Company.
(4) No FCC approvals are required in connection with the sale of the
Units described in the Offering Memorandum and the Company's execution and
delivery of, and its performance of its obligations under, the Purchase
Agreement and the consummation of the transactions contemplated thereby do
not and, when such performance is required pursuant to the terms thereof,
will not (i) violate or conflict with any judgment, decree, order, statute,
rule or regulation of the FCC, (ii) cause the FCC to deny any pending
application for a License, except where such a denial by the FCC would not
have a Material Adverse Effect, or (iii) prevent the Company or its
subsidiaries under the Communications Act or the FCC rules from conducting
their respective telecommunications businesses as described in the Offering
Memorandum.
(5) Insofar as the statements in the Offering Memorandum under "Risk
Factors" and "Business--Regulatory Environment," purport to summarize the
provisions of statutes, laws, rules, regulations, orders, judgments or
decrees relating to the federal regulation of the telecommunications
businesses actually conducted by the Company and its subsidiaries as
described in the Offering Memorandum, such statements are correct in all
material respects.
C-1
<PAGE>
- -----------------------------------------------------------------------------
CONVERGENT COMMUNICATIONS, INC.
as Issuer
and
NORWEST BANK COLORADO, N.A.
Trustee
---------------
Indenture
Dated as of April 2, 1998
---------------
$ 160,000,000 aggregate principal amount
13% Series A Senior Notes due 2008
13% Series B Senior Notes due 2008
- -----------------------------------------------------------------------------
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
AND INDENTURE, DATED AS OF APRIL 2, 1998
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- ---------
<S> <C>
Section 310(a)(1)......................... 607
(a)(2)......................... 607
(b)............................ 604, 608
Section 311............................... 101, 604
Section 312(a)............................ 701
(b)........................... 704
(c)........................... 704
Section 313............................... 101
(a)............................ 702
(c)............................ 601, 702, 703
Section 314(a)............................ 703, 1020
(d)............................ 1203, 1204
Section 315............................... 512
(a-d).......................... 602
(e)............................ 608
Section 316(c)............................ 104
</TABLE>
- -------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of this Indenture.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS AND OTHER PROVISIONSOF GENERAL APPLICATION . . . . . . . . . .1
SECTION 101. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 102. Compliance Certificates and Opinions. . . . . . . . . . . . . . 26
SECTION 103. Form of Documents Delivered to Trustee. . . . . . . . . . . . . 27
SECTION 104. Acts of Holders . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 105. Notices, etc., to Trustee and Company . . . . . . . . . . . . . 29
SECTION 106. Notice to Holders; Waiver . . . . . . . . . . . . . . . . . . . 29
SECTION 107. Effect of Headings and Table of Contents. . . . . . . . . . . . 30
SECTION 108. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . 30
SECTION 109. Separability Clause . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 110. Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . 30
SECTION 111. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 112. Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 113. Trust Indenture Act Controls. . . . . . . . . . . . . . . . . . 31
SECTION 114. No Recourse Against Others. . . . . . . . . . . . . . . . . . . 31
SECTION 115. Rules of Construction . . . . . . . . . . . . . . . . . . . . . 31
SECTION 116. Independence of Covenants . . . . . . . . . . . . . . . . . . . 32
SECTION 117. Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 118. Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE II NOTE FORMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 201. Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE III THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 301. Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 302. Denominations . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 303. Execution, Authentication, Delivery and Dating. . . . . . . . . 34
SECTION 304. Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 305. Registration, Registration of Transfer and Exchange . . . . . . 38
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes . . . . . . . . . . 39
SECTION 307. Payment of Interest; Interest Rights Preserved. . . . . . . . . 40
SECTION 308. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . 41
SECTION 309. Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 310. Computation of Interest . . . . . . . . . . . . . . . . . . . . 42
SECTION 311. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . 42
SECTION 312. "CUSIP" and "ISIN" Numbers. . . . . . . . . . . . . . . . . . . 47
SECTION 313. Deposits of Monies. . . . . . . . . . . . . . . . . . . . . . . 47
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ARTICLE IV SATISFACTION AND DISCHARGE. . . . . . . . . . . . . . . . . . . . . 48
SECTION 401. Satisfaction and Discharge of Indenture . . . . . . . . . . . . 48
SECTION 402. Application of Trust Money. . . . . . . . . . . . . . . . . . . 49
ARTICLE V REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 501. Events of Default . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 502. Acceleration of Maturity; Rescission and Annulment. . . . . . . 51
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee . . . . . . . . . . . . . . . . . . . . 53
SECTION 504. Trustee May File Proofs of Claim. . . . . . . . . . . . . . . . 53
SECTION 505. Trustee May Enforce Claims Without Possession of Notes. . . . . 54
SECTION 506. Application of Money Collected. . . . . . . . . . . . . . . . . 55
SECTION 507. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 508. Unconditional Right of Holders to Receive
Principal, Premium and Interest . . . . . . . . . . . . . . . . 56
SECTION 509. Restoration of Rights and Remedies. . . . . . . . . . . . . . . 56
SECTION 510. Rights and Remedies Cumulative. . . . . . . . . . . . . . . . . 56
SECTION 511. Delay or Omission Not Waiver. . . . . . . . . . . . . . . . . . 57
SECTION 512. Control by Holders. . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 513. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . 57
SECTION 514. Waiver of Stay or Extension Laws. . . . . . . . . . . . . . . . 58
ARTICLE VI THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 601. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 602. Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . 59
SECTION 603. Trustee Not Responsible for Recitals or Issuance of Notes . . . 60
SECTION 604. May Hold Notes. . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 605. Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 606. Compensation and Reimbursement. . . . . . . . . . . . . . . . . 61
SECTION 607. Corporate Trustee Required; Eligibility . . . . . . . . . . . . 62
SECTION 608. Resignation and Removal; Appointment of Successor . . . . . . . 62
SECTION 609. Acceptance of Appointment by Successor. . . . . . . . . . . . . 64
SECTION 610. Merger, Conversion, Consolidation or Succession to
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 611. Appointment of Authenticating Agent . . . . . . . . . . . . . . 65
SECTION 612. Certain Duties and Responsibilities . . . . . . . . . . . . . . 66
ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE
AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 701. Preservation of Information; Company to Furnish
Trustee Names and Addresses of Holders. . . . . . . . . . . . . 67
SECTION 702. Reports by Trustee. . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 703. Reports by Company. . . . . . . . . . . . . . . . . . . . . . . 68
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SECTION 704. Communications of Holders . . . . . . . . . . . . . . . . . . . 69
ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE. . . . . . . . 69
SECTION 801. Company May Consolidate, etc., Only on Certain Terms. . . . . . 69
SECTION 802. Successor Substituted . . . . . . . . . . . . . . . . . . . . . 71
ARTICLE IX AMENDMENTS; WAIVERS; SUPPLEMENTAL
INDENTURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 901. Amendments; Waivers and Supplemental Indentures
Without Consent of Holders . . . . . . . . . . . . . . . . . . 71
SECTION 902. Modification, Amendments and Supplemental
Indentures with Consent of Holders . . . . . . . . . . . . . . 72
SECTION 903. Execution of Supplemental Indentures. . . . . . . . . . . . . . 73
SECTION 904. Effect of Supplemental Indentures . . . . . . . . . . . . . . . 74
SECTION 905. Conformity with Trust Indenture Act . . . . . . . . . . . . . . 74
SECTION 906. Reference in Notes to Supplemental Indentures . . . . . . . . . 74
SECTION 907. Notice of Supplemental Indentures . . . . . . . . . . . . . . . 74
ARTICLE X COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 1001. Payment of Principal, Premium, If Any, and Interest. . . . . . 75
SECTION 1002. Maintenance of Office or Agency. . . . . . . . . . . . . . . . 75
SECTION 1003. Money for Notes Payments to Be Held in Trust . . . . . . . . . 75
SECTION 1004. Corporate Existence. . . . . . . . . . . . . . . . . . . . . . 77
SECTION 1005. Payment of Taxes and Other Claims. . . . . . . . . . . . . . . 77
SECTION 1006. Maintenance of Properties. . . . . . . . . . . . . . . . . . . 78
SECTION 1007. Statement by Officers As to Default. . . . . . . . . . . . . . 78
SECTION 1008. Limitation on Indebtedness . . . . . . . . . . . . . . . . . . 78
SECTION 1009. Limitation on Restricted Payments. . . . . . . . . . . . . . . 80
SECTION 1010. Limitation on Issuances and Sales of Capital
Stock of Restricted Subsidiaries . . . . . . . . . . . . . . . 83
SECTION 1011. Limitation on Transactions with Affiliates . . . . . . . . . . 84
SECTION 1012. Limitation on Liens. . . . . . . . . . . . . . . . . . . . . . 84
SECTION 1013. Limitations on Issuances of Guarantees of
Indebtedness by Restricted Subsidiaries. . . . . . . . . . . . 85
SECTION 1014. Change of Control. . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 1015. Disposition of Proceeds of Asset Sales . . . . . . . . . . . . 87
SECTION 1016. Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries . . . . . . . . 90
SECTION 1017. Designations of Unrestricted Subsidiaries. . . . . . . . . . . 91
SECTION 1018. Maintenance of Insurance . . . . . . . . . . . . . . . . . . . 93
SECTION 1019. Business of the Company. . . . . . . . . . . . . . . . . . . . 93
SECTION 1020. Provision of Financial Statements and Reports. . . . . . . . . 93
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SECTION 1021. Waiver of Certain Covenants. . . . . . . . . . . . . . . . . . 94
SECTION 1022. Limitations on Status as Investment Company. . . . . . . . . . 94
SECTION 1023. Collateral Account.. . . . . . . . . . . . . . . . . . . . . . 94
ARTICLE XI REDEMPTION OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . 95
SECTION 1101. Right of Redemption. . . . . . . . . . . . . . . . . . . . . . 95
SECTION 1102. Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . 95
SECTION 1103. Applicability of Article . . . . . . . . . . . . . . . . . . . 96
SECTION 1104. Election to Redeem; Notice to Trustee. . . . . . . . . . . . . 96
SECTION 1105. Selection by Trustee of Notes to Be Redeemed . . . . . . . . . 96
SECTION 1106. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . 97
SECTION 1107. Deposit of Redemption Price. . . . . . . . . . . . . . . . . . 97
SECTION 1108. Notes Payable on Redemption Date . . . . . . . . . . . . . . . 98
SECTION 1109. Notes Redeemed in Part . . . . . . . . . . . . . . . . . . . . 98
ARTICLE XII COLLATERAL AND SECURITY . . . . . . . . . . . . . . . . . . . . . . 99
SECTION 1201. Security Agreement . . . . . . . . . . . . . . . . . . . . . . 99
SECTION 1202. Recording and Opinions . . . . . . . . . . . . . . . . . . . . 99
SECTION 1203. Release of Collateral. . . . . . . . . . . . . . . . . . . . .100
SECTION 1204. Certificates of the Company. . . . . . . . . . . . . . . . . .101
SECTION 1205. Authorization of Actions to be Taken by the
Trustee Under the Deposit Agreement. . . . . . . . . . . . . .101
SECTION 1206. Authorization of Receipt of Funds by the Trustee
Under the Collateral Documents . . . . . . . . . . . . . . . .102
SECTION 1207. Termination of Security Interest . . . . . . . . . . . . . . .102
ARTICLE XIII LEGAL DEFEASANCE AND COVENANT DEFEASANCE. . . . . . . . . . . . . .102
SECTION 1301. Company's Option to Effect Defeasance or
Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . .102
SECTION 1302. Legal Defeasance and Discharge . . . . . . . . . . . . . . . .102
SECTION 1303. Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . .103
SECTION 1304. Conditions to Legal Defeasance or Covenant Defeasance. . . . .103
SECTION 1305. Deposited Money and Government Securities to Be
Held in Trust; Other Miscellaneous Provisions. . . . . . . . .105
SECTION 1306. Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . .106
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ARTICLE XIV MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . .106
SECTION 1401. Rules by Trustee and Agents. . . . . . . . . . . . . . . . . .107
SECTION 1402. No Adverse Interpretation of Other Agreements. . . . . . . . .107
SECTION 1403. Further Instruments and Acts . . . . . . . . . . . . . . . . .107
</TABLE>
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EXHIBITS
Exhibit A Form of Initial Note. . . . . . . . . . . . . . . . . . . . . . . .A-1
Exhibit B Form of Exchange Note . . . . . . . . . . . . . . . . . . . . . . .B-1
Exhibit C Form of Transfer Certificate for Transfer from U.S. Global
Note to Regulation S Temporary Global Note . . . . . . . . . . . .C-1
Exhibit D Form of Transfer Certificate for Transfer from Regulation S
Temporary Global Noteto U.S. Global Note. . . . . . . . . . . . . .D-1
Exhibit E Form of Transfer Certificate for Transfer from Global Note
or Transfer Restricted Security to Transfer Restricted
Security. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .E-1
Exhibit F Form of Certificate for Transfers of Regulation S Temporary Global
Note for Regulation S Permanent Global Note . . . . . . . . . . . .F-1
Exhibit G Form of Certificate for Transfers of Regulation S Temporary Global
Note for Regulation S Permanent Global Note . . . . . . . . . . . .G-1
Exhibit H Form of Certificate for Transfers of Regulation S Permanent Global
Note for Certificated Securities. . . . . . . . . . . . . . . . . .H-1
</TABLE>
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<PAGE>
INDENTURE, dated as of April 2, 1998, between CONVERGENT
COMMUNICATIONS, INC., a corporation duly organized and existing under the laws
of the State of Colorado (herein called the "COMPANY"), having its principal
office at 67 Inverness Drive East, Suite 110, Englewood, Colorado 80112, and
NORWEST BANK COLORADO, N.A., a national banking association, as Trustee (herein
called the "TRUSTEE").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of and issuance of its
13% Series A Senior Notes due 2008 (the "INITIAL NOTES"), and its 13% Series B
Senior Notes due 2008 (the "EXCHANGE NOTES" and, together with the Initial
Notes, the "NOTES"), of substantially the tenor and amount hereinafter set
forth, and to provide therefor the Company has duly authorized the execution and
delivery of this Indenture.
Upon the issuance of the Exchange Notes, if any, or the effectiveness
of the Shelf Registration Statement (as defined herein), this Indenture shall be
subject to, and shall be governed by the provisions of, the Trust Indenture Act
that are required to be part of or deemed to be part of and to govern the
indentures qualified thereunder.
All things necessary have been done to make the Notes, when duly
executed and duly issued by the Company and authenticated and delivered
hereunder by the Trustee or the Authenticating Agent, the valid obligations of
the Company and to make this Indenture a valid agreement of the Company, in
accordance with their and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
It is mutually covenanted and agreed, for the equal and proportionate
benefit of all Holders of the Notes, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
<PAGE>
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein, and the terms "CASH TRANSACTION" and
"SELF-LIQUIDATING PAPER," as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the Commission adopted under
the Trust Indenture Act;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" with respect to any
computation required or permitted hereunder shall mean such accounting
principles as are generally accepted at the date hereof; and
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person existing at the
time such Person becomes a Restricted Subsidiary or assumed in connection with
an Asset Acquisition by such Person and not incurred in connection with, or in
anticipation of, such Person becoming a Restricted Subsidiary or such Asset
Acquisition; PROVIDED that Indebtedness of such Person which is redeemed,
defeased, retired or otherwise repaid at the time of or immediately upon
consummation of the transactions by which such Person becomes a Restricted
Subsidiary or such Asset Acquisition shall not constitute Acquired Indebtedness.
"ACT", when used with respect to any Holder, has the meaning specified
in Section 104.
"AFFILIATE" of any specified Person means any other Person which,
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with, such specified Person. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"AFFILIATE TRANSACTION" has the meaning specified in Section 1011.
"APPLICABLE PROCEDURES" means, with respect to any transfer or
exchange of or for security entitlements in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer or
exchange.
2
<PAGE>
"ASSET ACQUISITION" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Company or any
Restricted Subsidiary to any other Person, or any acquisition or purchase of
Capital Stock of any other Person by the Company or any Restricted Subsidiary,
in either case pursuant to which such Person shall (a) become a Restricted
Subsidiary or (b) shall be merged with or into the Company or any Restricted
Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary
of the assets of any Person which constitute substantially all of an operating
unit or line of business of such Person or which is otherwise outside of the
ordinary course of business.
"ASSET SALE" means any direct or indirect sale, conveyance, transfer
or lease (that has the effect of a disposition and is not for security purposes)
or other disposition (that is not for security purposes) to any Person other
than the Company or a Restricted Subsidiary, in one transaction or a series of
related transactions, of (i) the Capital Stock of any Restricted Subsidiary
(other than customary stock option programs), (ii) any assets of the Company or
any Restricted Subsidiary which constitute substantially all of an operating
unit or line of business of the Company and the Restricted Subsidiaries or
(iii) any other property or asset of the Company or any Restricted Subsidiary
outside of the ordinary course of business. For the purposes of this definition,
the term "Asset Sale" shall not include (i) any disposition of properties and
assets of the Company and/or the Restricted Subsidiaries that is governed under
Section 801 (ii) sales of property or equipment that have become worn out,
obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company or any Restricted Subsidiary, as the case may be,
(iii) for purposes of Section 1015, any sale, conveyance, transfer, lease or
other disposition of any property or asset, whether in one transaction or a
series of related transactions occurring within one year, involving assets with
a Fair Market Value not in excess of $1.0 million, (iv) a Restricted Payment
that is permitted by Section 1009 and (v) sales of Cash Equivalents.
"ASSET SALE OFFER" has the meaning specified in Section 1015.
"ASSET SALE OFFER PAYMENT DATE" has the meaning specified in Section
1015.
"ASSET SALE OFFER PURCHASE PRICE" has the meaning specified in Section
1015.
"AUTHENTICATING AGENT" means any Person authorized by the Trustee to
act on behalf of the Trustee to authenticate Notes.
"AVERAGE LIFE TO STATED MATURITY" means, with respect to any
Indebtedness, as at any date of determination, the quotient obtained by dividing
(i) the sum
3
<PAGE>
of the products of (a) the number of years from such date to the date or
dates of each successive scheduled principal payment (including, without
limitation, any sinking fund requirements) of such Indebtedness multiplied by
(b) the amount of each such principal payment by (ii) the sum of all such
principal payments; PROVIDED that, in the case of any Capitalized Lease
Obligation, all calculations hereunder shall give effect to any applicable
options to renew in favor of the Company or any Restricted Subsidiary.
"BANKRUPTCY LAW" means Title 11 of the United States Code, as amended,
or any similar United States Federal or state law relating to bankruptcy,
insolvency, receivership, winding-up, liquidation, reorganization or relief of
debtors or any amendment to, succession to or change in any such law.
"BOARD" means the Board of Directors of the Company.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board and to be in full force and effect on the date of such certification
and delivered to the Trustee.
"BUSINESS DAY," when used with respect to any Place of Payment or any
other particular location referred to in this Indenture or in the Notes, means
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in that Place of Payment or other location are authorized
or obligated by law, regulation or executive order to close.
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting and/or non-voting) of, such Person's capital stock, whether
outstanding on the Issue Date or issued after the Issue Date, and any and all
rights (other than any evidence of Indebtedness), warrants or options
exchangeable for or convertible into such capital stock.
"CAPITALIZED LEASE OBLIGATION" means, with respect to any Person, any
obligation of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed, immovable or movable) that is required to be classified and accounted
for as a capitalized lease obligation under GAAP, and, for the purpose of the
Indenture, the amount of such obligation at any date shall be the capitalized
amount thereof at such date, determined in accordance with GAAP.
"CASH EQUIVALENTS" means (i) any evidence of Indebtedness (with, for
purposes of Section 1015 only, a maturity of 365 days or less) issued or
directly and fully guaranteed or insured by the United States or any agency or
instrumentality thereof (PROVIDED that the full faith and credit of the United
States is pledged in support thereof or such Indebtedness constitutes a general
obligation of such country); (ii) deposits,
4
<PAGE>
certificates of deposit or acceptances (with, for purposes of Section 1015
only, a maturity of 365 days or less) of any financial institution that is a
member of the Federal Reserve System, in each case having combined capital
and surplus and undivided profits (or any similar capital concept) of not
less than $500.0 million and whose senior unsecured debt is rated at least
"A-l" by S&P or "P-l" by Moody's; (iii) commercial paper with a maturity of
365 days or less issued by a corporation (other than an Affiliate of the
Company) organized under the laws of the United States or any State thereof
and rated at least "A-l" by S&P or "P-l" by Moody's; (iv) repurchase
agreements and reverse repurchase agreements relating to marketable direct
obligations issued or unconditionally guaranteed by the United States
Government or issued by any agency thereof and backed by the full faith and
credit of the United States Government maturing within 365 days from the date
of acquisition and (v) money market funds which invest substantially all of
their assets in securities described in the preceding clauses (i) through
(iv).
"CEDEL" has the meaning specified in Section 303.
"CHANGE OF CONTROL" means the occurrence of any of the following
events: (a) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act), excluding the Permitted Holders, is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have "beneficial
ownership"of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total Voting Stock of the
Company; (b) prior to a Public Equity Offering or one or more sales of Common
Stock to a Strategic Equity Investor, any "person" or "group" (as such terms are
used in clause (a)) contemporaneously becomes the "beneficial owner" (as such
term is used in clause (a)), directly or indirectly, of Voting Stock of the
Company in an amount greater than the total Voting Stock of the Company
"beneficially owned" (as such term is used in clause (a)) by the Permitted
Holders; (c) the Company consolidates with, or merges with or into, another
person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any person, or any person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is converted
into or exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is converted
into or exchanged for (1) Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation or its parent corporation and/or (2) cash,
securities and other property in an amount which could be paid by the Company as
a Restricted Payment under the Indenture and (ii) immediately after such
transaction no "person" or "group" (as such terms are used in clause (a)),
excluding Permitted Holders, is the "beneficial owner" (as such term is used in
clause (a)), directly or indirectly, of more than 50% of the total Voting Stock
of the surviving or transferee corporation or its parent corporation, as
applicable; or (d) during any consecutive two-year period, individuals who at
the beginning of such period constituted
5
<PAGE>
the Board (together with any new directors whose election by the Board or
whose nomination for election by the stockholders of the Company was approved
by a vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board then in office.
"CHANGE OF CONTROL DATE" has the meaning specified in Section 1014.
"CHANGE OF CONTROL OFFER" has the meaning specified in Section 1014.
"CHANGE OF CONTROL PAYMENT DATE" has the meaning specified in Section
1014.
"CHANGE OF CONTROL PURCHASE PRICE" has the meaning specified in
Section 1014.
"COLLATERAL" has the meaning specified in Section 1201.
"COLLATERAL ACCOUNT" has the meaning specified in Section 1201.
"COLLATERAL DOCUMENTS" has the meaning specified in Section 1201.
"COMMISSION" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"COMPANY" means the Person named as the "COMPANY" in the first
paragraph of this Indenture until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"COMPANY" shall mean such successor Person.
"COMPANY REQUEST" or "COMPANY ORDER" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Chief
Executive Officer, its President, its Chief Operating Officer, its Chief
Financial Officer, any Vice President, its Treasurer or any assistant treasurer,
and delivered to the Trustee.
"COMMON STOCK" means, with respect to any Person, any and all shares,
interest or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of such Person's common stock whether
outstanding at the Issue Date, and includes, without limitation, all series and
classes of such common stock.
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"CONSOLIDATED ADJUSTED NET INCOME" means, for any period, the
consolidated net income (or loss) of the Company and all Restricted Subsidiaries
for such period as determined in accordance with GAAP, adjusted by excluding,
without duplication, (a) any net after-tax extraordinary or non-recurring gains
or losses; (b) any net after-tax gains or losses attributable to asset
dispositions other than in the ordinary course of business; (c) the portion of
net income (or loss) of any Person (other than the Company or a Restricted
Subsidiary), including Unrestricted Subsidiaries, in which the Company or any
Restricted Subsidiary has an ownership interest, except to the extent of the
amount of dividends or other distributions actually paid to the Company or any
Restricted Subsidiary in cash dividends or distributions during such period;
(d) net income (but not loss) of any Person combined with the Company or any
Restricted Subsidiary on a "pooling of interests" basis attributable to any
period prior to the date of combination; (e) the net income of any Restricted
Subsidiary, to the extent that the declaration or payment of dividends or
similar distributions by such Restricted Subsidiary is not at the date of
determination permitted, 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 such Restricted Subsidiary or its
stockholders; (f) any gain or loss, net of taxes, realized upon the termination
of any employee benefit plan and (g) the cumulative effect of a change in
accounting principles (effected either through cumulative effect adjustment or a
retroactive application, in each case, in accordance with GAAP).
"CONSOLIDATED INDEBTEDNESS TO CONSOLIDATED OPERATING CASH FLOW RATIO"
means, at any date of determination, the ratio of (i) the aggregate amount of
Indebtedness of the Company and its Restricted Subsidiaries outstanding at the
date of determination as determined on a consolidated basis in accordance with
GAAP to (ii) the aggregate amount of Consolidated Operating Cash Flow for the
then most recent four full fiscal quarters for which consolidated financial
statements of the Company are available preceding the date of the transaction
giving rise to the need to calculate the Consolidated Indebtedness to
Consolidated Operating Cash Flow Ratio (such four fiscal quarter period being
referred to as the "Four Quarter Period").
"CONSOLIDATED INTEREST EXPENSE" of the Company means, for any period,
without duplication, the sum of (a) the interest expense of the Company and its
Restricted Subsidiaries for such period, including, without limitation,
(i) amortization of debt discount; (ii) the net cost of Interest Rate Agreements
(including amortization of discounts); (iii) the interest portion of any
deferred payment obligation; (iv) accrued interest; (v) the consolidated amount
of any interest capitalized by the Company and (vi) amortization of debt
issuance costs, PLUS (b) the interest component of Capitalized Lease Obligations
of the Company and its Restricted Subsidiaries paid, accrued and/or scheduled to
be paid or accrued during such period, EXCLUDING, HOWEVER, any amount of such
interest of any Restricted Subsidiary if the net income of such Restricted
Subsidiary is excluded in the calculation of Consolidated Adjusted Net Income
pursuant to clause (e) of the definition thereof (but only in the same
proportion as the net income of such Restricted Subsidiary is excluded from the
calculation of Consolidated Adjusted Net Income pursuant to clause (e) of
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the definition thereof); PROVIDED that the Consolidated Interest Expense
attributable to interest on any Indebtedness computed on a PRO FORMA basis
and (A) bearing a floating interest rate shall be computed as if the rate in
effect on the date of computation had been the applicable rate for the entire
period and (B) which was not outstanding during the period for which the
computation is being made but which bears, at the option of the Company, a
fixed or floating rate of interest, shall be computed by applying, at the
option of the Company, either the fixed or the floating rate.
"CONSOLIDATED NET WORTH" means, with respect to any Person, the
consolidated stockholders' or partners' equity of such Person reflected on the
most recent financial statements of such Person, determined in accordance with
GAAP, less any amounts attributable to Disqualified Stock of such Person.
"CONSOLIDATED OPERATING CASH FLOW" means, with respect to any period,
the Consolidated Adjusted Net Income for such period (a) increased by (to the
extent included in computing Consolidated Adjusted Net Income) the sum of
(i) the Consolidated Tax Expense for such period (other than taxes attributable
to extraordinary or non-recurring gains or losses); (ii) Consolidated Interest
Expense for such period; (iii) depreciation of the Company and the Restricted
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP; (iv) amortization of the Company and its Restricted Subsidiaries for
such period, determined on a consolidated basis in accordance with GAAP and
(v) any other non-cash charges that were deducted in computing Consolidated
Adjusted Net Income (excluding any non-cash charge which requires an accrual or
reserve for cash charges for any future period) of the Company and its
Restricted Subsidiaries for such period in accordance with GAAP and
(b) decreased by any non-cash gains that were included in computing Consolidated
Adjusted Net Income.
"CONSOLIDATED TAX EXPENSE" means, for any period, the provision for
Federal, state, provincial, local and foreign income taxes of the Company and
all Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
"CONSOLIDATION" means with respect to the Company, the consolidation
of the accounts of the Restricted Subsidiaries with those of the Company, all in
accordance with GAAP; PROVIDED that "consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary with the accounts
of the Company. The term "consolidated" has a correlative meaning to the
foregoing.
"CONTROL AGREEMENT" has the meaning specified in Section 1201.
"CORPORATE TRUST OFFICE" means the principal corporate trust office of
the
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Trustee, at which at any particular time its corporate trust business shall
be administered, which office on the date of execution of this Indenture is
located at 1740 Broadway, Denver, Colorado 80274.
"COVENANT DEFEASANCE" has the meaning specified in Section 1303.
"CURRENCY AGREEMENTS" means any spot or forward foreign exchange
agreements and currency swap, currency option or other similar financial
agreements or arrangements entered into by the Company or any of its Restricted
Subsidiaries designed solely to protect against or manage exposure to
fluctuations in currency exchange rates.
"CUSTODIAN" has the meaning specified in Section 1201.
"DEFAULT" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"DESIGNATION" has the meaning specified in Section 1017.
"DEFAULTED INTEREST" has the meaning specified in Section 307.
"DEPOSITARY" means The Depository Trust Company, its nominees and
successors.
"DIRECT PARTICIPANTS" means participating organizations in DTC,
including securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations, including Euroclear and Cedel.
"DISINTERESTED DIRECTOR" means, with respect to any transaction or
series of transactions in respect of which the Board is required to deliver a
Board Resolution under this Indenture, a member of the Board who does not have
any material direct or indirect financial interest in or with respect to such
transaction or series of transactions.
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital
Stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or becomes mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or becomes exchangeable for Indebtedness at the option
of the holder thereof, or becomes redeemable at the option of the holder
thereof, in whole or in part, on or prior to the final maturity date of the
Notes; PROVIDED such Capital Stock shall only constitute Disqualified Stock to
the extent it so matures or becomes so redeemable or exchangeable on or prior to
the final maturity date of the Notes; PROVIDED, FURTHER, that any Capital Stock
that would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase or redeem such
Capital Stock upon the occurrence of
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an "asset sale" or "change of control" occurring prior to the final maturity
date of the Notes shall not constitute Disqualified Stock if the "asset sale"
or "change of control" provisions applicable to such Capital Stock are no
more favorable to the holders of such Capital Stock than the provisions
contained in Sections 1014 and 1015 and such Capital Stock specifically
provides that such Person will not repurchase or redeem any such stock
pursuant to such provision prior to the Company's repurchase of such Notes as
are required to be repurchased pursuant to Sections 1014 and 1015 and at all
times subject to Section 1009.
"DOLLAR" or "$" means a dollar or other equivalent unit in such coin
or currency of the United States of America as at the time shall be legal tender
for the payment of public and private debts.
"DTC" means The Depository Trust Company.
"ELIGIBLE WORKING CAPITAL BORROWING BASE" means an amount equal to the
sum of (i) 50% of the net inventory of the Company and (ii) 85% of the net
accounts receivable of the Company.
"EUROCLEAR" has the meaning specified in Section 303.
"EVENT OF DEFAULT" has the meaning specified in Section 501.
"EXCESS PROCEEDS" has the meaning specified in Section 1015.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"EXCHANGE NOTES" has the meaning specified in the recitals to this
Indenture and refers to any Exchange Notes containing terms substantially
identical to the Initial Notes (except that (i) such Exchange Notes shall not
contain terms with respect to transfer restrictions and shall be registered
under the Securities Act, and (ii) certain provisions relating to an increase in
the stated rate of interest thereon shall be eliminated) that are issued and
exchanged for the Initial Notes in accordance with the Exchange Offer, as
provided for in the Notes Registration Rights Agreement and this Indenture.
"EXCHANGE OFFER" means the offer by the Company to the Holders of the
Initial Notes to exchange all of the Initial Notes for Exchange Notes, as
provided for in the Notes Registration Rights Agreement.
"EXCHANGE OFFER REGISTRATION STATEMENT" means the Exchange Offer
Registration Statement as defined in the Notes Registration Rights Agreement.
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"FAIR MARKET VALUE" means, with respect to any asset or property,
the price that could be negotiated in an arms-length free market transaction,
for cash, between a willing seller and a willing buyer, neither of whom is
under pressure or compulsion to complete the transaction. Unless otherwise
specified in the Indenture, Fair Market Value shall be determined by the
Board acting in good faith and shall be evidenced by a Board Resolution.
"40-DAY DISTRIBUTION COMPLIANCE PERIOD" means the 40-day period
commencing on the day after the later of an offering of the Notes by the
initial purchasers pursuant to the Purchase Agreement and the original Issue
Date pursuant to Regulation S of the Securities Act.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" or "GAAP" means
generally accepted accounting principles in the United States in effect on
the Issue Date, consistently applied.
"GLOBAL NOTES" has the meaning specified in Section 303.
"GLOBAL NOTES LEGEND" means the legend on EXHIBIT A and EXHIBIT B
to be placed on all Global Notes issued under this Indenture.
"GUARANTEE" means, as applied to any obligation, (i) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part
or all of such obligation and (ii) an agreement, direct or indirect,
contingent or otherwise, the practical effect of which is to assure in any
way the payment or performance (or payment of damages in the event of
non-performance) of all or any part of such obligation, including, without
limiting the foregoing, the payment of amounts drawn down by letters of
credit.
"GUARANTEED INDEBTEDNESS" has the meaning specified in Section 1013.
"HOLDER" means the Person in whose name a Note is registered in the
Note Register.
"INCUR" or "incur" means, with respect to any Indebtedness, to
create, issue, assume, guarantee or in any manner become directly or
indirectly liable for the payment of, or otherwise incur such Indebtedness;
PROVIDED that neither the accrual of interest nor the accretion of original
issue discount shall be considered an Incurrence of Indebtedness.
"INDEBTEDNESS" means, with respect to any Person, without
duplication, (a) all liabilities, contingent or otherwise, of such Person:
(i) for borrowed money (including overdrafts); (ii) in connection with any
letters of credit and acceptances issued
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under letter of credit facilities, acceptance facilities or other similar
facilities; (iii) evidenced by bonds, notes, debentures or other similar
instruments; (iv) for the deferred purchase price of property or services or
created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person; or (v) for
Capitalized Lease Obligations; (b) all obligations of such Person under or in
respect of Interest Rate Agreements or Currency Agreements; (c) all
indebtedness referred to in (but not excluded from) the preceding clauses of
other Persons and all dividends of other Persons, the payment of which is
secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien upon or with
respect to property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or
become liable for the payment of such Indebtedness (the amount of such
obligation being deemed to be the lesser of the value of such property or
asset or the amount of the obligation so secured); (d) all guarantees by such
Person of Indebtedness referred to in this definition of any other Person and
(e) all Disqualified Stock of such Person valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and
unpaid dividends. The amount of Indebtedness of any Person at any date shall
be the outstanding balance at such date (or, in the case of a revolving
credit or other similar facility, the total amount of funds outstanding on
the date of determination) of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation; PROVIDED
that the amount outstanding at any time of any Indebtedness issued with
original issue discount equals the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount with respect to
such Indebtedness at the time of its issuance as determined in conformity
with GAAP. For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Stock as if such
Disqualified Stock were purchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture, and if such price is
based upon, or measured by, the fair market value of such Disqualified Stock,
such fair market value shall be determined in good faith by the board of
directors of the issuer of such Disqualified Stock. Notwithstanding the
foregoing, trade accounts and accrued liabilities arising in the ordinary
course of business and any liability for Federal, state or local taxes or
other taxes owed by such Person will not be considered Indebtedness for
purposes of this definition.
"INDENTURE" means this instrument as originally executed and as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"INDEPENDENT FINANCIAL ADVISOR" means a United States investment
banking, consulting or accounting firm of national standing in the United
States (i) which does not, and whose directors, officers and employees or
Affiliates do not, have a material direct or indirect financial interest in
the Company or any of its Subsidiaries or Affiliates
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and (ii) which, in the judgment of the Board, is otherwise independent and
qualified to perform the task for which it is to be engaged.
"INDIRECT PARTICIPANTS" means, in relation to DTC, entities other
than Direct Participants that have access to DTC's book entry system by
clearing through or maintaining a direct or indirect, custodial relationship
with a Direct Participant.
"INITIAL NOTES" has the meaning specified in the recitals to this
Indenture.
"INTEREST PAYMENT DATE", when used with respect to any Note, means
the Stated Maturity of an installment of interest on such Note.
"INTEREST RATE AGREEMENTS" means any interest rate protection
agreements and other types of interest rate hedging agreements or
arrangements (including, without limitation, interest rate swaps, caps,
floors, collars and other similar agreements) designed solely to protect the
Company or any Restricted Subsidiary against fluctuations in interest rates
in respect of Indebtedness of the Company or any Restricted Subsidiary.
"INTEREST RATE OBLIGATIONS" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount and shall include without limitation, interest
rate swaps, caps, floors, collars, forward interest rate agreements and
similar agreements.
"INVESTMENT" means, with respect to any Person, any advance, loan,
account receivable (other than an account receivable arising in the ordinary
course of business), or other extension of credit (including, without
limitation, by means of any guarantee) or any capital contribution to (by
means of transfers of property to others, payments for property or services
for the account or use of others, or otherwise), or any purchase or ownership
of any stocks, bonds, notes, debentures or other securities of, any other
Person. Notwithstanding the foregoing, in no event shall any issuance of
Capital Stock (other than Disqualified Stock) of the Company in exchange for
Capital Stock, property or assets of another Person or any redemption or
repurchase of the Notes or other Indebtedness of the Company or any
Restricted Subsidiary constitute an Investment by the Company in such other
Person.
"INVESTMENT COMPANY ACT" has the meaning specified in Section 1022.
"ISSUE DATE" means the original date of issuance of the Notes.
"LEGAL DEFEASANCE" has the meaning specified in Section 1302.
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"LIEN" means any mortgage, charge, pledge, lien (statutory or
other), security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any
property of any kind. A Person shall be deemed to own subject to a Lien any
property which such Person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"MARKET CAPITALIZATION" of any Person means, as of any day of
determination, the average Closing Price of such Person's common stock over
the 20 consecutive trading days immediately preceding such day. "CLOSING
PRICE" on any trading day with respect to the per share price of any shares
of common stock means the last reported sale price regular way or, in case no
such reported sale takes place on such day, the average of the reported
closing bid and asked prices regular way, in either case on the New York
Stock Exchange or, if such shares of common stock are not listed or admitted
to trading on such exchange, on the principal national securities exchange on
which such shares are listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange, on The Nasdaq
National Market or, if such shares are not listed or admitted to trading on
any national securities exchange or quoted on The Nasdaq National Market, the
average of the closing bid and asked prices in the over-the-counter market as
furnished by any New York Stock Exchange member firm that is selected from
time to time by the Company for that purpose and is reasonably acceptable to
the Trustee.
"MATERIAL RESTRICTED SUBSIDIARY" means any Restricted Subsidiary of
the Company, which, at any date of determination, is a "Significant
Subsidiary" (as that term is defined in Regulation S-X issued under the
Securities Act).
"MATURITY" means, with respect to any Note, the date on which any
principal of such Note becomes due and payable as therein or herein provided,
whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
"MOODY'S" means Moody's Investors Service.
"NET CASH PROCEEDS" means, (a) with respect to any asset sale, the
proceeds thereof in the form of cash (including assumed liabilities and other
items deemed to be cash under the proviso in paragraph (a) of Section 1015)
or Cash Equivalents including payments in respect of deferred payment
obligations when received in the form of cash or Cash Equivalents (except to
the extent that such obligations are financed or sold with recourse to the
Company or any Restricted Subsidiary) net of (i) brokerage commissions and
other fees and expenses (including fees and expenses of legal counsel,
accountants, consultants and investment bankers) related to such Asset Sale,
(ii) provisions for all taxes payable as a result of such Asset Sale,
(iii) amounts required to be paid to any Person (other than the Company or
any Restricted Subsidiary) owning a beneficial interest in or having a Lien
on the assets subject to the Asset Sale and
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(iv) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve required in accordance with GAAP
against any liabilities associated with such Asset Sale and retained by the
Company or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale, all as reflected in an officers' certificate delivered to the Trustee,
and (b) with respect to any issuance or sale of Capital Stock or options,
warrants or rights to purchase Capital Stock, or debt securities or
Disqualified Stock that have been converted into or exchanged for Qualified
Capital Stock, as referred to under Section 1009, the proceeds of such
issuance or sale in the form of cash or Cash Equivalents, including payments
in respect of deferred payment obligations when received in the form of, or
stock or other assets when disposed for, cash or Cash Equivalents (except to
the extent that such obligations are financed or sold with recourse to the
Company or any Restricted Subsidiary, net of attorney's fees, accountant's
fees and brokerage, consultation, underwriting and other fees and expenses
actually incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"NOTE REGISTER" and "NOTE REGISTRAR" have the respective meanings
specified in Section 305.
"NOTES" has the meaning specified in the recital to this Indenture.
"NOTES REGISTRATION RIGHTS AGREEMENT" means the Notes Registration
Rights Agreement dated as of April 2, 1998, among the Company and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear,
Stearns & Co. Inc. and BT Alex. Brown Incorporated.
"OFFICERS' CERTIFICATE" means a certificate signed by the chief
executive officer, the president, the chief financial officer or any vice
president, and by the treasurer, any assistant treasurer, the secretary or
any assistant secretary of the Company, and delivered to the Trustee.
"OPINION OF COUNSEL" means a written opinion of legal counsel, who
may be counsel for the Company, including an employee of the Company, and who
shall be reasonably acceptable to the Trustee.
"OUTSTANDING", when used with respect to Notes, means, as of the
date of determination, all Notes theretofore authenticated and delivered
under this Indenture, EXCEPT:
(i) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
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(ii) Notes, or portions thereof, for whose payment or repayment at
the option of the Holder money in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the Company (if
the Company shall act as its own Paying Agent) for the Holders of such
Notes;
(iii) Notes, except to the extent provided in Sections 1302 and 1303,
with respect to which the Company has effected defeasance and/or covenant
defeasance as provided in Article XIII; and
(iv) Notes which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Notes have been authenticated and
delivered pursuant to this Indenture, other than any such Notes in respect
of which there shall have been presented to the Trustee proof satisfactory
to it that such Notes are held by a BONA FIDE purchaser in whose hands
such Notes are valid obligations of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of the Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder and, for the
purpose of making the calculations required by TIA Section 313, Notes owned
by the Company or any other obligor upon the Notes or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be
protected in making such calculation or in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Notes which
a Responsible Officer of the Trustee actually knows to be so owned shall be
so disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right to act with respect to such Notes and that the
pledgee is not the Company or any other obligor upon the Notes or any
Affiliate of the Company or such other obligor.
"PARTICIPANT" is defined to mean, with respect to the Depositary,
Persons who have accounts with the Depositary.
"PAYING AGENT" means any Person (including the Company acting as
Paying Agent) authorized by the Company to make payments in respect of any
Notes on behalf of the Company.
"PERMITTED CREDIT FACILITY" means any senior commercial term loan
and/or revolving credit facility or any letter of credit facility entered
into principally with commercial banks and/or other financial institutions
typically party to commercial loan agreements.
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"PERMITTED HOLDERS" mean (i) John R. Evans, Keith V. Burge and
Philip G. Allen and their spouses, issue or other members of their immediate
families (the "Evans Family," the "Burge Family" and the "Allen Family,"
respectively), (ii) trusts or other entities created for the benefit of any
member of the Evans Family, the Burge Family or the Allen Family,
(iii) entities controlled by any of the Evans Family, the Burge Family or the
Allen Family, and (iv) in the event of the death of any member of the Evans
Family, the Burge Family or the Allen Family, the heirs or testamentary
legatees of such member of the Evans Family, the Burge Family or the Allen
Family.
"PERMITTED INDEBTEDNESS" means the following Indebtedness (each of
which shall be given independent effect):
(a) Indebtedness under the Notes and the Indenture;
(b) Indebtedness of the Company and/or any Restricted
Subsidiary outstanding on the Issue Date;
(c) (i) Indebtedness of the Company issued to and held by a
Wholly Owned Restricted Subsidiary and (ii) Indebtedness of a
Restricted Subsidiary issued to and held by the Company or a Wholly
Owned Restricted Subsidiary; PROVIDED, HOWEVER, that (x) any
subsequent issuance or transfer of any Capital Stock that results
in any such Wholly Owned Restricted Subsidiary ceasing to be a
Wholly Owned Restricted Subsidiary, (y) any Designation of such
Wholly Owned Restricted Subsidiary as an Unrestricted Subsidiary or
(z) any subsequent transfer of such Indebtedness (other than to the
Company or a Wholly Owned Restricted Subsidiary) will be deemed, in
each case, to constitute the issuance of such Indebtedness by the
Company or such Indebtedness by such Restricted Subsidiary;
(d) Interest Rate Obligations of the Company and/or any
Restricted Subsidiary relating to Indebtedness of the Company
and/or such Restricted Subsidiary, as the case may be (which
Indebtedness (x) bears interest at fluctuating interest rates and
(y) is otherwise permitted to be incurred under Section 1008), but
only to the extent that the notional principal amount of such
Interest Rate Obligations does not exceed the principal amount of
the Indebtedness (and/or Indebtedness subject to commitments) to
which such Interest Rate Obligations relate;
(e) Indebtedness of the Company and/or any Restricted
Subsidiary in respect of performance bonds of the Company or any
Restricted Subsidiary or surety bonds provided by the Company or
any Restricted Subsidiary, in each case incurred in the ordinary
course of business;
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(f) Indebtedness of the Company and/or any Restricted
Subsidiary to the extent it represents a replacement, renewal,
refinancing or extension (a "Refinancing") of outstanding
Indebtedness of the Company and/or of any Restricted Subsidiary
incurred or outstanding pursuant to clause (b), (g) or (h) of this
definition or the proviso in the first paragraph of Section 1008
PROVIDED that (1) Indebtedness of the Company may not be Refinanced
to such extent under this clause (f) with Indebtedness of any
Restricted Subsidiary and (2) any such Refinancing shall only be
permitted under this clause (f) to the extent that (x) it does not
result in a lower Average Life to Stated Maturity of such
Indebtedness as compared with the Indebtedness being Refinanced,
and (y) it does not exceed the sum of the principal amount (or, if
such Indebtedness provides for a lesser amount to be due and
payable upon a declaration of acceleration thereof, an amount no
greater than such lesser amount) of the Indebtedness being
Refinanced plus the amount of accrued interest thereon and the
amount of any reasonably determined prepayment premium necessary to
accomplish such Refinancing and such reasonable fees and expenses
incurred in connection therewith;
(g) Indebtedness of the Company and/or any Restricted
Subsidiary incurred under one or more Permitted Credit Facilities,
such that the aggregate principal amount of the Indebtedness of the
Company and the Restricted Subsidiaries under Permitted Credit
Facilities does not exceed the greater of (i) $50.0 million at any
time outstanding and (ii) the Eligible Working Capital Borrowing
Base;
(h) Indebtedness of the Company not to exceed, at any one time
outstanding, two times (A) the Net Cash Proceeds received by the
Company after the Issue Date as a capital contribution or from the
issuance and sale of its Qualified Capital Stock to a Person that
is not a Subsidiary of the Company, to the extent such Net Cash
Proceeds have not been used pursuant to clause (a) (3) (B) or
clauses (b)(ii) and (iii) of Section 1009 to make a Restricted
Payment or for the redemption, repurchase or other acquisition of
Indebtedness and (B) 80% of the Fair Market Value of property
(other than cash and Cash Equivalents) received by the Company
after the Issue Date as a contribution of capital or from the sale
of its Qualified Capital Stock to a Person that is not a Subsidiary
of the Company, to the extent such capital contribution or sale of
Qualified Capital Stock has not been used pursuant to
clause (a) (3) (B) of Section 1009 to make a Restricted Payment;
PROVIDED that such Indebtedness does not mature prior to the Stated
Maturity of the Notes and (y) has an Average Life to Stated Maturity
longer than the Notes;
(i) Purchase Money Indebtedness;
(j) Indebtedness evidenced by letters of credit issued in the
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ordinary course of business of the Company and/or any Restricted
Subsidiary to secure workers' compensation and other insurance
coverages; and
(k) Indebtedness of the Company and/or any Restricted
Subsidiary in addition to that permitted to be incurred pursuant to
clauses (a) through (j) above in an aggregate principal amount not
in excess of $5.0 million outstanding at any one time.
"PERMITTED INVESTMENTS" means (a) Cash Equivalents; (b) Investments
in prepaid expenses, negotiable instruments held for collection and lease,
utility and workers' compensation, performance and other similar deposits;
(c) Interest Rate Obligations incurred in compliance with Section 1008
(d) Investments in the Company or any Wholly Owned Restricted Subsidiary;
(e) Investments made in any Person as a result of which such Person becomes a
Wholly Owned Restricted Subsidiary or is merged into, or transfers
substantially all of its assets to the Company or a Wholly Owned Restricted
Subsidiary; (f) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made in compliance with Section 1015;
(g) Investments received as a part of the settlement of litigation or in
satisfaction of extensions of credit to any Person otherwise permitted under
the Indenture pursuant to the reorganization, bankruptcy or liquidation of
such Person or a good faith settlement of debts with such Person; and
(h) loans or advances to officers or employees of the Company or any
Restricted Subsidiary made in the ordinary course of business of the Company
or such Restricted Subsidiary to pay business related travel expenses or
reasonable relocation costs of such officers or employees in connection with
their employment by the Company or such Restricted Subsidiary.
"PERMITTED LIENS" means the following types of Liens:
(a) Liens existing as of the Issue Date of the Notes;
(b) Liens on any property or assets of a Subsidiary granted in
favor of the Company or any Restricted Subsidiary;
(c) Liens securing the Notes;
(d) any interest or title of a lessor under any Capitalized
Lease Obligations or of a seller under any Purchase Money
Indebtedness permitted by the Indenture;
(e) Liens securing Indebtedness incurred under clause (g) or
(i) of the definition of "Permitted Indebtedness;"
(f) statutory Liens or landlord's and carrier's, warehouseman's,
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mechanic's, supplier's materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by
appropriate proceedings, if a reserve or other appropriate provision,
if any, as shall be required in conformity with GAAP shall have been
made therefor;
(g) Liens for taxes, assessments, government charges or claims
that are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and if a reserve or
other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor;
(h) Liens incurred or deposits made to secure the performance
of tenders, bids, leases, statutory obligations, surety and appeal
bonds, government contracts, performance bonds and other
obligations of a like nature (including, without limitation,
indefeasible rights to use) incurred in the ordinary course of
business (other than contracts for the payment of money);
(i) easements, servitudes, rights-of-way, restrictions
(including, without limitation, zoning restrictions) and other
similar charges or encumbrances not interfering in any material
respect with the business of the Company or any Subsidiary incurred
in the ordinary course of business;
(j) Liens arising by reason of any judgment, decree or order
of any court so long as such Lien is adequately bonded and any
appropriate legal proceedings that may have been duly initiated for
the review of such judgment, decree or order shall not have been
finally terminated or the period within which such proceedings may
be initiated shall not have expired;
(k) Liens securing Acquired Indebtedness created prior to (and
not in connection with or in contemplation of) the incurrence of
such Indebtedness by the Company or any Subsidiary; PROVIDED that
such Lien does not extend to any property or assets of the Company
or any Subsidiary other than the assets acquired in connection with
the incurrence of such Acquired Indebtedness;
(l) Liens securing Interest Rate Agreements or Currency
Agreements permitted to be incurred pursuant to clause (e) of the
definition of "Permitted Indebtedness" or any collateral for the
Indebtedness to which such Interest Rate Agreements or Currency
Agreements relate;
(m) Liens arising from purchase money mortgages and purchase
money security interests; PROVIDED that the related Indebtedness
shall not be secured by any property or assets of the Company or
any Subsidiary other than the
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property and assets so acquired;
(n Liens with respect to assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Restricted
Subsidiary to secure Indebtedness owing to the Company or such
Restricted Subsidiary;
(o pledges and deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of statutory obligations;
(p Liens with respect to the assets of any entity which
becomes the successor to the Company as provided under Section 801;
and
(q any extension, renewal or replacement, in whole or in
part, of any Lien described in the foregoing clauses (a) through (p);
PROVIDED that any such extension, renewal or replacement shall be no
more restrictive in any material respect than the Lien so extended,
renewed or replaced and shall not extend to any additional property or
assets.
"PERSON" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"PLACE OF PAYMENT" means the office or agency maintained by the
Company where the principal of (and premium, if any, on) and interest on the
Notes are payable as specified in Section 1002.
"PREDECESSOR NOTE" of any particular Note, means every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Note shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Note.
"PREFERRED STOCK" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated)
of such Person's preferred or preference stock whether now outstanding, or
issued after the Issue Date, and including, without limitation, all classes
and series of preferred or preference stock of such Person.
"PUBLIC EQUITY OFFERING" means an underwritten public offering of
Common Stock of the Company registered with the Commission under the
Securities Act.
"PURCHASE AGREEMENT" means the Purchase Agreement, dated as of
March
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26, 1998, among the Company and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Bear, Stearns & Co. Inc. and BT Alex. Brown
Incorporated, with respect to the Units.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company or
any Restricted Subsidiaries incurred for the purpose of financing all or any
part of the cost of, the construction, expansion, installation, acquisition
or improvement by the Company or any Restricted Subsidiary of the Company of
any Telecommunications Assets or not less than 66 2/3 percent of the
outstanding Voting Stock of a Person that becomes a Restricted Subsidiary the
assets of which consist primarily of Telecommunications Assets; PROVIDED,
that the Net Cash Proceeds from the issuance of such Indebtedness (or the
amount of such Indebtedness constituting Capitalized Lease Obligations) does
not exceed, as of the date of incurrence of such Indebtedness, 100 percent of
the lesser of cost or Fair Market Value of such Telecommunications Assets.
"QIB" means a "QUALIFIED INSTITUTIONAL BUYER" within the meaning of
Rule 144A under the Securities Act.
"QUALIFIED CAPITAL STOCK" of any Person means any and all Capital
Stock of such Person other than Disqualified Stock.
"REDEMPTION DATE" means, with respect to any Note to be redeemed,
the date fixed by the Company for such redemption pursuant to this Indenture
and the Notes.
"REDEMPTION PRICE" means, with respect to any Note to be redeemed,
the price fixed for such redemption pursuant to the terms of this Indenture
and the Notes.
"REFERENCE PERIOD" has the meaning specified in Section 1008.
"REFINANCING" has the meaning specified in clause (f) of the
definition of "Permitted Indebtedness."
"REGISTRATION STATEMENT" means the Registration Statement as
defined in the Notes Registration Rights Agreement.
"REGULAR RECORD DATE" has the meaning specified in Section 301.
"REGULATION S" means Regulation S under the Securities Act.
"REGULATION S PERMANENT GLOBAL NOTE" has the meaning specified in
Section 311(a)(viii).
"REGULATION S TEMPORARY GLOBAL NOTE" has the meaning specified in
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Section 303.
"REPLACEMENT ASSETS" has the meaning specified in Section 1015.
"RESPONSIBLE OFFICER", when used with respect to the Trustee, means
any vice president, the secretary or any assistant secretary, the treasurer
or any assistant treasurer, any trust officer or assistant trust officer, 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 or her knowledge of and familiarity
with the particular subject.
"RESTRICTED PAYMENT" has the meaning specified in Section 1009.
"RESTRICTED SECURITIES LEGEND" means the legend set forth in
EXHIBIT A to be placed on all Initial Notes issued under this Indenture that
are Transfer Restricted Securities.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that
has not been designated by the Board, by a Board Resolution delivered to the
Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with
Section 1017. Any such Designation may be revoked by a Board Resolution
delivered to the Trustee, subject to the provisions of such covenant.
"RESTRICTED SUBSIDIARY INDEBTEDNESS" means Indebtedness of any
Restricted Subsidiary (i) which is not subordinated to any other Indebtedness
of such Restricted Subsidiary and (ii) in respect of which the Company is not
also obligated (by means of a guarantee or otherwise) other than, in the case
of this clause (ii), Indebtedness under any Permitted Credit Facilities.
"REVOCATION" has the meaning set forth in Section 1017.
"RULE 144A" means Rule 144A under the Securities Act.
"S&P" means Standard and Poor's Ratings Corporation.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY AGREEMENT" has the meaning specified in Section 1201.
"SEPARABILITY DATE" means the earliest of: (i) the date that is six
months after the initial sale of the Units; (ii) the date on which a
registration statement with respect to a registered Exchange Offer for the
Notes is declared effective under the
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Securities Act; (iii) the occurrence of an Exercise Event (as defined in the
Warrant Agreement); (iv) the occurrence of an Event of Default; or (v) such
earlier date as determined by Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
"SHELF REGISTRATION STATEMENT" means the Shelf Registration
Statement as defined in the Notes Registration Rights Agreement.
"SPECIAL RECORD DATE" for the payment of any Defaulted Interest on
the Notes means a date fixed by the Trustee pursuant to Section 307.
"STATED MATURITY" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable, and, when used with respect to any other Indebtedness, means
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness, or any installment of
interest thereon, is due and payable.
"STRATEGIC EQUITY INVESTOR" means any Person engaged principally in
one or more Telecommunications Businesses with a Market Capitalization or
Consolidated Net Worth of at least $1.0 billion.
"SUBORDINATED INDEBTEDNESS" means any Indebtedness of the Company
or any Restricted Subsidiary which is expressly subordinated in right of
payment to the Notes.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation
of which the outstanding Capital Stock having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (ii) any other Person of
which at least a majority of voting interest is at the time, directly or
indirectly, owned by such Person.
"SUBSIDIARY GUARANTEE" has the meaning specified in Section 1013.
"TELECOMMUNICATIONS ASSETS" means, with respect to any Person, all
assets, rights (contractual or otherwise) and properties, whether tangible or
intangible, used or intended for use in connection with a Telecommunications
Business.
"TELECOMMUNICATIONS BUSINESS" means the business of (i)
transmitting, or providing services relating to the transmission of voice,
video or data through customer or company owned or leased transmission
facilities, including without limitation frame relay, ATM, Internet access,
cellular services, paging services, voice messaging services, local and long
distance services, (ii) constructing, planning, designing, creating,
installing, managing, consulting with respect to developing, leasing,
financing, selling or marketing data and voice equipment, computer hardware
and software, networking hardware and
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software and other similar devices including without limitation servers,
routers, data switches, personal computers, key systems and handsets, and
(iii) consulting on advisory services relating to either of (i) or (ii),
including without limitation services relating to the design, implementation
and maintenance of web applications, web hosting and Internet access or (iv)
evaluating, participating or pursuing any other activity or opportunity that
is primarily related to those identified in (i), (ii) or (iii) above;
PROVIDED that the determination of what constitutes a Telecommunications
Business shall be made in good faith by the Board.
"TRANSACTION DATE" has the meaning specified in Section 1008.
"TRANSFER RESTRICTED SECURITIES" means each Note, until the first
to occur of the following: (i) such Note is exchanged in the Exchange Offer
for an Exchange Note and entitled to be resold to the public by the Holder
thereof without complying with the prospectus delivery requirements of the
Securities Act, (ii) such Note has been transferred pursuant to the Shelf
Registration Statement, (iii) such Note is disposed of by a broker-dealer
pursuant to the "Plan of Distribution" contemplated by the Exchange Offer
Registration Statement (including delivery of the Prospectus contained
therein), or (iv) such Note is distributed to the public pursuant to Rule 144
under the Securities Act or is salable pursuant to Rule 144(k) under the
Securities Act.
"TRUST INDENTURE ACT" or "TIA" means the Trust Indenture Act of
1939, as amended, as in force at the date as of which this Indenture was
executed, except as provided in Section 905.
"TRUSTEE" means the Person named as the "TRUSTEE" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"TRUSTEE" shall mean or include each Person who is then a Trustee hereunder.
"UNIT LEGEND" means the legend set forth in EXHIBIT A to be placed
on all Initial Notes issued under this Indenture prior to the Separability
Date.
"UNITS" shall mean the units issued and sold pursuant to the
Purchase Agreement, consisting of the Notes and warrants entitling the holder
to purchase shares of Common Stock.
"UNITED STATES" means the United States of America (including the
states and the District of Columbia), its territories, its possessions and
other areas subject to its jurisdiction.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company
designated as such pursuant to and in compliance with Section 1017. Any such
designation may be revoked by a Board Resolution delivered to the Trustee,
subject to the provisions of Section 1017.
"US DESIGNATION AMOUNT" has the meaning specified in Section 1017.
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"U.S. GLOBAL NOTE" has the meaning specified in Section 303.
"U.S. GOVERNMENT SECURITIES" means direct obligations of the United
States of America, or obligations guaranteed by the United States of America,
for the payment of which obligations or guarantee its full faith and credit
is pledged.
"VICE PRESIDENT", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"VOTING STOCK" means, with respect to any Person, the Capital Stock
of any class or kind ordinarily having the power to vote for the election of
directors or other members of the governing body of such Person.
"WARRANT AGREEMENT" means the Warrant Agreement dated as of April
2, 1998, by and between the Company and American Stock Transfer & Trust
Company, as Warrant Agent.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" means any Restricted
Subsidiary in which all of the outstanding Capital Stock is owned by
the Company or another Wholly Owned Restricted Subsidiary. For the
purposes of this definition, any directors' qualifying shares or
investments by foreign nationals mandated by applicable law shall be
disregarded in determining the ownership of a Restricted Subsidiary.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the
Trustee to take any action under any provision of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating
that all conditions precedent, if any, provided for in this Indenture
(including any covenant compliance with which constitutes a condition
precedent) relating to the proposed action have been complied with and
an Opinion of Counsel to the effect that in the opinion of such
counsel all such conditions precedent, if any, have been complied
with, except that in the case of any such application or request as to
which the furnishing of any such documents is specifically required by
any provision of this Indenture relating to such particular
application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with
a covenant or condition provided for in this Indenture (other than
pursuant to Section 1007) shall include:
(1 a statement to the effect that each individual or firm
signing such
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certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(2 a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3 a statement to the effect that, in the opinion of each
such individual or such firm, he or she has or they have made such
examination or investigation as is necessary to enable him, her or
them to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4 a statement as to whether, in the opinion of each such
individual or such firm, such covenant or condition has been complied
with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and
one or more other such Persons as to other matters, and any such Person may
certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his or her certificate
or opinion is based are erroneous. Any such certificate or Opinion of
Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of
the Company stating that the information with respect to such factual matters
is in the possession of the Company, unless such counsel knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters is erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. ACTS OF HOLDERS.
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(a Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given
or taken by Holders of the Outstanding Notes may be embodied in and
evidenced by one or more instruments of substantially similar tenor
signed by such Holders in person or by agents duly appointed in
writing. Except as herein otherwise expressly provided, such action
shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required,
to the Company. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred
to as the "ACT" of the Holders signing such instrument or instruments.
Proof of execution of any such instrument or of a writing appointing
any such agent shall be sufficient for any purpose of this Indenture
and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of
such execution or by a certificate of a notary public or other officer
authorized by law to take acknowledgments of deeds, certifying that
the individual signing such instrument or writing acknowledged to him
the execution thereof. Where such execution is by a signer acting in
a capacity other than his individual capacity, such certificate or
affidavit shall also constitute sufficient proof of authority. The
fact and date of the execution of any such instrument or writing, or
the authority of the Person executing the same, may also be proved in
any other manner which the Trustee deems sufficient.
(c The principal amount and serial numbers of Notes held by any
Person, and the date of holding the same, shall be proved by the Note
Register.
(d If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other
Act, the Company may, at its option, by or pursuant to Board
Resolution, fix in advance a record date for the determination of
Holders entitled to give such request, demand, authorization,
direction, notice, consent, waiver or other Act, but the Company shall
have no obligation to do so. Notwithstanding TIA Section 316(c), such
record date shall be the record date specified in or pursuant to such
Board Resolution, which shall be a date not earlier than the date 30
days prior to the first solicitation of Holders generally in
connection therewith and not later than the date such solicitation is
completed. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be
given before or after such record date, but only the Holders of record
at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the
requisite proportion of Outstanding Notes have authorized or agreed or
consented to such request, demand, authorization, direction, notice,
consent, waiver or other Act, and for that purpose the Outstanding
Notes shall be computed as of such record date; PROVIDED that no such
authorization, agreement or consent by the Holders on such record date
shall be deemed effective unless it shall become effective pursuant to
the provisions of this Indenture not later than eleven months
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after the record date.
(e Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Note shall bind
every future Holder of the same Note and the Holder of every Note
issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or
suffered to be done by the Trustee or the Company in reliance thereon,
whether or not notation of such action is made upon such Note.
SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other documents provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(1 the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Trust and Escrow Services Administration; or
(2 the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its
principal office, for the attention of the Chief Financial Officer,
specified in the first paragraph of this Indenture or at any other
address previously furnished in writing to the Trustee by the Company.
SECTION 106. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice of any event to Holders of
Notes by the Company or the Trustee, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each such Holder affected by such event, at
its address as it appears in the Note Register, not later than the latest
date, and not earlier than the earliest date, prescribed for the giving of
such notice. In any case where notice to Holders is given by mail, neither
the failure to mail such notice, nor any defect in any notice so mailed, to
any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Any notice mailed to a Holder in the manner herein
prescribed shall be conclusively deemed to have been received by such Holder,
whether or not such Holder actually receives such notice.
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In case, by reason of the suspension of or irregularities in
regular mail service or by reason of any other cause, it shall be impractical
to mail notice of any event to Holders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Trustee shall be deemed to be
sufficient giving of such notice for every purpose hereunder.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee,
but such filing shall not be a condition precedent to the validity of any
action taken in reliance upon such waiver.
SECTION 107. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
SECTION 108. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 109. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in any Note shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 110. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Notes, express or implied,
shall give to any Person, other than the parties hereto, any Authenticating
Agent, any Paying Agent, any Notes Registrar and their successors hereunder
and the Holders any benefit or any legal or equitable right, remedy or claim
under this Indenture.
SECTION 111. GOVERNING LAW.
This Indenture and the Notes shall be governed by and construed in
accordance with the law of the State of New York. Upon the effectiveness of
the Shelf
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Registration Statement or the consummation of the Exchange Offer, this
Indenture will be subject to the provisions of the Trust Indenture Act that are
required to be part of this Indenture and shall, to the extent applicable, be
governed by such provisions.
SECTION 112. LEGAL HOLIDAYS.
In any case where any Interest Payment Date or Stated Maturity or
maturity of any Note shall not be a Business Day at any Place of Payment, then
(notwithstanding any other provision of this Indenture or of any Note) payment
of interest or principal (and premium, if any) need not be made at such Place of
Payment on such date, but may be made on the next succeeding Business Day at
such Place of Payment with the same force and effect as if made on the Interest
Payment Date or at the Stated Maturity or maturity; PROVIDED that no interest
shall accrue for the period from and after such Interest Payment Date, Stated
Maturity or maturity, as the case may be.
SECTION 113. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the provision required by the TIA shall control.
SECTION 114. NO RECOURSE AGAINST OTHERS.
A director, officer, employee or shareholder, as such, of the Company
shall not have any liability for any obligations of the Company under the Notes
or this Indenture, as applicable, or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Note, each Holder
shall waive and release all such liability. The waiver and release shall be
part of the consideration for the issue of the Notes.
SECTION 115. RULES OF CONSTRUCTION.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a the terms defined in this Article have the meanings assigned
to them in this Article, and include the plural as well as the singular;
(b all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
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(c all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(d the words "herein" "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
(e all references to "$" or "dollars" refer to the lawful
currency of the United States of America; and
(f the words "include," "included" and "including" as used
herein are deemed in each case to be followed by the phrase "without
limitation."
SECTION 116. INDEPENDENCE OF COVENANTS.
All covenants and agreements in this Indenture shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default if such action is taken or condition exists.
SECTION 117. EXHIBITS.
All exhibits attached hereto are by this reference made a part hereof
with the same effect as if herein set forth in full.
SECTION 118. DUPLICATE 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.
ARTICLE II
NOTE FORMS
SECTION 201. FORMS GENERALLY.
The Initial Notes and the Trustee's certificate of authentication
thereon
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shall be substantially in the form of EXHIBIT A hereto. The Exchange Notes
and the Trustee's certificate of authentication thereon shall be
substantially in the form of EXHIBIT B hereto. The Notes may have
notations, legends or endorsements or such letters, numbers or other marks of
identification required to comply with any law, stock exchange rule, rules of
the Depositary or any clearing agency or usage or as may, consistently
herewith, be determined by the officer executing such Notes, as evidenced by
their execution 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. Any portion of the text of any Note may be set forth on the reverse
thereof, with an appropriate reference thereto on the face of the Note.
The definitive Notes shall be printed, typewritten, photocopied,
lithographed or engraved on steel-engraved borders or may be produced in any
other manner, all as determined by the officers of the Company executing such
Notes, as evidenced by their execution of such Notes.
Each Note shall be dated the date of its issuance and shall show the
date of its authentication.
ARTICLE III
THE NOTES
SECTION 301. AMOUNT.
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $160,000,000 in aggregate principal
amount of Notes, except for Notes authenticated and delivered upon registration
or transfer of, or in exchange for, or in lieu of, other Notes pursuant to
Section 304, 305, 306, 311, 906, 1014 or 1015 or pursuant to an Exchange Offer.
The final Stated Maturity of the Notes shall be April 1, 2008.
Interest on the Notes shall accrue at the rate of 13% per annum from the Issue
Date or from the most recent Interest Payment Date to which interest has been
paid, as the case may be, and shall be payable semi-annually thereafter on each
April 1 and October 1, in each year, commencing October 1, 1998, until the
principal amount thereof is paid in full and to the Person in whose name the
Note (or any predecessor Note) is registered at the close of business on the
March 15 or September 15, respectively, immediately preceding such Interest
Payment Date (each, a "REGULAR RECORD DATE"). Interest will be computed on the
Notes as specified in Section 310 hereof. Interest on any overdue principal,
interest (to the extent lawful) or premium, if any, shall be payable on demand.
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The principal of (and premium, if any) and interest on the Notes shall
be payable at the office or agency of the Company maintained for such purpose in
The City of New York, or at such other office or agency of the Company as may be
maintained for such purpose; PROVIDED, HOWEVER, that, at the option of the
Company, interest may be paid (a) by check mailed to addresses of the Persons
entitled thereto as such addresses shall appear on the Note Register or (b) by
wire transfer to an account maintained by the payee in the United States.
Holders shall have the right to require the Company to purchase their
Notes, in whole or in part, in the event of a Change of Control pursuant to
Section 1014 and in the event of certain Asset Sales pursuant to Section 1015.
The Notes shall be redeemable as provided in Article XI.
The Notes shall be subject to legal defeasance and/or covenant
defeasance as provided in Article XIII.
SECTION 302. DENOMINATIONS.
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
(a The Initial Notes and the Trustee's certificate of
authentication shall be substantially in the form of EXHIBIT A hereto. The
Exchange Notes and the Trustee's certificate of authentication shall be
substantially in the form of EXHIBIT B hereto.
The terms and provisions contained in the Notes annexed hereto as
EXHIBIT A and EXHIBIT B shall constitute, and are hereby expressly made, a part
of this Indenture and, to the extent applicable, 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.
(b The Initial Notes are being offered and sold by the Company
pursuant to the Purchase Agreement.
The Initial Notes offered and sold in reliance on Rule 144A under the
Securities Act ("RULE 144A") to QIBs, as provided in the Purchase Agreement,
will be issued in denominations of $1,000 and integral multiples thereof on the
Issue Date initially
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in the form of one or more permanent global Notes in definitive, fully
registered form without interest coupons with the Global Notes Legend and the
Restricted Securities Legend (the "U.S. GLOBAL NOTE") which will be deposited
on behalf of the purchasers of the Initial Notes represented thereby with the
Trustee, at its New York office, as custodian for the Depositary, initially
The Depository Trust Company ("DTC"), duly executed by the Company and
authenticated by the Trustee as provided herein, and registered in the name
of DTC or its nominee, in each case for credit to the accounts of DTC's
Direct Participants and Indirect Participants. The aggregate principal amount
of the U.S. Global Note may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the
Depositary or its nominee, as the case may be, in connection with the
transfer or exchange of interests, as hereinafter provided.
The Initial Notes offered and sold in offshore transactions in
reliance on Regulation S under the Securities Act ("REGULATION S"), as provided
in the Purchase Agreement, will be issued in denominations of $1,000 and
integral multiples thereof on the Issue Date initially in the form of a single,
temporary, global Note in definitive, fully registered form without interest
coupons with the Global Notes Legend and Restricted Securities Legend (the
"REGULATION S TEMPORARY GLOBAL NOTE"). The Regulation S Temporary Global Note
will be deposited on behalf of the purchasers of the Initial Notes represented
thereby with the Trustee, at its New York office, as custodian for the
Depositary, initially DTC, duly executed by the Company and authenticated by the
Trustee as provided herein, and registered in the name of a nominee of DTC for
credit to the accounts of Indirect Participants at the Euroclear System
("EUROCLEAR") and Cedel Bank, societe anonyme ("CEDEL"). The aggregate
principal amount of the Regulation S Temporary Global Note 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 the
transfer or exchange of interests as hereinafter provided.
The Applicable Procedures shall apply to interests in the Regulation S
Temporary Global Note and the Regulation S Permanent Global Note (as defined
herein) that are held through Euroclear or Cedel.
Upon consummation of the Exchange Offer, the Exchange Notes may be
issued in the form of one or more permanent Global Notes (as defined herein) in
definitive, fully registered form without interest coupons with the Global Notes
Legend but not the Restricted Securities Legend set forth in EXHIBIT A hereto,
registered in the name of the Depositary or a nominee of the Depositary, duly
executed by the Company and authenticated by the Trustee as provided herein.
The aggregate principal amount of such 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 the transfer
or exchange of interests, as provided herein.
(c In addition to the provisions of Section 304, entitlement
holders
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with security entitlements in Global Notes may upon an Event of Default or in
accordance with ??? rules and procedures, upon request to the Trustee,
receive a certificated Initial Note, which certificated Initial Note shall
bear the Restricted Securities Legend set forth in EXHIBIT A hereto if such
Initial Note is a Transfer Restricted Security.
After a transfer of any Initial Note that ceases to be a Transfer
Restricted Security, all requirements for Restricted Securities Legends on such
Initial Note will cease to apply, and a certificated Initial Note without a
Restricted Securities Legend will be available to the holder of such Initial
Note. Upon the consummation of an Exchange Offer with respect to the Initial
Notes pursuant to which holders of Initial Notes are offered Exchange Notes in
exchange for their Initial Notes, certificated Initial Notes with the Restricted
Securities Legend set forth in EXHIBIT A hereto will be available to holders of
such Initial Notes that do not exchange their Initial Notes, and Exchange Notes
in certificated form without the Restricted Securities Legend set forth in
EXHIBIT A hereto will be available to holders that exchange such Initial Notes
in such Exchange Offer.
(d Each Global Note shall represent such of the Outstanding
Notes as shall be specified therein and each shall provide that it shall
represent the aggregate amount of Outstanding Notes from time to time
endorsed thereon and that the aggregate amount of Outstanding Notes
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges, redemptions and transfers of interest.
Any endorsement of a Global Note to reflect the amount of any increase or
decrease in the amount of Outstanding Notes represented thereby shall be made
by the Trustee in accordance with instructions given as required by Section
311 hereof.
Except as set forth in Section 311 hereof, the Global Notes may be
transferred, in whole and not in part, only to another nominee of the Depositary
or to a successor of the Depositary or its nominee.
In case the Company, pursuant to Article VIII, shall be consolidated
with or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person that shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article VIII, any of the Notes authenticated or
delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor
Person, be exchanged for other Notes executed in the name of the successor
Person with such changes in phraseology and form as may be appropriate, but
otherwise in substance of like tenor as the Notes surrendered for such exchange
and of like principal amount; and the Trustee, upon Company Order of the
successor Person, shall authenticate and make available for delivery Notes as
specified in such request for the purpose of such exchange. If Notes shall at
any time be authenticated and delivered in any new name of a successor
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Person pursuant to this Section 303 in exchange or substitution for or upon
registration of transfer of any Notes, such successor Person, at the option
of the Holders but without expense to them, shall provide for the exchange of
all Notes at the time Outstanding for Notes authenticated and delivered in
such new name.
(e BOOK-ENTRY PROVISIONS. This Section 303(e) shall apply only
to the Regulation S Temporary Global Note, the U.S. Global Note, the
Regulation S Permanent Global Note and the Exchange Notes issued in the form
of one or more permanent Global Notes (collectively, the "GLOBAL NOTES")
deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance with
this Section 303(e), authenticate and make available for delivery initially one
or more Global Notes that (i) shall be registered in the name of the Depositary
or the nominee of the Depositary for such Global Note or Global Notes or the
nominee of such Depositary and (ii) shall be delivered by the Trustee to the
Depositary or pursuant to the Depositary's instructions or held by the Trustee
as custodian for the Depositary.
Direct Participants and Indirect Participants shall have no rights
either under this Indenture with respect to any Global Note held on their behalf
by the Depositary or by the Trustee as custodian for the Depositary or under
such Global Note, and the Depositary may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Direct Participants and Indirect Participants, the operation of
customary practices of such Depositary governing the exercise of the rights of
an owner of a security entitlement in any Global Note.
SECTION 304. TEMPORARY NOTES.
Pending the preparation of definitive Notes, the Company may execute,
and upon Company Order the Trustee shall authenticate and make available for
delivery, temporary Notes which are printed, lithographed, typewritten,
photocopied or otherwise produced, in any authorized denomination, substantially
of the tenor of the definitive Notes in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Notes may determine, as conclusively evidenced by
their execution of such Notes.
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company in a
Place of Payment, without
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charge to the Holder. Upon surrender for cancellation of any one or more
temporary Notes, the Company shall execute and, upon Company Order, the
Trustee shall authenticate and make available for delivery in exchange
therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects
be entitled to the same benefits under this Indenture as definitive Notes.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register for the Notes (the register maintained in the Corporate
Trust Office of the Trustee and in any other office or agency of the Company in
a Place of Payment being herein sometimes collectively referred to as the "NOTE
REGISTER") in which, subject to such reasonable regulations as it may prescribe,
the Company shall provide for the registration of Notes and of transfers of
Notes. The Note Register shall be in written form or any other form capable of
being converted into written form within a reasonable time. At all reasonable
times, the Note Register shall be open to inspection by the Trustee. The
Trustee is hereby initially appointed as note registrar (the Trustee in such
capacity, together with any successor Trustee in such capacity, the "NOTE
REGISTRAR") for the purpose of registering Notes and transfers of Notes as
herein provided.
Upon surrender for registration of transfer of any Note at the office
or agency in a Place of Payment, the Company shall execute, and the Trustee
shall authenticate and make available for delivery, in the name of the
designated transferee, one or more new Notes, of any authorized denominations
and of a like aggregate principal amount and tenor.
At the option of the Holder, Notes may be exchanged for other Notes,
of any authorized denomination and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and make available for delivery, the Notes which the
Holder making the exchange is entitled to receive; PROVIDED that no exchange of
Initial Notes for Exchange Notes shall occur until an Exchange Offer
Registration Statement shall have been declared effective by the Commission, the
Trustee shall have received an Officers' Certificate confirming that the
Exchange Offer Registration Statement has been declared effective by the
Commission and the Initial Notes to be exchanged for the Exchange Notes shall
have been cancelled by the Trustee.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the
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same benefits under this Indenture, as the Notes surrendered upon such
registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Note Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Note Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Notes, other than exchanges
pursuant to Section 304, 906, 1014, 1015 or 1109 hereof not involving any
transfer.
The Company shall not be required to issue, register the transfer of
or exchange any Note which has been surrendered for repayment at the option of
the Holder, except the portion, if any, of such Note not to be so repaid.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN NOTES.
If any mutilated Note is surrendered to the Trustee, the Company shall
execute, and the Trustee shall authenticate and make available for delivery in
exchange therefor, a new Note of like tenor and principal amount and bearing a
number not contemporaneously outstanding, or, in case any such mutilated Note
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Note, pay such Note.
If there shall be delivered to the Company and to the Trustee
(i) evidence to their satisfaction of the destruction, loss or theft of any Note
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless (including without limitation a
lost certificate affidavit and the posting of a bond), then, in the absence of
notice to the Company or the Trustee that such Note has been acquired by a BONA
FIDE purchaser, the Company shall execute and upon Company Order the Trustee
shall authenticate and make available for delivery, in lieu of any such
destroyed, lost or stolen Note, a new Note of like tenor and principal amount
and bearing a number not contemporaneously outstanding, or, in case any such
destroyed, lost or stolen Note has become or is about to become due and payable,
the Company in its discretion may, instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section 306, the Company
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may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section 306 in lieu of any
destroyed, lost or stolen Note, shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
The provisions of this Section 306 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name such Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest at the Place of Payment;
PROVIDED, HOWEVER, that each installment of interest on any Note may at the
Company's option be paid (i) by mailing a check for such interest, payable to or
upon the written order of the Person entitled thereto pursuant to Section 308,
to the address of such Person as it appears on the Note Register or (ii) by wire
transfer to an account located in the United States maintained by the payee.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the relevant Regular Record Date by virtue of having
been such Holder, and such defaulted interest and, if applicable, interest on
such defaulted interest (to the extent lawful) at the rate specified in the
Notes (such defaulted interest and, if applicable, interest thereon herein
collectively called "DEFAULTED INTEREST") may be paid by the Company, at its
election in each case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be
fixed in the following manner. 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, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted
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Interest or shall make arrangements satisfactory to the Trustee for such
deposit on or prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as in this clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such
Defaulted Interest which shall be not more than 15 days and not less
than 10 days prior to the date of the proposed payment and not less than
10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special
Record Date and, in the name and at the expense of the Company, shall
cause notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be given in the manner provided in
Section 106, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so given, such Defaulted
Interest shall be paid to the Persons in whose name the Notes (or their
respective Predecessor Notes) are registered at the close of business on
such Special Record Date and shall no longer be payable pursuant to the
following clause (2).
(2) The Company may make payment of any Defaulted Interest on the
Notes in any other lawful manner not inconsistent with the requirements
of any securities exchange on which such Notes may be listed, and upon
such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section 307 and Section
305, each Note delivered under this Indenture upon registration of transfer
of or in exchange for or in lieu of any other Note shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Note.
SECTION 308. PERSONS DEEMED OWNERS
Prior to due presentment of a Note for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name such Note is registered as the owner of such
Note for the purpose of receiving payment of principal of (and premium, if
any, on) and (subject to Sections 305 and 307) interest on such Note and for
all other purposes whatsoever, whether or not such Note be overdue, and none
of the Company, the Trustee or any agent of the Company or the Trustee shall
be affected by notice to the contrary.
SECTION 309. CANCELLATION.
All Notes surrendered for payment, repayment at the option of the
Holder,
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registration of transfer or exchange shall, if surrendered to any Person
other than the Trustee, be delivered to the Trustee. All Notes so delivered
to the Trustee shall be promptly cancelled by it. The Company may at any
time deliver to the Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Company may have acquired in
any manner whatsoever, and may deliver to the Trustee (or to any other Person
for delivery to the Trustee) for cancellation, any Notes previously
authenticated hereunder which the Company has not issued and sold, and all
Notes so delivered shall be promptly cancelled by the Trustee. If the
Company shall so acquire any of the Notes, however, such acquisition shall
not operate as a redemption or satisfaction of the indebtedness represented
by such Notes unless and until the same are surrendered to the Trustee for
cancellation. No Notes shall be authenticated in lieu of or in exchange for
any Notes cancelled as provided in this Section, except as expressly
permitted by this Indenture. All cancelled Notes held by the Trustee shall
be disposed of by the Trustee in accordance with its customary procedures
unless by Company Order the Company shall direct that cancelled Notes be
returned to it.
SECTION 310. COMPUTATION OF INTEREST.
Interest on the Notes shall be computed on the basis of a 360-day year
of twelve 30-day months.
SECTION 311. TRANSFER AND EXCHANGE.
When Notes are presented to the Notes Registrar or a co-registrar
with a request to register a transfer or to exchange them for an equal
principal amount of Notes of other denominations, the Notes Registrar shall
register the transfer or make the exchange if its requirements for such
transactions are met; PROVIDED, that any Notes presented or surrendered for
registration of transfer or exchange shall be duly endorsed or accompanied by
a written instrument of transfer in form satisfactory to the Company and the
Notes Registrar or co-registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing. To permit registration of transfers and
exchanges, the Company shall issue and the Trustee shall authenticate Notes
at the Notes Registrar's request.
The Company shall not be required (i) to issue, register the
transfer of or exchange Notes during a period beginning at the opening of
business 15 days before the day of any selection of Notes for redemption
under Section 1105 hereof and ending at the close of business on the day of
selection, or (ii) to register the transfer, or exchange, of any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
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(a) Notwithstanding any provision to the contrary herein, so long
as a Global Note remains Outstanding and is held by or on behalf of the
Depositary, transfers of a Global Note, in whole or in part, or of any
security entitlement therein, shall only be made in accordance with Section
303(e) and this Section 311(a); PROVIDED, HOWEVER, that security entitlements
with respect to a Global Note may be created in the form of, or transferred
to other entitlement holders who take delivery thereof in the form of a
security entitlement in the same Global Note in accordance with the transfer
restrictions set forth in the Restricted Securities Legend.
(i) Except for transfers or exchanges made in accordance with
clauses (ii) through (iv) of this Section 311(a), transfers of a Global
Note shall be limited to transfers of such Global Note in whole, but not
in part, to nominees of the Depositary or to a successor of the
Depositary or such successor's nominee.
(ii) U.S. GLOBAL NOTE TO REGULATION S TEMPORARY GLOBAL NOTE. If
an entitlement holder with a security entitlement in the U.S. Global
Note deposited with the Depositary or the Trustee as custodian for the
Depositary, wishes at any time to transfer its security entitlement in
such U.S. Global Note to a person who is required to take delivery
thereof in the form of a security entitlement in the Regulation S
Temporary Global Note, such owner may, subject to the rules and
procedures of the Depositary, exchange or cause the exchange of such
security entitlement for an equivalent security entitlement in the
Regulation S Temporary Global Note. Upon receipt by the Trustee, as
Registrar, at its office in The City of New York of (1) instructions
given in accordance with the Depositary's procedures from a Direct
Participant or an Indirect Participant directing the Trustee to create
or cause to be credited a security entitlement in the Regulation S
Temporary Global Note in an amount equal to the security entitlement in
the U.S. Global Note to be exchanged, (2) a written order given in
accordance with the Depositary's procedures containing information
regarding the participant account of the Depositary and the Euroclear or
Cedel account to be credited with such increase and (3) a certificate in
the form of EXHIBIT C attached hereto given by the holder of such
security entitlement, then the Trustee, as Registrar, shall instruct the
Depositary to reduce or cause to be reduced the principal amount of the
U.S. Global Note and to increase or cause to be increased the principal
amount of the Regulation S Temporary Global Note by the aggregate
principal amount of the security entitlement in the U.S. Global Note
equal to the security entitlement in the Regulation S Temporary Global
Note to be exchanged or transferred, to credit or cause to be credited
to the account of the person specified in such instructions a security
entitlement in the Regulation S Temporary Global Note equal to the
reduction in the principal amount of the U.S. Global Note and to debit
or cause to be debited from the account of the person making such
exchange or transfer the security entitlement in the U.S. Global Note
that is being exchanged or transferred.
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(iii) REGULATION S TEMPORARY GLOBAL NOTE TO U.S. GLOBAL NOTE. If
an entitlement holder with a security entitlement in the Regulation S
Temporary Global Note deposited with the Depositary or with the Trustee
as custodian for the Depositary wishes at any time to transfer its
security entitlement in such Regulation S Temporary Global Note to a
person who is required to take delivery thereof in the form of a
security entitlement in the U.S. Global Note such holder may, subject to
the rules and procedures of Euroclear or Cedel, as the case may be, and
the Depositary, exchange or cause the exchange of such interest for an
equivalent security entitlement in the U.S. Global Note. Upon receipt
by the Trustee, as Registrar at its office in The City of New York of
(1) instructions from Euroclear or Cedel, if applicable, and the
Depositary, directing the Trustee, as Registrar, to create or cause to
be credited a security entitlement in the U.S. Global Notes equal to the
security entitlement in the Regulation S Temporary Global Note to be
exchanged or transferred, such instructions to contain information
regarding the participant account with the Depositary to be credited
with such increase, (2) a written order given in accordance with the
Depositary's procedures containing information regarding the participant
account of the Depositary and (3) a certificate in the form of EXHIBIT D
attached hereto given by the owner of such security entitlement, then
Euroclear or Cedel or the Trustee, as Registrar, as the case may be,
will instruct the Depositary to reduce or cause to be reduced the
Regulation S Temporary Global Note and to increase or cause to be
increased the principal amount of the U.S. Global Note by the aggregate
principal amount of the security entitlement in the Regulation S
Temporary Global Note to be exchanged or transferred and the Trustee, as
Registrar, shall instruct the Depositary, concurrently with such
reduction, to credit or cause to be credited to the account of the
person specified in such instructions a security entitlement in the U.S.
Global Note equal to the reduction in the principal amount of the
Regulation S Temporary Global Note and to debit or cause to be debited
from the account of the person making such exchange or transfer the
security entitlement in the Regulation S Temporary Global Note that is
being exchanged or transferred.
(iv) GLOBAL NOTE TO TRANSFER RESTRICTED SECURITY. If an
entitlement holder with a security entitlement in a Global Note
deposited with the Depositary or with the Trustee as custodian for the
Depositary wishes at any time to transfer its security entitlement in
such Global Note to a person who is required to take delivery thereof in
the form of a Transfer Restricted Security, such owner may, subject to
the rules and procedures of Euroclear or Cedel, if applicable, and the
Depositary, cause the exchange of such security entitlement for one or
more Transfer Restricted Securities of any authorized denomination or
denominations and of the same aggregate principal amount. Upon receipt
by the Trustee, as Registrar, at its office in The City of New York of
(1) instructions from Euroclear or Cedel, if applicable, and the
Depositary directing the Trustee, as Registrar, to authenticate and
deliver one or more Transfer Restricted Securities of the same
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aggregate principal amount as the security entitlement in the Global
Note to be exchanged, such instructions to contain the name or names of
the designated transferee or transferees, the authorized denomination or
denominations of the Transfer Restricted Securities to be so issued and
appropriate delivery instructions, (2) a certificate in the form of
EXHIBIT E attached hereto given by the owner of such security
entitlement to the effect set forth therein and (3) such other
certifications, legal opinions or other information as the Company may
reasonably require to confirm that such transfer is being made pursuant
to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act, then Euroclear or
Cedel, if applicable, or the Trustee, as Registrar, as the case may be,
will instruct the Depositary to reduce or cause to be reduced such
Global Note by the aggregate principal amount of the security
entitlement therein to be exchanged and to debit or cause to be debited
from the account of the person making such transfer the security
entitlement in the Global Note that is being transferred, and
concurrently with such reduction and debit the Company shall execute,
and the Trustee shall authenticate and make available for delivery, one
or more Transfer Restricted Securities of the same aggregate principal
amount in accordance with the instructions referred to above.
(v) TRANSFER RESTRICTED SECURITY TO TRANSFER RESTRICTED SECURITY. If
a holder of a Transfer Restricted Security wishes at any time to transfer
such Transfer Restricted Security to a person who is required to take
delivery thereof in the form of a Transfer Restricted Security, such
holder may, subject to the restrictions on transfer set forth herein and
in such Transfer Restricted Security, cause the exchange of such
Transfer Restricted Security for one or more Transfer Restricted
Securities of any authorized denomination or denominations and of the
same aggregate principal amount. Upon receipt by the Trustee, as
Registrar, at its office in The City of New York of (1) such Transfer
Restricted Security, duly endorsed as provided herein, (2) instructions
from such holder directing the Trustee, as Registrar, to authenticate
and make available for delivery one or more Transfer Restricted
Securities of the same aggregate principal amount as the Transfer
Restricted Security to be exchanged, such instructions to contain the
name or authorized denomination or denominations of the Transfer
Restricted Securities to be so issued and appropriate delivery
instructions, (3) a certificate from the holder of the Restricted
Security to be exchanged in the form of EXHIBIT E attached hereto, and
(4) such other certifications, legal opinions or other information as
the Company may reasonably require to confirm that such transfer is
being made pursuant to an exemption from, or in a transaction not
subject to the registration requirements of the Securities Act, then the
Trustee, as Registrar, shall cancel or cause to be cancelled such
Transfer Restricted Security and concurrently therewith, the Company
shall execute, and the Trustee shall authenticate and make available for
delivery, one or more Transfer Restricted Securities of the same
aggregate principal amount at maturity, in accordance with the
instructions
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referred to above.
(vi) OTHER EXCHANGES. In the event that a security entitlement
with respect to a Global Note is exchanged for Notes in definitive
registered form pursuant to Section 304 prior to the effectiveness of a
Shelf Registration Statement with respect to such Notes, such Notes may
be exchanged only in accordance with such procedures as are
substantially consistent with the provisions of clauses (ii) through (v)
above (including the certification requirements intended to ensure that
such transfer comply with Rule 144A, Rule 144, or Regulation S of the
Securities Act, as the case may be) and such other procedures as may
from time to time to adopted by the Company.
(vii) DISTRIBUTION COMPLIANCE PERIOD. Prior to the later of the
Separability Date and the termination of the 40-day Distribution
Compliance Period with respect to the issuance of the Notes, transfers
of security entitlements in the Regulation S Temporary Global Note to
U.S. Persons shall be limited to transfers to QIBs made pursuant to the
provisions of Section 311(a)(iii). The Company shall advise the Trustee
as to the termination of the 40-day Distribution Compliance Period and
the Trustee may rely conclusively thereon.
(viii) REGULATION S TEMPORARY GLOBAL NOTE TO REGULATION S
PERMANENT GLOBAL NOTE. Following the later of the Separability Date and
the termination of the 40-day Distribution Compliance Period with
respect to the issuance of the Notes, security entitlements in the
Regulation S Temporary Global Note shall be exchanged for security
entitlements in a Global Note in definitive, fully registered from
without interest coupons, with the Global Notes Legend but without the
Restricted Securities Legend (a "REGULATION S PERMANENT GLOBAL NOTE"),
pursuant to the rules and procedures of the Depositary; PROVIDED,
HOWEVER, that prior to (i) the payment of interest or principal with
respect to a holder's security entitlement in the Regulation S Temporary
Global Note and (ii) any exchange of such security entitlement for a
security entitlement in the Regulation S Permanent Global Note,
Euroclear or Cedel shall receive a certificate substantially in the form
of EXHIBIT F hereto from the entitlement holder of such security
entitlement and Euroclear and Cedel shall deliver a certificate
substantially in the form of EXHIBIT G hereto to the Trustee (or the
Paying Agent if different from the Trustee). Upon proper presentment to
the Trustee of a certificate substantially in the form of EXHIBIT H
hereto and subject to the rules and procedures of DTC or its Direct
Participants or Indirect Participants, including Euroclear and Cedel, a
security entitlement in a Regulation S Permanent Global Note may be
exchanged for a certificated Note that is free from any restriction on
transfer (other than such as are solely attributable to any holder's
status).
(b) Except in connection with an Exchange Offer or a Shelf
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Registration Statement contemplated by and in accordance with the terms of
the Notes Registration Rights Agreement, if Initial Notes are issued upon the
transfer, exchange or replacement of Initial Notes bearing the Restricted
Securities Legend set forth in EXHIBIT A hereto, or if a request is made to
remove such Restricted Securities Legend on Initial Notes, the Initial Notes
so issued shall bear the Restricted Securities Legend, or the Restricted
Securities Legend shall not be removed, as the case may be, unless there is
delivered to the Company such satisfactory evidence, which may include an
Opinion of Counsel licensed to practice law in the State of New York, as may
be reasonably required by the Company, that neither the legend nor the
restrictions on transfer set forth therein are required to ensure that
transfers thereof comply with the provisions of Rule 144A, Rule 144 or
Regulation S under the Securities Act or, with respect to Transfer Restricted
Securities, that such Notes are not "restricted" within the meaning of Rule
144 under the Securities Act. Upon provision of such satisfactory evidence,
the Trustee, at the direction of the Company, shall authenticate and make
available for delivery Initial Notes that do not bear the legend.
(c) Neither the Company nor the Trustee shall have any
responsibility for any actions taken or not taken by the Depositary and the
Company shall have no responsibility for any actions taken or not taken by
the Trustee as agent or custodian of the Depositary.
SECTION 312. "CUSIP" AND "ISIN" NUMBERS.
The Company may use "CUSIP" and "ISIN" numbers (if then generally
in use) in issuing the Notes and, if so, the Trustee shall use "CUSIP" or
"ISIN" numbers in notices of redemption or repurchase to Holders 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 redemption or
repurchase and that reliance may be placed only on the other identification
numbers printed on the Notes and any such redemption or repurchase shall not
be affected by any defect in or omission of such numbers. The Company will
promptly notify the Trustee of any change in the "CUSIP" or "ISIN" numbers.
SECTION 313. DEPOSITS OF MONIES.
(a) The Company may from time to time appoint one or more Paying
Agents under this Indenture and the Notes.
(b) Unless the Company shall be acting as Paying Agent as
provided in Section 1003 hereof, prior to 1:00 p.m. New York City time on
each Interest Payment Date, Redemption Date, Stated Maturity, the Change of
Control Payment Date and the
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Asset Sale Offer Payment Date, the Company shall deposit with the Paying
Agent in immediately available funds money sufficient to make cash payments,
if any, due on such Interest Payment Date, Redemption Date, Stated Maturity,
the Change of Control Payment Date and the Asset Sale Offer Payment Date, as
the case may be, in a timely manner which permits the Paying Agent to remit
payment to the Holders on such Interest Payment Date, Redemption Date, Stated
Maturity, the Change of Control Payment Date and the Asset Sale Offer Payment
Date, as the case may be.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall, upon Company Request, cease to be of further
effect with respect to Notes (except as to any surviving rights of
registration of transfer or exchange of the Notes expressly provided for in
this Indenture), and the Trustee, at the expense of the Company, shall
execute proper instruments acknowledging satisfaction and discharge of this
Indenture when
(1) either
(A) all the respective Notes theretofore authenticated and
delivered (other than (i) Notes which have been destroyed, lost or
stolen and which have been replaced or paid as provided in Section
306, and (ii) Notes for whose payment money has theretofore been
deposited in trust with the Trustee or any Paying Agent or
segregated and held in trust by the Company and thereafter repaid
to the Company, as provided in Section 1003) have been delivered to
the Trustee for cancellation; or
(B) all Notes not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable,
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the
giving of notice of redemption by the Trustee in the name,
and at the
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expense, of the Company,
and the Company has irrevocably deposited or caused to be deposited
with the Trustee as trust funds in trust for the purpose an amount
sufficient to pay and discharge the entire Indebtedness on such Notes
not theretofore delivered to the Trustee for cancellation, for
principal (and premium, if any) and interest to the date of such
deposit (in the case of Notes which have become due and payable) or to
the Stated Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge
of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Section 606, the
obligations of the Company to any Authenticating Agent under Section 611 and,
if money shall have been deposited with the Trustee pursuant to subclause (B)
of clause (1) of this Section, the obligations of the Trustee under Section
402 and the last paragraph of Section 1003 shall survive.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003,
all money deposited with the Trustee pursuant to Section 401 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 its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.
ARTICLE V
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
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"EVENT OF DEFAULT," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(1) default in the payment of interest on the Notes when it
becomes due and payable and continuance of such default for a period of
30 days or more; PROVIDED that a default in the payment of any
installment of interest when it becomes due and payable on the Notes on
or prior to April 1, 2001 will constitute an Event or Default, with no
grace or cure period; or
(2) default in the payment of the principal of, or premium, if any,
on the Notes when due; or
(3) default in the performance, or breach, of any covenant
described in Section 1014, Section 1015 or Article VIII; or
(4) default in the performance, or breach, of any covenant in the
Indenture (other than defaults specified in clause (1), (2) or (3)
above) or the Security Agreement and continuance of such default or
breach for a period of 30 days or more after written notice to the
Company by the Trustee or to the Company and the Trustee by the holders
of at least 25% of the aggregate principal amount of the Outstanding
Notes; or
(5) failure to perform any term, covenant, condition or provision
of one or more classes or issues of Indebtedness in an aggregate
principal amount of $5.0 million or more under which the Company or a
Restricted Subsidiary is obligated, and either (a) such Indebtedness is
already due and payable in full or (b) such failure results in the
acceleration of the maturity of such Indebtedness; or
(6) one or more final non-appealable judgments, orders or decrees
for the payment of money of $5.0 million or more, either individually or
in the aggregate, shall be entered against the Company or any Restricted
Subsidiary or any of their respective properties and shall not be
discharged and there shall have been a period of 60 days or more during
which a stay of enforcement of such judgment or order, by reason of
pending appeal or otherwise, shall not be in effect; or
(7) the entry by a court having jurisdiction in the premises of
(i) a decree or order for relief in respect of the Company, or any
Material Restricted Subsidiary of the Company in an involuntary case or
proceeding under
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U.S. bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal, state, or foreign bankruptcy, insolvency, or other
similar law or (ii) a decree or order adjudging the Company, or any
Material Restricted Subsidiary of the Company, a bankrupt or insolvent,
or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company,
or any Material Restricted Subsidiary of the Company, under U.S.
bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal, state, or foreign bankruptcy, insolvency, or similar
law, or appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company, or any Material
Restricted Subsidiary of the Company, or of any substantial part of the
property or assets of the Company, or any Material Restricted Subsidiary
of the Company, or ordering the winding up or liquidation of the affairs
of the Company, or any Material Restricted Subsidiary of the Company,
and the continuance of any such decree or order for relief or any such
other decree or order unstayed and in effect for a period of 60
consecutive days; or
(8) the Company shall assert or acknowledge in writing that the
Security Agreement is invalid or unenforceable.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than an Event of Default specified in
clause (7) of Section 501) shall occur and be continuing, then in every such
case the Trustee or the Holders of at least 25% of the aggregate principal
amount of the Outstanding Notes, by written notice to the Company (and to the
Trustee if such notice is given by the Holders), may, and the Trustee upon the
written request of such Holders shall, declare the aggregate principal amount
of, premium (if any) on, and any accrued and unpaid interest on all of the
Outstanding Notes issued hereunder to be immediately due and payable, and upon
any such declaration all such amounts payable in respect of the Notes shall
become immediately due and payable. If an Event of Default described in
clause (7) of Section 501 shall occur and be continuing with respect to the
Company, then the aggregate principal amount of, premium (if any) on, and any
accrued and unpaid interest on all the Outstanding Notes shall IPSO FACTO become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder.
At any time after a declaration of acceleration or any IPSO FACTO
acceleration pursuant to clause (7) of Section 501 has been made under this
Indenture, but before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article provided, the Holders of
a majority of the aggregate principal amount of the Outstanding Notes, by
written notice to the Trustee, may rescind and annul such declaration and its
consequences if:
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(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(i) all overdue interest on all Outstanding Notes,
(ii) the principal amount of and premium, if any, on any
Outstanding Notes that have become due otherwise than by such
declaration of acceleration, and accrued interest on such unpaid
principal and premium, if any, at the rate borne by the Notes,
(iii) to the extent that payment of such interest is lawful,
interest on overdue interest and overdue principal at the rate borne
by the Notes, and
(iv) all sums paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(b) all Events of Default, other than the non-payment of the
principal of and accrued and unpaid interest on the Notes that have
become due solely by such declaration of acceleration, have been cured
or waived as provided in Section 513; and
(c) if the recission of acceleration would not conflict with any
judgment or decree by a court having jurisdiction in the premises.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the preceding paragraph, in the event of a
declaration of acceleration in respect of the Notes because of Event of
Default specified in Section 501(5) shall have occurred and be continuing,
such Event of Default and all consequences thereof (including, without
limitation, any acceleration or resulting payment default) shall be
automatically annulled, waived and rescinded if the Indebtedness that is the
subject of such Event of Default shall have been discharged or the holders
thereof shall have rescinded their declaration of acceleration in respect of
such Indebtedness or the default that is the basis for such Event of Default
has been cured, and written notice of such discharge or rescission or cure,
as the case may be, shall have been given to the Trustee by the Company and
countersigned by the holders of such Indebtedness or a trustee, fiduciary or
agent for such holders, within 30 days after such declaration of acceleration
in respect of the Notes, and no other Event of Default shall have occurred
during such 30-day period which has not been cured or waived during such
period.
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SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
The Company covenants that if
(1) default is made in the payment of any installment of interest
on any Note when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or premium,
if any, on) any Note at the maturity thereof,
then the Company will, upon demand of the Trustee, pay to the Trustee for the
benefit of the Holders of such Notes, the whole amount then due and payable on
such Notes for the principal (and premium, if any) and interest, and interest on
any overdue principal (and premium, if any) and, to the extent that payment of
such interest shall be legally enforceable, upon any overdue installment of
interest, at the rate borne by such Notes, and, in addition thereto, 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.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such Notes and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company or any other obligor upon such Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes
or the property
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of the Company or of such other obligor or their creditors, the Trustee
(irrespective of whether the principal amount of the Notes shall then be due
and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Company
for the payment of the principal amount or the overdue principal, premium, if
any, or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise,
(i) to file and prove a claim for the whole amount of the
principal amount of (and premium, if any) and interest owing and unpaid in
respect of the Notes and to file such 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 of the Holders allowed
in such judicial proceeding, and
(ii) to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official 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 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 606.
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, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
NOTES.
All rights of action and claims under this Indenture, the
Collateral Documents or the Notes may be prosecuted and enforced by the
Trustee without the possession of any of the Notes or the production thereof
in any proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and
any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, be for the ratable benefit of the Holders of the
Notes in respect of which such judgment has been recovered.
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SECTION 506. APPLICATION OF MONEY COLLECTED
Any money collected by the Trustee pursuant to this Article, including
such amounts held pursuant to the Collateral Documents, shall be applied in the
following order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on account of the principal amount of (or premium, if
any) or interest on the Notes, upon presentation of the Notes and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
606;
SECOND: To the payment of the amounts then due and unpaid for the
principal amount of (and premium, if any, on) and interest on the Notes in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Notes for the principal amount (and
premium, if any) and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto, including the Company or any other obligor on the Notes, as their
interests may appear or as a court of competent jurisdiction may direct.
SECTION 507. LIMITATION ON SUITS.
No Holder of any Note shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder shall have previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% of the aggregate principal
amount of the Outstanding Notes shall have made a written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders shall have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding;
and
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(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
of the aggregate principal amount of the Outstanding Notes;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture or any Note to affect, disturb or prejudice the rights of any
other Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture or any Note,
except in the manner herein provided and for the equal and ratable benefit of
all Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture or the
Collateral Documents, the Holder of any Note shall have the right, which is
absolute and unconditional, to receive payment, as provided herein, of the
principal of (and premium, if any, on) and (subject to Section 307) interest on,
such Note on the respective Stated Maturities expressed in such Note and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders of
Notes shall be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and the
Holders shall continue as though no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders of Notes is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to
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the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default
or an acquiescence therein. Every right and remedy given by this Article or
by law to the Trustee or to the Holders may be exercised from time to time,
and as often as may be deemed expedient, by the Trustee or by the Holders, as
the case may be.
SECTION 512. CONTROL BY HOLDERS.
The Holders of not less than a majority of the aggregate principal
amount of the Outstanding Notes shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred on the Trustee; PROVIDED that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture or the Collateral Documents,
(2) subject to Section 315 of the Trust Indenture Act, the Trustee
may take any other action deemed proper by the Trustee which is not
inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders of Notes not
consenting.
SECTION 513. WAIVER OF PAST DEFAULTS.
Subject to Section 902 and the last paragraph of Section 502, the
Holders of not less than a majority of the aggregate principal amount of the
Outstanding Notes may on behalf of the Holders of all the Notes waive any
past defaults hereunder and their consequences under this Indenture, except a
default
(1) in respect of the payment of the principal of (or premium, if
any, on) or interest on any Note at maturity, or
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(2) in respect of a covenant or provision hereof which under
Article IX cannot be modified or amended without the consent of the Holder
of each Outstanding Note.
Upon any such waiver, any 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 Event of Default or impair any right
consequent thereon.
SECTION 514. WAIVER OF STAY OR EXTENSION LAWS.
Each of the Company and any other obligor on the Notes covenants
(to the extent that it may lawfully do so) that it will not at any time
insist upon, or plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay or extension law wherever enacted, now or at any
time hereafter in force, which may affect the covenants or the performance of
this Indenture; and each of the Company and any other obligor on the Notes
(to the extent that it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such
law had been enacted.
ARTICLE VI
THE TRUSTEE
SECTION 601. NOTICE OF DEFAULTS.
Within 45 days after the earlier of receipt from the Company of
notice of the occurrence of any Default hereunder or the date when such
Default becomes known to the Trustee, the Trustee shall transmit, in the
manner and to the extent provided in TIA Section 313(c), by mail to all
Holders, as their names and addresses appear in the Security Register, notice
of such Default hereunder known to the Trustee, unless such Default shall
have been cured or waived; PROVIDED, HOWEVER, that, except in the case of a
Default in the payment of the principal of (or premium, if any, on) or
interest on any Note, or in the case of any Default arising from the
occurrence of any Change of Control, the Trustee shall be protected in
withholding such notice if and so long as a trust committee of directors
and/or Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the interest of the Holders.
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SECTION 602. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of TIA Sections 315(a) through 315(d)
(determined as if the TIA were applicable to this Indenture at all times):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board may be sufficiently evidenced by a Board
Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate;
(4) 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 in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture or the Collateral Documents
at the request or direction of any of the Holders of Notes pursuant to this
Indenture, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which
might be incurred by it in compliance with such request or direction;
(6) 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, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
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(7) the Trustee 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 shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care
by it hereunder;
(8) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture;
and
(9) the Trustee shall not be deemed to have notice of any 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.
The Trustee shall not be required 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 or powers if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
to it.
SECTION 603. TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
NOTES.
The recitals contained herein and in the Notes and in the Collateral
Documents, except for the Trustee's certificates of authentication, shall be
taken as the statements of the Company, and neither the Trustee nor any
Authenticating Agent assumes any responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Notes, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Notes and
perform its obligations hereunder and that the statements made by it in its
Statement of Eligibility on Form T-1 supplied to the Company are true and
accurate, subject to the qualifications set forth therein. Neither the Trustee
nor any Authenticating Agent shall be accountable for the use or application by
the Company of the Notes or the proceeds of the sale thereof.
SECTION 604. MAY HOLD NOTES.
The Trustee, any Authenticating Agent, any Paying Agent, any Note
Registrar or any other agent of the Company or of the Trustee, in its
individual or any other capacity, may become the owner or pledgee of Notes
and, subject to TIA Sections
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310(b) and 311, may otherwise deal with the Company with the same rights it
would have if it were not Trustee, Authenticating Agent, Paying Agent, Note
Registrar or such other agent.
SECTION 605. MONEY HELD IN TRUST.
All money received by the Trustee shall, until used or applied as
herein provided, be held in trust hereunder for the purposes for which they
were received. Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The
Trustee shall be under no liability for interest on any money received by it
hereunder except as otherwise agreed in writing with the Company.
SECTION 606. COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(1) to pay to the Trustee from time to time such compensation as
shall be agreed in writing between the Company and the Trustee for all
services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse
the Trustee upon its request for all reasonable expenses, disbursements
and advances incurred or made by the Trustee in accordance with any
provision of this Indenture (including the reasonable compensation and
the expenses and disbursements of its agents and counsel), except any
such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
(3) to indemnify each of the Trustee or any predecessor Trustee
and its agents for, and to hold it harmless against, any and all loss,
liability, damage, claim or expense, including taxes (other than taxes
based on the income of the Trustee) incurred without negligence or bad
faith on its part, arising out of or in connection with the acceptance
or administration of this Indenture or in respect of the Collateral
Documents or of the trust or trusts hereunder, including the costs and
expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or
duties hereunder.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder
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and shall survive the satisfaction and discharge of this Indenture. As
security for the performance of such obligations of the Company, the Trustee
shall have a claim prior to the Notes upon all property and funds held or
collected by the Trustee as such, except funds held in trust for the payment
of principal of (and premium, if any, on) or interest on particular Notes at
maturity.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(7), the expenses (including
the reasonable charges and expenses of its counsel) of and the compensation
of the Trustee for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency
or other similar law.
SECTION 607. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and (2) and shall have
a combined capital and surplus of at least $50,000,000. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of Federal, state, territorial or District of Columbia
supervising or examining authority, then for the purposes of this Section,
the combined capital and surplus of such corporation shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
SECTION 608. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of
a successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) The Trustee may resign at any time with respect to the Notes
by giving written notice thereof to the Company. If the instrument of
acceptance by a successor Trustee required by Section 609 shall not have been
delivered to the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Notes.
(c) The Trustee may be removed at any time with respect to the Notes
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by Act of the Holders of not less than a majority of the principal amount of
the then Outstanding Notes, delivered to the Trustee and to the Company. If
the instrument of acceptance by a successor Trustee required by Section 609
shall not have been delivered to the Trustee within 30 days after the giving
of such notice of removal, the Trustee being removed may petition any court
of competent jurisdiction for the appointment of a successor Trustee with
respect to the Notes.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a BONA FIDE Holder of a Note for at least six months,
or
(2) the Trustee shall cease to be eligible under Section 607 and
shall fail to resign after written request therefor by the Company or by
any Holder who has been a BONA FIDE Holder of a Note for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove
the Trustee with respect to all Notes, or (ii) subject to TIA Section 315(e),
any Holder who has been a BONA FIDE Holder of a Note for at least six months
may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee with respect
to all Notes and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause,
with respect to the Notes, the Company, by a Board Resolution, shall promptly
appoint a successor Trustee. If, within one year after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor
Trustee with respect to the Notes shall be appointed by Act of the Holders of
a majority of the aggregate principal amount of the then Outstanding Notes
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become
the successor Trustee with respect to the Notes and to that extent supersede
the successor Trustee appointed by the Company. If no successor Trustee with
respect to the Notes shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided, any
Holder who has been a BONA FIDE Holder of a Note for at least six months may,
on behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee with
respect to the Notes.
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(f) The Company shall give notice of each resignation and each
removal of the Trustee with respect to the Notes and each appointment of a
successor Trustee with respect to the Notes to the Holders of Notes in the
manner provided for in Section 106. Each notice shall include the name of
the successor Trustee with respect to the Notes and the address of its
Corporate Trust Office.
SECTION 609. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) Each successor Trustee shall execute, acknowledge and deliver
to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act,
deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; PROVIDED, HOWEVER, on the request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment
of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee
and shall duly assign, transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee hereunder.
(b) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all rights, powers and trusts referred
to in paragraph (a) of this Section.
(c) No successor Trustee shall accept its appointment unless at
the time of such acceptance, such successor Trustee shall be qualified and
eligible under this Article.
SECTION 610. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any corporation into which the Trustee may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under
this Article, without the execution or filing of any paper or any further act
on the part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating
Trustee may adopt such authentication
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and deliver the Notes so authenticated with the same effect as if such
successor Trustee had itself authenticated such Notes. In case at that time
any of the Notes shall not have been authenticated, any successor Trustee may
authenticate such Notes either in the name of any predecessor hereunder or in
the name of the successor Trustee. In all such cases such certificates shall
have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of authentication the Trustee shall have;
PROVIDED, HOWEVER, that the right to adopt the certificate of authentication
of any predecessor Trustee or to authenticate Notes in the name of any
predecessor Trustee shall apply only to its successor or successors by
merger, conversion or consolidation.
SECTION 611. APPOINTMENT OF AUTHENTICATING AGENT.
At any time when any of the Notes remain Outstanding, the Trustee
may appoint an Authenticating Agent or Agents with respect to the Notes which
shall be authorized to act on behalf of the Trustee to authenticate Notes and
the Trustee shall give written notice in the manner provided for in Section
106 of such appointment to all Holders of Notes with respect to which such
Authenticating Agent will serve. Notes so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Any such appointment
shall be evidenced by an instrument in writing signed by a Responsible
Officer of the Trustee, and a copy of such instrument shall be promptly
furnished to the Company. Wherever reference is made in this Indenture to
the authentication and delivery of Notes by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating
Agent and a certificate of authentication executed on behalf of the Trustee
by an Authenticating Agent. Each Authenticating Agent shall be acceptable to
the Company and shall at all times be a corporation organized and doing
business under the laws of the United States of America, any state thereof or
the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or state authority. If such
corporation publishes reports of condition at least annually, pursuant to law
or to the requirements of said supervising or examining authority, then for
the purposes of this Section 611, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 611, it shall resign immediately in the manner and
with the effect specified in this Section 611.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating
Agent shall be a party, or any corporation succeeding to the corporate agency
or corporate trust business of an Authenticating Agent, shall continue to be
an Authenticating Agent; PROVIDED such
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corporation shall be otherwise eligible under this Section 611, without the
execution or filing of any paper or any further act on the part of the
Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any
time terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. Upon receiving such
a notice of resignation or upon such a termination, or in case at any time
such Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall give
written notice in the manner provided for in Section 106 of such appointment
to all Holders. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and
duties of its predecessor hereunder, with like effect as if originally named
as an Authenticating Agent. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section 611.
The Company agrees to pay to each Authenticating Agent from time to
time such compensation for its services under this Section as shall be agreed
in writing between the Company and such Authenticating Agent.
If an appointment is made pursuant to this Section 611, the Notes
may have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternate certificate of authentication in the following
form:
This is one of the 13% Senior Notes due 2008 referred to in the
within-mentioned Indenture.
NORWEST BANK COLORADO, N.A.,
Trustee
By:
-------------------------------------
Authenticating Agent
By:
-------------------------------------
Authorized Officer
SECTION 612. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such
duties
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as are specifically set forth in this Indenture and the Collateral
Documents, and no implied covenants or obligations shall be read into this
Indenture and the Collateral Documents against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture and the Collateral Documents; PROVIDED, HOWEVER, in the case
of any such certificates or opinions which by provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture or the Collateral
Documents.
(b) During the existence of an Event of Default, the Trustee is
required to exercise such rights and powers vested in it under this Indenture
and the Collateral Documents and use the same degree of care and skill in its
exercise thereof as a prudent person would exercise under the circumstances
in the conduct of such person's own affairs.
(c) No provision of this Indenture shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that no provision of
this Indenture or the Collateral Documents shall require the Trustee 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 or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision
of this Indenture and the Collateral Documents relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section 612.
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. PRESERVATION OF INFORMATION; COMPANY TO FURNISH TRUSTEE
NAMES AND ADDRESSES OF HOLDERS.
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(a) The Trustee shall preserve the names and addresses of the
Holders of the Notes and otherwise comply with TIA Section 312(a). If the
Trustee is not the Registrar, the Company shall furnish or cause the
Registrar to furnish to the Trustee 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 the Notes. Neither the Company nor the Trustee
shall be under any responsibility with regard to the accuracy of such list.
(b) The Company will furnish or cause to be furnished to the Trustee
(i) semi-annually, not more than 15 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date; and
(ii) at such other times as the Trustee may reasonably request in
writing, within 30 days after receipt by the company of any such request,
a list of similar form and content as of a date not more than 15 days
prior to the time such list is furnished;
PROVIDED, HOWEVER, that if and so long as the Trustee shall be the Registrar,
no such list need be furnished pursuant to this Section 701(b).
SECTION 702. REPORTS BY TRUSTEE.
Within 60 days after May 15 of each year commencing with the first
May 15 after the Issue Date, the Trustee shall transmit to the Holders (with
a copy to the Company at the Place of Payment), in the manner and to the
extent provided in TIA Section 313(c), a brief report dated as of such May 15
if required by TIA Section 313(a).
SECTION 703. REPORTS BY COMPANY.
The Company shall:
(1) file with the Trustee, within 15 days after it files or would be
required to file with the Commission the information pursuant to
Section 1020 hereof, copies of such information;
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional
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information, documents and reports with respect to compliance by the
Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations; and
(3) furnish by mail without cost to all Holders, as their names
and addresses appear in the Note Register and in the manner and to the
extent provided in TIA Section 313(c), within 30 days after the filing
thereof with the Trustee, such information, documents and reports
required to be filed by the Company pursuant to paragraphs (1) and (2)
of this Section as may be required by rules and regulations prescribed
from time to time by the Commission.
SECTION 704. COMMUNICATIONS OF HOLDERS.
Holders may communicate with other Holders with respect to their
rights under this Indenture or under the Notes pursuant to Section 312(b) of
the Trust Indenture Act. The Company and the Trustee and any and all other
persons benefitted by this Indenture shall have the protection afforded by
Section 312(c) of the Trust Indenture Act.
ARTICLE VII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company will not, in a single transaction or a series of
related transactions, (1) consolidate or combined with or merge with or into
any other Person or, directly or indirectly, sell, assign, convey, lease,
transfer, or otherwise dispose of all or substantially all of its properties
and assets substantially as an entirety to any other Person or Persons or
(2) permit any of the Restricted Subsidiaries to enter into any such
transaction or series of related transactions, if such transaction or series
of related transactions, in the aggregate, would result in the sale,
assignment, conveyance, lease, transfer, or other disposition of all or
substantially all of the properties or assets of the Company and the
Restricted Subsidiaries on a consolidated basis to any Person other than the
Company or another Restricted Subsidiary, unless at the time and immediately
after giving effect thereto:
(i) either (a) the Company will be the continuing Person or (b) the
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Person (if other than the Company) formed by such consolidation or into
which the Company or such Subsidiary is merged or the Person which
acquires by sale, conveyance, lease, transfer, or other disposition, all
or substantially all of the properties and assets of the Company and its
Restricted Subsidiaries on a consolidated basis substantially as an
entirety, as the case may be (the "SURVIVING ENTITY"), (1) will be a
corporation organized and validly existing under the laws of the United
States of America, any state or territory thereof or the District of
Columbia and (2) will expressly assume, by a supplemental indenture to
this Indenture in form satisfactory to the Trustee, the Company's
obligation pursuant to the Notes, this Indenture and the Collateral
Documents for the due and punctual payment of the principal of, premium,
if any, on and interest on all the Notes and the performance and
observance of every covenant of this Indenture on the part of the
Company to be performed or observed;
(ii) immediately after giving effect to such transaction or series
of transactions on a PRO FORMA basis (including, without limitation, any
Indebtedness of the Company or any Restricted Subsidiary incurred or
anticipated to be incurred in connection with or in respect of such
transaction or series of transactions as having been incurred at the
time of such transaction), no Default shall have occurred and be
continuing; and
(iii) immediately after giving effect to such transaction or series
of transactions on a PRO FORMA basis (including, without limitation, any
Indebtedness of the Company or any Restricted Subsidiary incurred or
anticipated to be incurred in connection with or in respect of such
transaction or series of transactions as having been incurred at the
time of such transaction), the Company (or the Surviving Entity if the
Company is not the continuing obligor under this Indenture and assuming
such Surviving Entity's assumption of the Company's or Restricted
Subsidiary's, as the case may be, obligations under the Notes and this
Indenture) would be able to incur $1.00 of Indebtedness under the
proviso in the first paragraph of Section 1008.
In connection with any such consolidation, merger, sale,
assignment, conveyance, lease, transfer, or other disposition, the Company or
the Surviving Entity shall have delivered to the Trustee, in form and
substance reasonably satisfactory to the Trustee, an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
sale, assignment, conveyance, lease, transfer, or other disposition, and if a
supplemental indenture is required in connection with such transaction or
series of transactions to effectuate such assumption, such supplemental
indenture, comply with the requirements of this Indenture and that all
conditions precedent therein provided for relating to such transaction or
series of transactions have been complied with.
For all purposes of the Indenture and the Notes (including the
provisions of
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this Section 801 and Sections 1008, 1009 and 1012), Subsidiaries of any
surviving entity will, upon such transaction or series of related
transactions, become Restricted Subsidiaries or Unrestricted Subsidiaries as
provided pursuant to Section 1017 and all Indebtedness, and all Liens on
property or assets, of the Company and the Restricted Subsidiaries in
existence immediately prior to such transaction or series of related
transactions will be deemed to have been incurred upon such transaction or
series of related transactions.
SECTION 802. SUCCESSOR SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company in accordance with Section 801 in which
the Company is not the continuing obligor under this Indenture, the Surviving
Entity shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Indenture, the Notes and the Collateral
Documents with the same effect as if such successor had been named as the
Company therein. When a successor assumes all the obligations of its
predecessor under this Indenture, the predecessor shall be released from
those obligations; PROVIDED that in the case of a transfer by lease, sale,
assignment, conveyance, transfer, or other disposition to a Restricted
Subsidiary of the Company, the predecessor shall not be released from the
payment of principal of, premium, if any, and interest on the Notes and all
other obligations and covenants under this Indenture and the Notes.
ARTICLE IX
AMENDMENTS; WAIVERS; SUPPLEMENTAL INDENTURES
SECTION 901. AMENDMENTS; WAIVERS AND SUPPLEMENTAL INDENTURES WITHOUT
CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized
pursuant to a Board Resolution, and the Trustee, at any time and from time to
time, may amend, waive or supplement this Indenture, for any of the following
purposes:
(1) to evidence the succession of another Person to the Company or
any other obligor on the Notes, and the assumption by any such successor
of the covenants of the Company or such obligor contained herein and in
the Notes in
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accordance with Article VIII; or
(2) to add to the covenants of the Company or any other obligor on
the Notes for the benefit of the Holders or to surrender any right or
power conferred upon the Company or any other obligor on the Notes,
herein and in the Notes, as applicable, in the Indenture or the Notes; or
(3) to cure any ambiguity, to correct or supplement any provision
herein or in the Notes which may be defective or inconsistent with any
other provision herein or in the Notes, or to make any other provisions
with respect to matters or questions arising under this Indenture or the
Notes; PROVIDED that, in each case, such provisions shall not adversely
affect the interests of the Holders; or
(4) to comply with the requirements of the Commission in order to
effect or maintain the qualification, if any, of this Indenture under
the Trust Indenture Act; or
(5) to evidence and provide the acceptance of the appointment of a
successor Trustee under this Indenture; or
(6) to mortgage, pledge, hypothecate or grant a security interest in
favor of the Trustee for the benefit of the Holders as additional
security for the payment and performance of the Company's obligations
under this Indenture, in any property or assets, including any of which
are required to be mortgaged, pledged or hypothecated, or in which a
security interest is required to be granted, to the Trustee pursuant to
this Indenture or otherwise; or
(7) to add guarantors with respect to the Notes.
PROVIDED that the Company shall have delivered to the Trustee an Opinion of
Counsel stating that any such action pursuant to clauses (1) through (7)
above does not adversely affect the rights of any Holder of Notes.
SECTION 902. MODIFICATION, AMENDMENTS AND SUPPLEMENTAL INDENTURES
WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in
aggregate principal amount of all then Outstanding Notes that are affected
thereby, by Act of said Holders delivered to the Company and the Trustee, the
Company, when authorized by or pursuant to a Board Resolution, and the
Trustee may modify, amend or supplement this Indenture for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights
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of the Holders of Notes under this Indenture; PROVIDED, HOWEVER, that no such
modification, amendment or supplemental indenture shall, without the consent
of the Holder of each Outstanding Note affected thereby,
(1) reduce the principal amount of, extend the Stated Maturity of or
alter or waive the redemption provisions of, the Notes.
(2) change the currency in which any Notes or any premium or the
accrued interest thereon is payable,
(3) reduce the percentage in aggregate principal amount of
Outstanding Notes that must consent to an amendment, supplement or
waiver or consent to an amendment, supplement or waive or consent to
take any action under the Indenture or the Notes;
(4) impair the right to institute suit for the enforcement of any
payment on or with respect to the Notes.
(5) waive a default in payment with respect to the Notes;
(6) amend, change or modify the obligation of the Company to make
and consummate a Change of Control Offer in the event of a Change of
Control or make and consummate the offer with respect to any Asset Sale
(except in either case for changes required by applicable law) or modify
any of the provisions or definitions with respect thereto or waive any
default in the performance thereof;
(7) reduce or change the rate or extend the time for payment of
interest on the Notes;
(8) modify or change any provision of this Indenture affecting the
ranking of the Notes in a manner adverse to the Holders of the Notes; or
(9) modify the provisions of the Collateral Documents or Section
1021 in any manner adverse to the Holders or release any of the
Collateral from the Lien securing the Notes, including but not limited
to, funds from the Collateral Account (other than as provided in the
Collateral Documents) or permit any other Indebtedness or other
obligation to be secured by any of the Collateral.
It shall not be necessary for any Act of Holders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
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In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes;
and every Holder of Notes theretofore or thereafter authenticated and
delivered hereunder shall be bound thereby.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article
shall conform to the requirements of the Trust Indenture Act as then in
effect.
SECTION 906. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so
determine, new Notes so modified as to conform, in the opinion of the Trustee
and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Notes.
SECTION 907. NOTICE OF SUPPLEMENTAL INDENTURES.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Note affected,
in the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture.
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ARTICLE X
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST.
The Company covenants and agrees for the benefit of the Holders of
Notes that it will duly and punctually pay the principal of (and premium, if
any, on) and interest on the Notes in accordance with the terms of the Notes
and this Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in the City of New York an office or
agency where Notes may be presented or surrendered for payment (the "PLACE OF
PAYMENT"), where Notes may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of
the Notes and this Indenture may be served. The Company hereby designates
the Corporate Trust Office as the Place of Payment.
The Company will give prompt written notice to the Trustee of the
location, and any change in the location, of the Place of Payment. 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, and the Company hereby appoints the
same as its agent to receive such respective presentations, surrenders,
notices and demands.
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 any such designation;
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
accordance with the requirements set forth above for Notes for such purposes.
The Company will give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.
SECTION 1003. MONEY FOR NOTES PAYMENTS TO BE HELD IN TRUST.
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If the Company shall at any time act as its own Paying Agent with
respect to the Notes, it will, on or before each date on which payment shall
become due of principal of (and premium, if any) or interest on any of the
Notes, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and premium, if any) or
interest 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, prior to or on each date on which payment shall become due of
the principal of (and premium, if any, on) or interest on any Notes, deposit
with a Paying Agent a sum sufficient to pay the principal (and premium, if
any) or interest so becoming due, such sum to be held in trust for the
benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify
the Trustee of its action or 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:
(1) hold all sums held by it for the payment of the principal of
(and premium, if any) and interest on the 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;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal
of (or premium, if any) or interest on the Notes; and
(3) 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.
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 by Company Order 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 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 sums.
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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 (and
premium, if any) or interest on any Note and remaining unclaimed for one
years after such principal (and premium, if any) or interest has become due
and payable shall be paid to the Company on Company 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 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, may
at the expense of the Company cause to be published once, in a newspaper
published in the English language, customarily published on each Business Day
and of general circulation in the Borough of Manhattan, The City of New York,
notice 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 or publication, any unclaimed balance of such money then
remaining will be repaid to the Company.
SECTION 1004. CORPORATE EXISTENCE.
Subject to Article VIII, the Company will do or cause to be done
all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each Restricted Subsidiary; PROVIDED, HOWEVER, that, subject to
the other provisions of this Indenture, the Company shall not be required to
preserve any such right or franchise, or the existence of any Restricted
Subsidiary, if the Company in good faith shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its Subsidiaries as a whole and that the loss thereof is not
disadvantageous in any material respect to the Holders.
SECTION 1005. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all taxes,
assessments and governmental charges levied or imposed upon the Company or
any Subsidiary or upon the income, profits or property of the Company or any
Subsidiary and (b) all lawful claims for labor, materials and supplies,
which, if unpaid, would by law become a Lien upon the property of the Company
or any Subsidiary; PROVIDED, HOWEVER, that the Company shall not be required
to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
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SECTION 1006. MAINTENANCE OF PROPERTIES.
The Company will cause all properties owned by the Company or any
Restricted Subsidiary or used or held for use in the conduct of its business
or the business of any Restricted Subsidiary to be maintained and kept in
good condition, repair and working order (except ordinary wear and tear) and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as
in the judgment of the Company may be necessary so that the business carried
on in connection therewith may be properly and advantageously conducted at
all times; PROVIDED, HOWEVER, that nothing in this Section shall prevent the
Company or any of its Restricted Subsidiaries from discontinuing the
maintenance of any of such properties if such discontinuance is, in the
judgment of the Company, desirable in the conduct of its business or the
business of any Restricted Subsidiary and not disadvantageous in any material
respect to the Holders.
SECTION 1007. STATEMENT BY OFFICERS AS TO DEFAULT.
(a) The Company will deliver to the Trustee, within 50 days
after the end of each fiscal quarter and within 120 days after the end of
each fiscal year, a brief certificate from the principal executive officer,
principal financial officer or principal accounting officer of the Company as
to his or her knowledge of the Company's compliance with all conditions and
covenants under this Indenture and the Collateral Documents since the
beginning of such quarter or such year, as the case may be. For purposes of
this Section 1007(a), such compliance shall be determined without regard to
any period of grace or requirement of notice under this Indenture or the
Collateral Documents.
(b) When any Default has occurred and is continuing under this
Indenture or the Collateral Documents, or if the trustee for or the Holder of
any other evidence of Indebtedness of the Company or any Subsidiary gives any
notice or takes any other action with respect to a claimed default (other
than with respect to Indebtedness in the principal amount of less than $5.0
million), the Company shall deliver to the Trustee by registered or certified
mail or by telegram, telex or facsimile transmission an Officers' Certificate
specifying such event, notice or other action within five Business Days after
the Company becomes aware of such occurrence and what action the Company is
taking or proposes to take with respect thereto.
SECTION 1008. LIMITATION ON INDEBTEDNESS.
The Company will not, and will not permit any Restricted Subsidiary
to,
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incur any Indebtedness (including any Acquired Indebtedness) other than
Permitted Indebtedness; PROVIDED that the Company may Incur Indebtedness if
and at the time of such incurrence (i) the Consolidated Indebtedness to
Consolidated Operating Cash Flow Ratio would have been less than or equal to
6.0 to 1.0 and (ii) no Default or Event of Default shall have occurred and be
continuing or occur as a consequence of the actions set forth in this
covenant.
In making the foregoing calculation, (A) PRO FORMA effect will be
given to: (i) the incurrence or repayment of any Indebtedness to be incurred
or repaid on the date of the incurrence of such Indebtedness (the
"TRANSACTION DATE"), (ii) Asset Sales and Asset Acquisitions (including
giving PRO FORMA effect to the application of proceeds of any Assets Sales)
that occur from the beginning of the Four Quarter Period (as defined under
the "CONSOLIDATED INDEBTEDNESS TO CONSOLIDATED OPERATING CASH FLOW RATIO"
definition) through the Transaction Date (the "REFERENCE PERIOD"), as if such
acquisition or disposition had occurred and such proceeds had been applied on
the first day of such Reference Period and (iii) the acquisition (whether by
purchase, merger or otherwise) or disposition (whether by sale, merger or
otherwise) of any company, entity or business acquired or disposed of
(including giving PRO FORMA effect to the application of proceeds of such
disposition) by any Person that has become a Restricted Subsidiary or has
been merged with or into the Company or any Restricted Subsidiary during such
Reference Period and that would have constituted Asset Sales or Asset
Acquisitions had such transactions occurred when such Person was a Restricted
Subsidiary as if such asset dispositions or asset acquisitions were Asset
Sales or Asset Acquisitions that occurred on the first day of such Reference
Period; PROVIDED that, to the extent that clause (ii) or (iii) of this
sentence requires that PRO FORMA effect be given to an Asset Acquisition or
Asset Sale, such PRO FORMA calculation shall be based upon the four full
fiscal quarters, immediately preceding the Transaction Date of the Person, or
division or line of business of the Person, that is acquired or disposed of
for which financial information is available, and (B) the aggregate amount of
Indebtedness outstanding as of the end of the Reference Period will be deemed
to include an amount of funds equal to the average daily balance of
Indebtedness outstanding during the Reference Period under any revolving
credit or similar facilities of the Company and its Restricted Subsidiaries.
For purposes of this provision, whenever PRO FORMA effect is to be given to a
transaction, the PRO FORMA calculations shall be made in good faith by a
responsible financial or accounting officer of the Company.
For the purposes of determining compliance with this Section 1008,
in the event that an item of Indebtedness or any portion thereof meets the
criteria of more than one of the types of Indebtedness the Company and the
Restricted Subsidiaries are permitted to incur, the Company will have the
right, in its sole discretion, to classify such item of Indebtedness or
portion thereof at the time of its incurrence and will only be required to
include the amount and type of such Indebtedness or portion thereof under the
clause permitting the Indebtedness as so classified.
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SECTION 1009. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, take any of the following actions:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Qualified Capital Stock or
in options, warrants or other rights to acquire such shares of Qualified
Capital Stock and (y) dividends or distributions payable to the Company
or any Wholly Owned Restricted Subsidiary);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of its Capital Stock or any Capital
Stock of any of its Affiliates or any options, warrants or other rights
to acquire such shares of Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated
Indebtedness; or
(iv) make any Investment (other than any Permitted Investment);
(such payments or other actions described in (but not excluded from) clauses
(i) though (iv) are collectively referred to as "RESTRICTED PAYMENTS"),
unless at the time of, and immediately after giving effect to, the proposed
Restricted Payment (the amount of any such Restricted Payment, if other than
cash, as determined by the Board, whose determination shall be conclusive and
evidenced by a Board Resolution), (1) no Default or Event of Default shall
have occurred and be continuing, (2) the Company could incur at least $1.00
of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the proviso in the first paragraph of Section 1008 and (3) the aggregate
amount of all Restricted Payments declared or made after the Issue Date shall
not exceed the sum of:
(A) 50% of the aggregate amount of the Consolidated
Adjusted Net Income (or, if the Consolidated Adjusted Net Income is a
loss, minus 100% of the amount of such loss) (determined by excluding
income resulting from transfers of assets by the Company or a
Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter immediately
following the Issue Date and ending on the last day of the last full
fiscal quarter immediately preceding the date of such Restricted
Payment for which quarterly or annual consolidated financial statements
of the Company are available; plus
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(B) the aggregate Net Cash Proceeds received by the Company
after the Issue Date as a capital contribution or from the issuance
and sale permitted by the Indenture of its Capital Stock (other
than Disqualified Stock) to a Person who is not a Subsidiary of the
Company, including an issuance or sale permitted by the Indenture
of Indebtedness of the Company for cash subsequent to the Issue
Date upon the conversion of such Indebtedness into Capital Stock
(other than Disqualified Stock) of the Company, or from the
issuance to a Person who is not a Subsidiary of the Company of any
options, warrants or other rights to acquire Capital Stock of the
Company (in each case, exclusive of any Disqualified Stock); plus
(C) to the extent not otherwise included in the Consolidated
Adjusted Net Income of the Company, an amount equal to the sum of
(i) the net reduction in Investments in any Person (other than
Permitted Investments) resulting from the payment in cash of
dividends, repayments of loans or advances or other transfers of
assets, or from the Net Cash Proceeds from the sale of any such
Investment, in each case to the Company or any Restricted
Subsidiary after the Issue Date from such Person and (ii) the
portion (proportionate to the Company's equity interest in such
Subsidiary) of the Fair Market Value of the net assets of any
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; PROVIDED, HOWEVER, that in the
case of (i) or (ii) above the foregoing sum shall not exceed the
amount of Investments previously made (and treated as a Restricted
Payment) by the Company or any Restricted Subsidiary in such Person
or Unrestricted Subsidiary.
(b) Notwithstanding paragraph (a) above, the Company and any
Restricted Subsidiary may take the following actions so long as (with respect
to clauses (ii) through (v) inclusive and clauses (vii) through (ix)
inclusive below) no Default or Event of Default shall have occurred and be
continuing:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such dividend would
have complied with the provisions of paragraph (a) above and such
payment will be deemed to have been paid on such date of declaration for
purposes of the calculation required by paragraph (a) above;
(ii) the purchase, redemption or other acquisition or retirement
for value of any shares of Capital Stock of the Company, in exchange
for, or out of the Net Cash Proceeds of a substantially concurrent
issuance and sale (other than to a Restricted Subsidiary) of, shares of
Qualified Capital Stock of the Company;
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PROVIDED, HOWEVER, that such Qualified Capital Stock of the Company may
not be redeemable at the option of the Holder or be required to be
redeemed prior to the Stated Maturity of the Notes;
(iii) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness in exchange for or
out of the Net Cash Proceeds of a substantially concurrent issuance and
sale (other than to a Restricted Subsidiary) of shares of Qualified
Capital Stock of the Company;
(iv) the purchase of any Subordinated Indebtedness at a purchase
price not greater than 101% of the principal amount thereof in the event
of a Change of Control in accordance with provisions similar Section
1014; PROVIDED that prior to such purchase the Company has made the
Change of Control Offer as provided in such covenant with respect to the
Notes and has purchased all Notes validly tendered for payment in
connection with such Change of Control Offer;
(v) the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness in exchange for, or
out of the Net Cash Proceeds of a substantially concurrent incurrence
(other than to a Subsidiary) of new Subordinated Indebtedness so long as
(A) the principal amount of such new Subordinated Indebtedness does not
exceed the principal amount (or, if such Subordinated Indebtedness being
refinanced provides for an amount less than the principal amount thereof
to be due and payable upon a declaration of acceleration thereof, such
lesser amount as of the date of determination) of the Subordinated
Indebtedness being so purchased, redeemed, defeased, acquired or retired,
plus the amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of such Subordinated Indebtedness being
refinanced or the amount of any premium reasonably determined by the
Company as necessary to accomplish such refinancing, PLUS, in either case,
the amount of expenses of the Company incurred in connection with such
refinancing; (B) such new Subordinated Indebtedness is subordinated to the
Notes to the same extent as such Subordinated Indebtedness so purchased,
redeemed, defeased, acquired or retired and (C) such new Subordinated
Indebtedness has an Average Life to Stated Maturity longer than the Average
Life to Stated Maturity of the Notes and a final Stated Maturity of
principal later than the final Stated Maturity of principal of the Notes;
(vi) the payment of cash in lieu of fractional shares of Common
Stock pursuant to the Warrant Agreement;
(vii) payments of amounts required for any repurchase, redemption
or other acquisition or retirement for value of any Capital Stock of the
Company or any options or rights to acquire such Capital Stock of the
Company owned by any
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director, officer or employee of the Company or its Subsidiaries
pursuant to any management equity subscription agreement or similar
agreement, or otherwise upon the death, disability, retirement or
termination of employment or departure from the Board, PROVIDED that the
aggregate price paid for all such repurchased, redeemed, acquired or
retired Capital Stock of the Company or options shall not exceed in the
aggregate $0.5 million in any calendar year;
(viii) payments that would otherwise be Restricted Payments in an
aggregate amount not to exceed $1.0 million;
(ix) Investments in Telecommunications Businesses that would
otherwise be Restricted Payments, the sum of which does not exceed $5.0
million at any one time outstanding; and
(x) repurchases of Capital Stock of the Company solely in
connection with cashless exercises of options, warrants and other
convertible securities.
The actions described in clauses (i) through (iv) inclusive and clauses (vi)
through (ix) inclusive of this paragraph (b) shall be Restricted Payments
that shall be permitted to be taken in accordance with this paragraph (b) but
shall reduce the amount that would otherwise be available for Restricted
Payments under clause (3) of paragraph (a) and the actions described in
clauses (v) and (x) of this paragraph (b) shall be Restricted Payments that
shall be permitted to be taken in accordance with this paragraph (b) and
shall not reduce the amount that would otherwise be available for Restricted
Payments under clause (3) of paragraph (a) above. In the event the proceeds
of an issuance of Qualified Capital Stock of the Company are used for the
redemption, repurchase or other acquisition of the Notes, or Indebtedness
that is PARI PASSU with the Notes, then the Net Cash Proceeds of such
issuance shall be included in clause (B) of paragraph (a) of this Section
1009 only to the extent such proceeds are not used for such redemption,
repurchase or other acquisition of Indebtedness.
SECTION 1010. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES.
The Company will not (i) sell, pledge, hypothecate or otherwise
convey or dispose of any Capital Stock of a Restricted Subsidiary of the
Company (other than under a Permitted Credit Facility) or (ii) permit any of
its Restricted Subsidiaries to issue any Capital Stock, in either case, other
than to the Company or a Restricted Subsidiary of the Company. The foregoing
restrictions shall not apply to an Asset Sale consisting of 100% of the
Capital Stock of a Restricted Subsidiary owned by the Company made in
compliance with Section 1015.
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SECTION 1011. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit, cause or suffer any
Restricted Subsidiary to, conduct any business or enter into any transaction
(or series of related transactions which are similar or part of a common
plan) with or for the benefit of any of their respective Affiliates or any
beneficial Holder of 5% or more of the Common Stock of the Company or any
officer or director of the Company (each, an "AFFILIATE TRANSACTION"), unless
the terms of the Affiliate Transaction are set forth in writing, and are fair
and reasonable to the Company or such Restricted Subsidiary, as the case may
be. Each Affiliate Transaction involving aggregate payments or other Fair
Market Value in excess of $1.0 million shall be approved by a majority of the
Board, such approval to be evidenced by a Board Resolution stating that the
Board has determined that such transaction or transactions comply with the
foregoing provisions. In addition to the foregoing, each Affiliate
Transaction involving aggregate consideration of $5.0 million or more shall
be approved by a majority of the Disinterested Directors; PROVIDED that, in
lieu of such approval by the Disinterested Directors, the Company may obtain
a written opinion from an Independent Financial Advisor stating that the
terms of such Affiliate Transaction to the Company or the Restricted
Subsidiary, as the case may be, are fair from a financial point of view. For
purposes of this covenant, any Affiliate Transaction approved by a majority
of the Disinterested Directors or as to which a written opinion has been
obtained from an Independent Financial Advisor, on the basis set forth in the
preceding sentence, shall be deemed to be on terms that are fair and
reasonable to the Company and the Restricted Subsidiaries, as the case may
be, and therefore shall be permitted under this covenant.
Notwithstanding the foregoing, the restrictions set forth in this
covenant shall not apply to (i) transactions with or among, or solely for the
benefit of, the Company and/or any of the Restricted Subsidiaries, (ii)
transactions pursuant to agreements and arrangements existing on the Issue
Date, (iii) dividends and other Restricted Payments paid by the Company
pursuant to and in compliance with Section 1009 (iv) customary directors'
fees, indemnification and similar arrangements, employee salaries and
bonuses, employment agreements and arrangements or compensation or employee
benefit arrangements (including options), (v) grants of customary
registration rights with respect to securities of the Company and (vi) loans
or advances to officers or employees of the Company or any Restricted
Subsidiary made in the ordinary course of business of the Company or such
Restricted Subsidiary to pay business related travel expenses or reasonable
relocation costs of such officers or employees in connection with their
employment by the Company or such Restricted Subsidiary.
SECTION 1012. LIMITATION ON LIENS.
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The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, create, incur, assume or suffer to exist any Lien
(other than Permitted Liens) on or with respect to (i) any of its property or
assets, including any shares of stock or Indebtedness of any Restricted
Subsidiary, whether owned at the Issue Date or thereafter acquired, or any
income, profits or proceeds therefrom, or assign or otherwise convey any
right to receive income thereon, unless (x) in the case of any Lien securing
Subordinated Indebtedness, the Notes are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Lien and (y) in the
case of any other Lien, the Notes are equally and ratably secured with the
obligation or liability secured by such Lien, or (ii) the Collateral Account.
SECTION 1013. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS
BY RESTRICTED SUBSIDIARIES.
(a) The Company will not permit any Restricted Subsidiary,
directly or indirectly, to guarantee, assume or in any other manner become
liable with respect to any Indebtedness of the Company (the "GUARANTEED
INDEBTEDNESS") unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture providing for the guarantee (a
"SUBSIDIARY GUARANTEE") of payment of the Notes by such Restricted
Subsidiary; PROVIDED that this paragraph (a) shall not be applicable to any
guarantee of any Restricted Subsidiary that existed at the time such Person
became a Restricted Subsidiary and was not incurred in connection with or in
contemplation of such Person becoming a Restricted Subsidiary. If the
Guaranteed Indebtedness is (A) PARI PASSU in right of payment with the Notes,
then the guarantee of such Guaranteed Indebtedness shall be PARI PASSU in
right of payment with, or subordinated in right of payment to, the Subsidiary
Guarantee or (B) subordinated in right of payment to the Notes, then the
guarantee of such Guaranteed Indebtedness shall be subordinated in right of
payment to the Subsidiary Guarantee at least to the extent that the
Guaranteed Indebtedness is subordinated in right of payment to the Notes.
(b) Notwithstanding the foregoing, any Subsidiary Guarantee
created pursuant to the provisions described in the foregoing paragraph (a)
shall provide by its terms that it shall be automatically and unconditionally
released and discharged upon (i) any sale, exchange or transfer, to any
Person who is not an Affiliate of the Company, of all of the Company's
Capital Stock in, or all or substantially all the assets of, such Restricted
Subsidiary (which sale, exchange or transfer is not prohibited by the
Indenture) or (ii) the release by the holders of the Indebtedness of the
Company described in the preceding paragraph of their guarantee by such
Restricted Subsidiary (including any deemed release upon payment in full of
all obligations under such Indebtedness, except by or as a result of payment
under such Subsidiary Guarantee), at a time when (A) no other
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Indebtedness of the Company has been guaranteed by such Restricted Subsidiary
or (B) the holders of all such other Indebtedness which is guaranteed by such
Restricted Subsidiary also release their guarantee by such Restricted
Subsidiary (including any deemed released upon payment in full of all
obligations under such Indebtedness).
SECTION 1014. CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control (the date of such
occurrence being the "CHANGE OF CONTROL DATE"), the Company shall make an
offer to purchase (the "CHANGE OF CONTROL OFFER"), on a Business Day (the
"CHANGE OF CONTROL PAYMENT DATE") not later than 60 days following the Change
of Control Date, all Notes then Outstanding at a purchase price equal to 101%
of the principal amount thereof on any Change of Control Payment Date, plus
accrued and unpaid interest, if any (the "CHANGE OF CONTROL PURCHASE PRICE"),
to such Change of Control Payment Date. Notice of a Change of Control Offer
shall be given to holders of Notes not less than 25 days nor more than 45
days before the Change of Control Payment Date. The Change of Control Offer
is required to remain open for at least 20 Business Days and until the close
of business of the Change of Control Payment Date. Failure to mail the
notice of Change of Control Offer on the date specified below or to have
satisfied the foregoing condition precedent by the date that such notice is
required to be mailed will constitute a covenant Default under Section 501(3).
(b) The Company shall notify the Trustee of any Change of Control
and give written notice of such Change of Control Offer to each Holder by
first-class mail, postage prepaid, at the address of such Holder appearing in
the Note Register, stating, among other things, (i) the Change of Control
Purchase Price and the Change of Control Payment Date, which shall be a
Business Day no earlier than 25 days nor later than 45 days from the date
such notice is mailed, or such later date as is necessary to comply with
requirements under the Exchange Act or any applicable securities laws or
regulations; (ii) that any Note not tendered will continue to accrue
interest, (iii) that, unless the Company defaults in the payment of the
Change of Control Purchase Price, any Notes accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest after the Change
of Control Purchase Date; (iv) that Holders electing to have any Notes
purchased pursuant to a Change of Control Offer shall be required to
surrender the Notes, with the form entitled "OPTION OF HOLDER TO ELECT
PURCHASE" on the reverse of the Notes completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the third
Business Day preceding the Change of Control Purchase Date; (v) that Holders
shall be entitled to withdraw their election if the Paying Agent receives,
not later than the close of business on the second Business Day preceding the
Change of Control Purchase Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of Notes
delivered for purchase, and a statement that such Holder is withdrawing its
election to have such Notes purchased; (vi) that Holders whose
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Notes are being purchased only in part shall be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or an
integral multiple thereof; (vii) the instructions that the Holders must
follow in order to tender their Notes; and (viii) the circumstances and
relevant facts regarding such Change of Control.
(c) On the Change of Control Payment Date, the Company will (i)
accept for payment Notes or portions thereof tendered pursuant to the Change
of Control Offer, (ii) deposit with the Paying Agent money, in immediately
available funds, sufficient to pay the purchase price of all Notes or
portions thereof so tendered and accepted and (iii) deliver to the Trustee
the Notes so accepted together with an Officers' Certificate setting forth
the Notes or portions thereof tendered to and accepted for payment by the
Company. The Paying Agent will promptly mail or deliver to the Holders of
Notes so accepted payment in an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail or deliver to such Holders a new
Note of like tenor equal in principal amount to any unpurchased portion of
the Note surrendered. Any Notes not so accepted shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company will publicly
announce the results of the Change of Control Offer not later than the first
business day following the Change of Control Payment Date. The Company shall
not be required to make a Change of Control Offer following 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 applicable to a
Change of Control Offer made by the Company and purchases all Notes validly
tendered and not withdrawn under such Change of Control Offer.
(d) If the Company is required to make a Change of Control Offer,
the Company will comply with all applicable tender offer laws and
regulations, including, to the extent applicable, Section 14(e) and Rule
14e-1 under the Exchange Act, and any other applicable securities laws and
regulations. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this Section 1014, the Company
will comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under this Section 1014 by virtue
thereof.
SECTION 1015. DISPOSITION OF PROCEEDS OF ASSET SALES.
(a) The Company will not, and will not permit any Restricted
Subsidiary to, make any Asset Sale unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the shares or assets sold or otherwise
disposed of and (ii) at least 75% of such consideration (excluding contingent
liabilities assumed by the transferee of any such assets) consists of cash or
Cash Equivalents; PROVIDED that the amount of any liabilities (other than
Subordinated Indebtedness or Indebtedness of a Restricted Subsidiary that
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would not constitute Restricted Subsidiary Indebtedness) that are assumed by
the transferee of any such assets pursuant to an agreement that
unconditionally releases the Company or such Restricted Subsidiary, as the
case may be, from further liability shall be treated as cash for purposes of
this Section 1015.
(b) Within 365 days after any Asset Sale, the Company or the
applicable Restricted Subsidiary, as the case may be, may at its option (a)
reinvest an amount equal to the Net Cash Proceeds (or any portion thereof)
from such disposition in properties and assets that will be used in a
Telecommunications Business (or in Capital Stock and other securities of any
Person that will become a Restricted Subsidiary as a result of such
investment to the extent such Person owns properties and assets that will be
used in a Telecommunications Business) of the Company or any Restricted
Subsidiary ("REPLACEMENT ASSETS"), and/or (b) apply an amount equal to such
Net Cash Proceeds (or remaining Net Cash Proceeds) to the permanent
reduction of any Indebtedness of the Company ranking PARI PASSU with the
Notes (including the Notes) or the permanent reduction of Indebtedness of any
Restricted Subsidiary of the Company. Pending the final application of any
such Net Cash Proceeds, the Company or such Restricted Subsidiary may
temporarily reduce revolving Indebtedness under any Permitted Credit Facility
or otherwise invest such Net Cash Proceeds in any manner that is not
prohibited by the Indenture. Any Net Cash Proceeds from any Asset Sale that
are not used to reinvest in Replacement Assets and/or repay any such PARI
PASSU Indebtedness of the Company or Indebtedness of its Restricted
Subsidiaries shall constitute "EXCESS PROCEEDS."
(c) When the aggregate amount of Excess Proceeds from one or more
Asset Sales equals or exceeds $5,000,000 the Company shall, within 15
Business Days, make an offer to purchase (an "ASSET SALE OFFER") from all
Holders, on a PRO RATA basis, in accordance with the procedures set forth
below, the maximum principal amount of Notes (expressed as a multiple of
$1,000) that may be purchased with the Excess Proceeds. The offer price (the
"ASSET SALE OFFER PURCHASE PRICE") as to each Note shall be payable in cash
in an amount equal to 100% of the principal amount of such Note, plus accrued
and unpaid cash interest, if any, to the date of purchase (the "ASSET SALE
OFFER PAYMENT DATE"). To the extent that the aggregate Asset Sale Offer
Purchase Price of Notes tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company or any Restricted Subsidiary may use such
deficiency for general corporate purposes. If the aggregate Asset Sale Offer
Purchase Price of Notes validly tendered and not withdrawn by Holders thereof
exceeds the Excess Proceeds, Notes to be purchased will be selected on a PRO
RATA basis. Upon completion of such Asset Sale Offer, the amount of Excess
Proceeds shall be reset to zero.
(d) Notwithstanding paragraphs (a), (b) and (c), the Company and
the Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 75% of
the consideration of such Asset Sale constitutes Replacement Assets, cash or
Cash Equivalents (including obligations
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deemed to be cash for purposes of this Section 1015) and (ii) such Asset
Sale is for Fair Market Value; PROVIDED that any consideration constituting
(or deemed to constitute) cash or Cash Equivalents received by the Company or
any of the Restricted Subsidiaries in connection with any Asset Sale
permitted to be consummated under this paragraph (d) shall constitute Net
Cash Proceeds subject to the provisions of paragraphs (a), (b) and (c).
(e) Whenever the Excess Proceeds received by the Company exceed
$5,000,000, such Excess Proceeds shall be set aside by the Company in a
separate account pending (i) deposit with the Trustee or a Paying Agent of
the amount required to purchase the Notes tendered in an Asset Sale Offer,
(ii) delivery by the Company of the Asset Sale Offer Purchase Price to the
Holders tendered in an Asset Sale Offer and (iii) application, as set forth
above, of Excess Proceeds for any lawful purposes. Such Excess Proceeds may
be invested in Cash Equivalents; PROVIDED that the maturity date of any
investment shall not be later than the date of the Asset Sale Offer. The
Company shall be entitled to any interest or dividends accrued, earned or
paid on such Cash Equivalents.
(f) If the Company becomes obligated to make an Asset Sale Offer
pursuant to clause (c) above, the Notes shall be purchased by the Company, at
the option of the Holders thereof, in whole or in part in integral multiples
of $1,000, on a date that is not earlier than 30 days and not later than 60
days from the date the notice is given to Holders, or such later date as may
be necessary for the Company to comply with the requirements under the
Exchange Act, subject to proration in the event the amount of Excess Proceeds
is less than the aggregate Asset Sale Offer Price of all Notes tendered.
(g) Within 15 days after the obligation of the Company to make an
Asset Sale Offer arises, the Company shall notify the Trustee of such
obligation and give written notice of such Asset Sale Offer to each Holder of
Notes by first-class mail, postage prepaid, at the address of such Holder
appearing in the Note Register, stating, (i) the Asset Sale Offer Purchase
Price and the Asset Sale Offer Payment Date, which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is
mailed, or such later date as is necessary to comply with requirements under
the Exchange Act or any applicable securities laws or regulations; (ii) that
any Note not tendered will continue to accrue interest; (iii) that, unless
the Company defaults in the payment of the Asset Sale Offer Purchase Price,
any Notes accepted for payment pursuant to the Asset Sale Offer shall cease
to accrue interest after the Asset Sale Offer Payment Date; (iv) that Holders
electing to have any Notes purchased pursuant to an Asset Sale Offer shall be
required to surrender the Notes, with the form entitled "OPTION OF HOLDER TO
ELECT PURCHASE" on the reverse of the Notes completed, to the Paying Agent at
the address specified in the notice prior to the close of business on the
third Business Day preceding the Asset Sale Offer Payment Date; (v) that
Holders shall be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the second Business Day
preceding the Asset Sale Offer Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes
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delivered for purchase, and a statement that such Holder is withdrawing its
election to have such Notes purchased; (vi) that Holders whose Notes are
being purchased only in part shall be issued new Notes equal in principal
amount to the unpurchased portion of the Notes surrendered, which unpurchased
portion must be equal to $1,000 in principal amount or an integral multiple
thereof; (vii) the instructions that the Holders of Notes must follow in
order to tender their Notes; and (viii) the circumstances and relevant facts
regarding such Asset Sale Offer.
(h) On the Asset Sale Offer Payment Date, the Company will (i)
accept for payment Notes or portions thereof tendered pursuant to the Asset
Sale Offer, (ii) deposit with the Paying Agent money, in immediately
available funds, sufficient to pay the Asset Sale Offer Purchase Price of all
Notes or portions thereof so tendered and accepted and (iii) deliver to the
Trustee the Notes so accepted together with an Officers' Certificate setting
forth the Notes or portions thereof tendered to and accepted for payment by
the Company. The Paying Agent will promptly mail or deliver to the Holders
of Notes so accepted payment in an amount equal to the Asset Sale Offer
Purchase Price, and the Trustee shall promptly authenticate and mail or
deliver to such holders a new Note of like tenor equal in principal amount to
any unpurchased portion of the Note surrendered. Any Notes not so accepted
shall be promptly mailed or delivered by the Company to the Holder thereof.
The Company will publicly announce the results of the Asset Sale Offer not
later than the first Business Day following the Asset Sale Offer Payment Date.
(i) The Company shall comply to the extent applicable with the
requirements of the tender offer rules, including Section 14(e) and Rule
14e-1 under the Exchange Act, and any other applicable securities laws and
regulations in connection with an Asset Sale Offer.
SECTION 1016. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES.
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise enter into or cause to become
effective any consensual encumbrance or consensual restriction of any kind on
the ability of any Restricted Subsidiary to (a) pay dividends, in cash or
otherwise, or make any other distributions on its Capital Stock or any other
interest or participation in, or measured by, its profits to the extent owned
by the Company or any Restricted Subsidiary, (b) pay any Indebtedness owed to
the Company or any Restricted Subsidiary, (c) make any Investment in the
Company or any Restricted Subsidiary or (d) transfer any of its properties or
assets to the Company or to any Restricted Subsidiary, except for:
(i) any encumbrance or restriction in existence on the Issue Date;
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(ii) customary non-assignment provisions;
(iii) any encumbrance or restriction pertaining to an asset
subject to a Lien to the extent set forth in the documentation governing
such Lien;
(iv) any encumbrance or restriction applicable to a
Restricted Subsidiary at the time that it becomes a Restricted Subsidiary
that is not created in contemplation thereof;
(v) any encumbrance or restriction existing under any
agreement that refinances or replaces an agreement containing a
restriction permitted by clause (i) or (iv) above; PROVIDED that the terms
and conditions of any such encumbrance or restriction are not materially
less favorable to the holders of Notes than those under or pursuant to
the agreement being replaced or the agreement evidencing the Indebtedness
refinanced;
(vi) any encumbrance or restriction imposed upon a Restricted
Subsidiary pursuant to an agreement which has been entered into for the
sale or disposition of all or substantially all of the Capital Stock or
assets of such Restricted Subsidiary or any Asset Sale to the extent
limited to the Capital Stock or assets in question; and
(vii) any customary encumbrance or restriction applicable to a
Restricted Subsidiary that is contained in an agreement or instrument
governing or relating to Indebtedness contained in any Permitted Credit
Facility; PROVIDED that (subject to customary net worth, leverage,
invested capital and other financial covenants and the absence of default
under such agreement) the provisions of such agreement permit the payment
of interest and principal and mandatory repurchases pursuant to the terms
of the Indenture and the Notes and other indebtedness that is solely an
obligation of the Company; PROVIDED, FURTHER, that such agreement
may contain customary covenants regarding the merger of or sale of all or
any substantial part of the assets of the Company or any Restricted
Subsidiary, customary restrictions on transactions with affiliates, and
customary subordination provisions governing indebtedness owed to the
Company or any Restricted Subsidiary.
SECTION 1017. DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES.
The Company will not designate any Subsidiary of the Company
(other than a newly created Subsidiary in which no Investment has previously
been made) as an "UNRESTRICTED SUBSIDIARY" under the Indenture (a
"Designation") unless:
(a) no Default shall have occurred and be continuing at the time
of or
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after giving effect to such Designation;
(b) immediately after giving effect to such Designation, the
Company would be able to incur $1.00 of Indebtedness under the proviso in the
first paragraph of Section 1008 except in the case of (1) a Permitted
Investment or (2) an Investment to the extent reasonably promptly made with
the proceeds of (x) a capital contribution to the Company or (y) an issue or
sale of Capital Stock (other than Disqualified Stock) of the Company (other
than to a Subsidiary of the Company); PROVIDED that any such Net Cash
Proceeds are excluded from clause (3)(B) of paragraph (a) of the Section 1009
and are not used for the redemption, repurchase or other acquisition of
Indebtedness; and
(c) 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) in an amount (the "US DESIGNATION AMOUNT")
equal to the Fair Market Value of the net Investment of the Company or any
other Restricted Subsidiary in such Subsidiary on such date. In the event of
any such Designation, the Company shall be deemed to have made an Investment
constituting a Restricted Payment pursuant to the Section 1009 for all
purposes of the Indenture in the US Designation Amount. The Indenture will
further provide that neither the Company nor any Restricted Subsidiary shall
at any time (x) provide a guarantee of, or similar credit support to, any
Indebtedness of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness); PROVIDED that the
Company may pledge Capital Stock or Indebtedness of any Unrestricted
Subsidiary on a nonrecourse basis such that the pledgee has no claim
whatsoever against the Company other than to obtain such pledged property,
(y) be directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary or (z) be directly or indirectly liable for any other Indebtedness
which provides that the holder thereof may (upon notice, lapse of time or
both) declare a default thereon (or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity) upon the
occurrence of a default with respect to any other Indebtedness that is
Indebtedness of an Unrestricted Subsidiary (including any corresponding right
to take enforcement action against such Unrestricted Subsidiary), except in
the case of clause (x) or (y) to the extent permitted under Sections 1009 and
1011.
The Company will not revoke any Designation of a Subsidiary as
an Unrestricted Subsidiary (a "REVOCATION") unless:
(a) no Default shall have occurred and be continuing at the
time of and after giving effect to such Revocation; and
(b) 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 for all purposes of
the Indenture.
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All Designations and Revocations must be evidenced by Board
Resolutions delivered to the Trustee certifying compliance with the foregoing
provisions.
SECTION 1018. MAINTENANCE OF INSURANCE.
The Company shall, and shall cause its Restricted Subsidiaries
to, keep at all times all of their properties which are of an insurable
nature insured against loss or damage with insurers believed by the Company
to be responsible to the extent that property of similar character is usually
so insured by corporations similarly situated and owning like properties in
accordance with good business practice. The Company shall, and shall cause
its Restricted Subsidiaries to, use the proceeds from any such insurance
policy to repair, replace or otherwise restore properties to which such
proceeds relate, PROVIDED, HOWEVER, that the Company shall not be required to
repair, replace or otherwise restore any such property if such inaction is
desirable in the conduct of the business of the Company or any Restricted
Subsidiary and not disadvantageous in any material respect to the Holders.
SECTION 1019. BUSINESS OF THE COMPANY.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, engage in business which is not a
Telecommunications Business.
SECTION 1020. PROVISION OF FINANCIAL STATEMENTS AND REPORTS.
(a) Whether or not the Company has a class of securities
registered under the Exchange Act, the Company shall furnish without cost to
each Holder of record of Notes issued thereunder (in sufficient quantities
for distribution to beneficial holders) and file with the Trustee and the
Commission (unless the Commission will not accept such a filing), (i) within
the applicable time period required under the Exchange Act, after the end of
each fiscal year of the Company, the information required by Form 10-K (or
any successor form thereto) under the Exchange Act with respect to such
period (including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section that describes the consolidated
financial condition and results of operations of the Company), together with
a report thereon by the Company's certified independent accountants, (ii)
within the applicable time period required under the Exchange Act after the
end of each of the first three fiscal quarters of each fiscal year of the
Company, the information required by Form l0-Q (or any successor form
thereto) under the Exchange Act with respect to such period (including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section and describes the consolidated
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financial condition and results of operations of the Company) and (iii) any
current reports on Form 8-K (or any successor forms) required to be filed
under the Exchange Act.
(b) The Company shall also be required to file with the Trustee
and to provide to each Holder of Notes, without cost to such Holder, copies
of the information, reports and documents required under Section 703. The
Company will also comply with the other provisions of Section 314(a) of the
Trust Indenture Act.
SECTION 1021. WAIVER OF CERTAIN COVENANTS.
The Company and the Restricted Subsidiaries may omit in any
particular instance to comply with any term, provision or condition provided
pursuant to Section 901(2) and set forth in Sections 1008 to 1013, inclusive,
and Sections 1016 to 1020, inclusive, if before or after the time for such
compliance the Holders of at least a majority of the aggregate principal
amount of all Outstanding Notes affected by such term, provision or covenant,
by Act of such Holders, waive such compliance in such instance with such
term, provision or condition, but no such waiver shall extend to or affect
such term, provision or condition except to the extent so expressly waived,
and, until such waiver shall become effective, the obligations of the
Company, the Restricted Subsidiaries and the duties of the Trustee, as
applicable, in respect of any such term, provision or condition shall remain
in full force and effect.
SECTION 1022. LIMITATIONS ON STATUS AS INVESTMENT COMPANY.
The Company will not and will not permit any of its Subsidiaries
or controlled Affiliates to, conduct its business in a fashion that would
cause the Company to be required to register as an "investment company" (as
that term is defined in the Investment Company Act of 1940, as amended (the
"INVESTMENT COMPANY ACT")), or otherwise become subject to regulation under
the Investment Company Act.
SECTION 1023. COLLATERAL ACCOUNT.
The company shall, on the date of this Indenture, enter into the
Collateral Documents and, pursuant thereto, shall place cash and U.S.
Government Securities in the Collateral Account held by the Custodian for the
benefit of the Holders of the Notes and the Trustee, all as more specifically
set forth in Article XXII hereof.
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ARTICLE XI
REDEMPTION OF NOTES
SECTION 1101. RIGHT OF REDEMPTION.
The Notes may be redeemed at the option of the Company, as a
whole or from time to time in part, at any time after April 1, 2003, subject
to the conditions and at the Redemption Prices specified in the form of Note,
together with accrued and unpaid cash interest to the Redemption Date.
SECTION 1102. REDEMPTION.
The Notes shall be redeemable, at the option of the Company, as
a whole or from time to time in part, at any time on or after April 1, 2003
on not less than 30 nor more than 60 days' prior notice at the Redemption
Prices (expressed as percentages of principal amount) set forth below,
together with accrued and unpaid interest, if any, to the Redemption Date, if
redeemed during the 12-month period beginning on April 1 of the years
indicated below (subject to the right of holders of record on relevant record
dates to receive interest due on a relevant Interest Payment Date):
<TABLE>
<CAPTION>
Redemption Year Price
--------------- -----
<S> <C>
2003....................................106.50%
2004....................................104.33
2005....................................102.17
2006 and thereafter.....................100.00
</TABLE>
Notwithstanding the foregoing, on or prior to April 1, 2001, the
Company may, at its option, use the net proceeds of one or more Public Equity
Offerings or one or more sales of Common Stock to a Strategic Equity Investor
yielding gross cash proceeds to the Company of not less than $50 million to
redeem up to 35% of the aggregate principal amount of the originally issued
Notes, in each case on a PRO RATA basis, at a Redemption Price of 113% of the
principal amount thereof, together with accrued and unpaid interest to the
Redemption Date; PROVIDED that immediately after giving effect to any such
redemption, not less than 65% of the originally issued aggregate principal
amount of the issued Notes remain Outstanding after each such redemption. To
effect the foregoing redemption, the Company must mail a notice of redemption
not later than 60 days after the consummation of any Public Equity Offering
or sale of Common Stock to a Strategic Equity Investor that resulted in the
requisite gross proceeds.
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SECTION 1103. APPLICABILITY OF ARTICLE.
Redemption of Notes at the election of the Company or otherwise,
as permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1104. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Notes pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company, the Company shall, not less than
30 nor more than 60 days prior to the Redemption Date fixed by the Company
(unless a shorter notice shall be satisfactory to the Trustee), notify the
Trustee of such Redemption Date and of the principal amount of Notes to be
redeemed and shall deliver to the Trustee such documentation and records as
shall enable the Trustee to select the Notes to be redeemed pursuant to
Section 1105.
SECTION 1105. SELECTION BY TRUSTEE OF NOTES TO BE REDEEMED.
If less than all the Notes are to be redeemed, the particular
Notes to be redeemed will be selected not more than 60 days prior to the
Redemption Date by the Trustee by lot, PRO RATA or such other method as the
Trustee in its sole discretion deems fair and appropriate or in such manner
as complies with the requirements of the principal securities exchange, if
any, on which the Notes being redeemed are listed and DTC; PROVIDED that any
redemption following one or more Public Equity Offerings or sales of Common
Stock to a Strategic Equity Investor will be made on a PRO RATA or on as
nearly a PRO RATA basis as practicable (subject to the procedures of DTC);
PROVIDED, HOWEVER, that no such partial redemption will reduce the principal
amount of a Note not redeemed to less than $1,000. Notice of redemption will
be mailed, first-class postage prepaid, no less than 30 nor more than 60 days
prior to the applicable Redemption Date to each Holder of Notes to be
redeemed at its registered address. On and after the Redemption Date,
interest on Notes called for redemption will cease to accrue from and after
the date fixed for redemption (unless the Company defaults in providing the
funds for such redemption) and, upon redemption on such Redemption Date, such
Notes will cease to be Outstanding.
The Trustee shall promptly notify the Company in writing of the
Notes selected for redemption and, in the case of any Notes selected for
partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all
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provisions relating to redemption of Notes shall relate, in the case of any
Note redeemed or to be redeemed only in part, to the portion of the principal
amount of such Note which has been or is to be redeemed.
SECTION 1106. NOTICE OF REDEMPTION.
Notice of redemption shall be given in the manner provided for
in Section 1106 not less than 30 nor more than 60 days prior to the
Redemption Date, to each Holder of Notes to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued and unpaid
interest to the Redemption Date payable as provided in Section 1108, if
any,
(3) if less than all Outstanding Notes are to be redeemed,
the identification (and, in the case of a partial redemption, the
principal amount) of the particular Notes to be redeemed,
(4) in case any Note is to be redeemed in part only, the
notice which relates to such Note shall state that on and after the
Redemption Date, upon surrender of such Note, the Holder will receive,
without charge, a new Note or Notes of authorized denominations for the
principal amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and
accrued and unpaid interest, if any, to the Redemption Date payable as
provided in Section 1108) will become due and payable upon each such Note,
or the portion thereof, to be redeemed, and that interest thereon will
cease to accrue on and after said date, and
(6) the place or places where such Notes are to be surrendered
for payment of the Redemption Price and accrued interest, if any.
Notice of redemption of Notes to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by
the Trustee in the name and at the expense of the Company.
SECTION 1107. DEPOSIT OF REDEMPTION PRICE.
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Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 1003) an
amount of money sufficient to pay the Redemption Price of, and accrued and
unpaid interest on, all the Notes which are to be redeemed on that date.
SECTION 1108. NOTES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Notes
so to be redeemed shall, on the Redemption Date, become due and payable at
the Redemption Price therein specified (together with accrued interest, if
any, to the Redemption Date), and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued and
unpaid interest) such Notes shall cease to accrue cash interest. Upon
surrender of any such Note for redemption in accordance with said notice,
such Note shall be paid by the Company at the Redemption Price, together with
accrued and unpaid interest, if any, to the Redemption Date; PROVIDED,
HOWEVER, that installments of interest, if any, whose Stated Maturity is on
or prior to the Redemption Date shall be payable to the Holders of such
Notes, or one or more Predecessor Notes, registered as such at the close of
business on the relevant Record Dates according to their terms and the
provisions of Section 307.
If any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Notes.
SECTION 1109. NOTES REDEEMED IN PART.
Any Note which is to be redeemed only in part shall be
surrendered at the office or agency of the Company maintained for such
purpose pursuant to Section 1002 (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or such Holder's attorney duly authorized in writing), and the
Company shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal
of the Note so surrendered.
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ARTICLE XII
COLLATERAL AND SECURITY
SECTION 1201. SECURITY AGREEMENT.
The due and punctual payment of the interest on the Notes when
and as the same shall be due and payable on an Interest Payment Date, at
maturity or by acceleration, and interest on the overdue principal of and
interest (to the extent permitted by law), if any, on the Notes and
performance of all other obligations of the Company to the Holders of Notes
or the Trustee under this Indenture and the Notes (the "Secured
Obligations"), according to the terms hereunder or thereunder, shall be
secured as provided in the Custody and Security Agreement (the "SECURITY
AGREEMENT") which the Company, the Custodian of the Collateral Account (the
"CUSTODIAN") and the Trustee have entered into simultaneously with the
execution of this Indenture, along with the Collateral Account Control
Agreement (the "CONTROL AGREEMENT," and together with the Security Agreement,
the "COLLATERAL DOCUMENTS"). Upon the acceleration of the maturity of the
Notes, the Trustee shall foreclose upon the Collateral (as defined in the
Security Agreement). Each Holder of Notes, by its acceptance thereof,
consents and agrees to the terms of the Collateral Documents (including,
without limitation, the provisions providing for foreclosure and disbursement
of the Collateral) 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 Custodian
and the Trustee to enter into the Collateral Documents and to perform their
respective obligations and exercise their respective rights thereunder in
accordance therewith. The Company shall deliver to the Trustee copies of the
Collateral Documents, and shall do or cause to be done all such acts and
things as may be necessary or proper, or as may be required by the provisions
of the Collateral Documents, to assure and confirm to the Trustee the
security interest in the Collateral contemplated by the Collateral Documents
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 with respect
to, and of, the Notes, according to the intent and purposes expressed in the
Collateral Documents. The Company shall take any and all actions reasonably
required to cause the Collateral Documents to create and maintain (to the
extent possible under applicable law) as security for the obligations of the
Company hereunder, a valid and enforceable perfected first priority Lien in
and on all the Collateral, in favor of the Trustee for the benefit of the
Holders of Notes, superior to and prior to the rights of all third Persons
and subject to no other Liens. The Trustee shall have no responsibility for
perfecting or maintaining the perfection of the Trustee's security interest
in the Collateral or for filing any instrument, document or notice in any
public office at any time or times.
SECTION 1202. RECORDING AND OPINIONS.
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The Company shall furnish to the Trustee simultaneously with the
execution and delivery of this Indenture an Opinion of Counsel substantially
in the form of EXHIBIT A to the Purchase Agreement.
The Company shall furnish to the Custodian and the Trustee on
April 1, 1999, and on each April 1 thereafter until the date upon which the
balance of the Collateral shall have been reduced to zero, an Opinion of
Counsel, dated as of such date, either (i) stating that (A) in the opinion of
such counsel, action has been taken with respect to the recording,
registering, filing, re-recording, re-registering and refiling of all
supplemental indentures, financing statements, continuation statements and
other instruments of further assurance as is necessary to maintain the Lien
of the Collateral Documents and reciting with respect to the security
interests in the Collateral the details of such action or referring to prior
Opinions of Counsel in which such details are given and (B) based on relevant
laws as in effect on the date of such Opinion of Counsel, all financing
statements and continuation statements have been executed and filed that are
necessary as of such date and during the succeeding twelve months fully to
preserve and protect, to the extent such protection and preservation are
possible by filing, the rights of the Holders of Notes and the Trustee
hereunder and under the Collateral Documents with respect to the security
interests in the Collateral or (ii) stating that, in the opinion of such
counsel, no such action is necessary to maintain such Lien and assignment.
SECTION 1203. RELEASE OF COLLATERAL.
(a) Subject to subsections (b), (c) and (d) of this Section
1203, Collateral may be released from the Lien and security interest created
by the Collateral Documents only in accordance with the provisions of the
Collateral Documents.
(b) Except to the extent that any Lien on proceeds of
Collateral is automatically released by operation of Section 9-306 of the
Uniform Commercial Code in effect in an applicable jurisdiction or other
similar law, no Collateral shall be released from the Lien and security
interest created by the Collateral Documents pursuant to the provisions of
the Collateral Documents, other than to the Holders pursuant to the terms
thereof, unless there shall have been delivered to the Trustee the
certificate required by Section 1203(d) and Section 1204.
(c) At any time when an Event of Default shall have occurred
and be continuing and the maturity of the Notes shall have been accelerated
(whether by declaration or otherwise), no Collateral shall be released
pursuant to the provisions of the Collateral Documents, and no release of
Collateral in contravention of this Section 1203(c) shall be effective as
against the Holders of the Notes, except for the disbursement of the funds in
the Collateral Account to the Trustee pursuant to the Security Agreement.
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(d) The release of any Collateral from the Liens and security
interests created by this Indenture and the Collateral Documents shall not be
deemed to impair the security under this Indenture in contravention of the
provisions hereof if and to the extent the Collateral is released pursuant to
the terms of the Collateral Documents. 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 Collateral Documents 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 engineer, appraiser or other
expert selected or approved by the Trustee in the exercise of reasonable care.
SECTION 1204. CERTIFICATES OF THE COMPANY.
The Company shall furnish to the Trustee, prior to any proposed
release of Collateral other than pursuant to the express terms of the Collateral
Documents, (i) all documents required by TIA Section 314(d) and (ii) an Opinion
of Counsel, which may be rendered by internal counsel to the Company, to the
effect that such accompanying documents constitute all documents required by TIA
Section 314(d). The Trustee may, to the extent permitted by Section 602 and
Section 612 hereof, accept as conclusive evidence of compliance with the
foregoing provisions the appropriate statements contained in such documents and
such Opinion of Counsel.
SECTION 1205. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE
UNDER THE DEPOSIT AGREEMENT.
Subject to the provisions of Section 602 and 612 hereof, the Trustee
may, without the consent of the Holders of Notes, on behalf of the Holders of
Notes, take all actions it deems necessary or appropriate in order to (a)
enforce any of the terms of the Collateral Documents and (b) collect and receive
any and all amounts payable in respect of the obligations of the Company
hereunder. The Trustee shall have power to institute and maintain such suits
and proceedings as it may deem expedient to prevent any impairment of the
Collateral by any acts that may be unlawful or in violation of the Collateral
Documents or this Indenture, and such suits and proceedings as the Trustee may
deem expedient to preserve or protect its interests and the interests of the
Holders of Notes in the Collateral (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 interests of the Holders of Notes or of the Trustee).
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SECTION 1206. AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE UNDER
THE COLLATERAL DOCUMENTS.
The Trustee is authorized to receive any funds for the benefit of the
Holders of Notes disbursed under the Collateral Documents, and to make further
distributions of such funds to the Holders of Notes according to the provisions
of this Indenture.
SECTION 1207. TERMINATION OF SECURITY INTEREST.
Upon the earliest to occur of (i) the date upon which the balance of
the Collateral Account shall have been reduced to zero, (ii) the payment in full
of all obligations of the Company under this Indenture and the Notes, (iii)
legal defeasance pursuant to Section 1302 and (iv) covenant defeasance pursuant
to Section 1303, the Trustee shall, at the written request of the company,
release the Liens pursuant to this Indenture and the Collateral Documents upon
the Company's compliance with the provisions of the TIA pertaining to release of
collateral.
ARTICLE XIII
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT
DEFEASANCE.
The Company may, at its option by Board Resolution and at any time,
effect legal defeasance of the Notes under Section 1302, or covenant defeasance
of the Notes under Section 1303, in accordance with the terms of the Notes and
in accordance with this Article.
SECTION 1302. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 1301 of the option
applicable
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to this Section 1302, the Company shall be deemed to have been discharged
from its obligations with respect to the Outstanding Notes on the date the
conditions set forth in Section 1304 are satisfied (hereinafter, "LEGAL
DEFEASANCE"). For this purpose, such defeasance means that the Company shall
be deemed to have paid and discharged the entire Indebtedness represented by
the Outstanding Notes, which shall thereafter be deemed to be "OUTSTANDING"
only for the purposes of Section 1305 and the other Sections of this
Indenture referred to in (A) and (B) below, and to have satisfied all its
other obligations under the Notes and this Indenture insofar as the Notes are
concerned (and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the following which
shall survive until otherwise terminated or discharged hereunder: (A) the
rights of Holders of such Outstanding Notes to receive, solely from the trust
fund described in Section 1304 and as more fully set forth in such Section,
payments in respect of the principal amount of (and premium, if any) and
interest on such Notes when such payments are due, (B) the Company's
obligations with respect to such Notes under Sections 304, 305, 306, 1002 and
1003, (C) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and (D) this Article XIII. Subject to compliance with this Article
XIII, the Company may exercise its option under this Section 1302
notwithstanding the prior exercise of its option under Section 1303 with
respect to such Notes.
SECTION 1303. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1303, the Company shall be released from its
obligations under Sections 1005 through 1020, 1022 and 1023 hereof and Article
VIII hereof with respect to the Outstanding Notes on and after the date the
conditions set forth in Section 1304 are satisfied (hereinafter, "COVENANT
DEFEASANCE"), and such Notes shall thereafter be deemed not to be "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.
For this purpose, such covenant defeasance means that, with respect to such
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 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 501(3) or
501(4), as the case may be, but, except as specified above, the remainder of
this Indenture and such Notes shall be unaffected thereby.
SECTION 1304. CONDITIONS TO LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
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The following shall be the conditions to application of either Section
1302 or Section 1303 to the Outstanding Notes:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 607 who shall agree to comply with the provisions of this
Article XIII applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Notes, (A) an
amount in cash in United States dollars, or (B) U.S. Government Securities
which through the scheduled payment of principal and interest in respect
thereof in accordance with their terms will provide, not later than the due
date of any payment of the principal amount (including premium, if any) and
interest, if any, on such Notes, money in an amount, or (C) a combination
thereof, in each case in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants or a
nationally recognized investment banking firm expressed in a written
certification thereof delivered to the Trustee, to pay and discharge, and
which shall be applied by the Trustee (or other qualifying trustee) to pay
and discharge, the entire Indebtedness in respect of the principal amount
of (and premium, if any, on) and interest on such Outstanding Notes on the
Stated Maturity of such principal (and premium, if any) or installment of
interest (or, if the Company has made irrevocable arrangements satisfactory
to the Trustee for the giving of notice and redemption by the Trustee in
the name and at the expense of the Company, the redemption date thereof);
PROVIDED that the Trustee (or such qualifying trustee) shall have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Securities to said payments with respect to such Notes.
(2) In the case of an exercise under Section 1302, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since March __, 1998, there has been a
change in the applicable Federal income tax law or interpretation of such
Federal income tax law, in either case to the effect that, and based
thereon such opinion shall confirm that, the Holders of such Notes will
not recognize income, gain or loss for Federal income tax purposes as a
result of such defeasance and will be subject to Federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred.
(3) In the case of an exercise under Section 1303, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of such Notes will not recognize income, gain or loss for Federal
income tax purposes as a result of such covenant defeasance and will be
subject to Federal
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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.
(4) No Default or Event of Default with respect to such Notes shall
have occurred and be continuing on the date of such deposit or, in the
case of an exercise under Section 1302 hereof, insofar as paragraph (7)
of Section 501 are concerned, at any time during the period ending on
the 123rd day after the date of such deposit (it being understood that
this condition shall not be deemed satisfied until the expiration of
such 123-day period).
(5) In the case of defeasance or covenant defeasance, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect
that after the 123rd day following the deposit or after the date such
Opinion of Counsel is delivered, the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally.
(6) Such legal defeasance or covenant defeasance shall not cause
the Trustee to have a conflicting interest within the meaning of the Trust
Indenture Act (assuming all Notes were in default within the meaning of
such Act).
(7) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company
is a party or is bound.
(8) Such legal defeasance or covenant defeasance shall not result
in the trust arising from such deposit constituting an investment company
within the meaning of the Investment Company Act, unless such trust
shall be registered under such Act or exempt from registration
thereunder.
(9) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section
1302 or the covenant defeasance under Section 1303 (as the case may be)
have been complied with.
SECTION 1305. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD
IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Securities (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1305, the
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"TRUSTEE") pursuant to Sections 1304 and 1306 in respect of such 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 its own
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 the principal amount
(and 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 U.S. Government Securities
deposited pursuant to Section 1304 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 such Outstanding Notes.
Anything in this Article XIII to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Securities (or other property and any
proceeds therefrom) held by it as provided in Section 1304 which, in the opinion
of a nationally recognized firm of independent public accountants or a
nationally recognized investment banking firm expressed in a written
certification thereof delivered to the Trustee, are in excess of the amount
thereof which would then be required to be deposited to effect an equivalent
legal defeasance or covenant defeasance, as applicable, in accordance with this
Article.
1306. REINSTATEMENT.
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1305 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 such Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 1302 or 1303, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
1305; PROVIDED, HOWEVER, that if the Company makes any payment of the principal
of (or premium, if any) or interest on any such 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.
ARTICLE XIV
MISCELLANEOUS
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SECTION 1401. 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 1402. 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 1403. FURTHER INSTRUMENTS AND ACTS.
Upon request of the Trustee, the Company will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purposes of this Indenture.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
CONVERGENT COMMUNICATIONS
By: /s/ Keith V. Burge
--------------------------
Name: Keith V. Burge
Title: President
NORWEST BANK COLORADO, N.A.
Trustee
By: /s/ Amy Buck
--------------------------
Authorized Signatory
<PAGE>
EXHIBIT A
[FORM OF FACE OF INITIAL NOTE]
[Global Notes Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND A PAYMENT IS
MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
OR OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF
THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 904 OF REGULATION
S, (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS
(OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(K) UNDER THE
SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF
THE
A-1
<PAGE>
ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF THIS SECURITY)
OR THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS
THE OWNER OF THIS SECURITY OR ANY PREDECESSOR OF THIS SECURITY AND (Y)
SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE
"RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE
TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES TO NON-US PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN
THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO
ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM
THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND; PROVIDED THAT THE COMPANY AND THE TRUSTEE SHALL HAVE THE
RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE
(D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND
(II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF
TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
[THE NOTES EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED AS PART OF AN
ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1,000 PRINCIPAL AMOUNT OF
THE 13% SENIOR NOTES DUE 2008 OF CONVERGENT COMMUNICATIONS, INC. (THE
"NOTES") AND 4 WARRANTS (EACH, A "WARRANT" AND COLLECTIVELY, THE
"WARRANTS"), EACH WARRANT INITIALLY ENTITLING THE HOLDER THEREOF TO
PURCHASE 2.7 SHARES OF COMMON STOCK, NO PAR VALUE, OF CONVERGENT
COMMUNICATIONS, INC. (THE "COMMON STOCK"). PRIOR TO THE
A-2
<PAGE>
EARLIEST TO OCCUR OF (i) SIX MONTHS AFTER THE DATE OF INITIAL ISSUANCE OF THE
UNITS; (ii) THE DATE ON WHICH A REGISTRATION STATEMENT WITH RESPECT TO A
REGISTERED EXCHANGE OFFER FOR THE NOTES IS DECLARED EFFECTIVE UNDER THE
SECURITIES ACT; (iii) THE OCCURRENCE OF AN EXERCISE EVENT (AS DEFINED IN THE
WARRANT AGREEMENT); (iv) THE OCCURRENCE OF AN EVENT OF DEFAULT (AS DEFINED IN
THE INDENTURE); OR (v) SUCH EARLIER DATE AS DETERMINED BY MERRILL LYNCH (AS
DEFINED IN THE WARRANT AGREEMENT) IN ITS SOLE DISCRETION, THE NOTES EVIDENCED
BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT
MAY BE TRANSFERRED OR EXCHANGE ONLY TOGETHER WITH, THE WARRANTS.](1)
- --------------------
(1) To be included on Notes issued prior to the Separability Date.
A-3
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
13% Series A Senior Note due 2008
CUSIP/INIS
--------------
No.
---------
CONVERGENT COMMUNICATIONS, INC., a Colorado corporation (the
"COMPANY", which term includes any successor under this Indenture hereinafter
referred to), for value received, promises to pay to ___________, or its
registered assigns, the principal sum of ______ ______ Dollars ($________),
on April 1, 2008
Issue Date: April 2,1998
Initial Interest Rate: 13% per annum.
Interest Payment Dates: April 1 and October 1 of each year.
Regular Record Dates: March 15 and September 15 of each year.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
A-4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: CONVERGENT COMMUNICATIONS, INC.
------------------
By:
-----------------------------
Name:
Title:
(SEAL)
(Form of Trustee's Certificate of Authentication)
This is one of the 13% Series A Senior Notes due 2008 referred to in the
within-mentioned Indenture.
Dated: NORWEST BANK COLORADO, N.A.,
---------------------- Trustee
By:
-----------------------------
Authorized Signatory
A-5
<PAGE>
[REVERSE SIDE OF NOTE]
CONVERGENT COMMUNICATIONS, INC.
13% Series A Senior Note due 2008
1. PRINCIPAL AND INTEREST.
The Company shall pay the principal of this Note on April 1, 2008.
The Company promises to pay interest on the principal amount of
this Note on each Interest Payment Date, at the rate of 13% per annum, except
that additional interest accrued on this Note pursuant to the fourth
paragraph of this Section 1 and pursuant to the Notes Registration Rights
Agreement (as defined herein) will accrue at the rate or rates borne by the
Notes from time to time as set forth in the Notes Registration Rights
Agreement.
Interest shall be payable semi-annually (to the Holders of record
of the Notes (or any Predecessor Notes) at the close of business on the March
15 or September 15 immediately preceding the Interest Payment Date). The
Company shall pay interest on overdue principal and premium, if any, from
time to time on demand at the interest rate then in effect and shall pay
interest on overdue installments of interest and additional interest (as
discussed below), if any, (without regard to any applicable grace periods)
from time to time on demand at the same rate to the extent lawful.
The Holder of this Note shall be entitled to the benefits of the
Notes Registration Rights Agreement dated as of April 2, 1998, among the
Company and the Purchasers named therein (the "NOTES REGISTRATION RIGHTS
AGREEMENT"). In the event that (a) the Exchange Offer Registration Statement
(as such term is defined in the Notes Registration Rights Agreement) is not
filed with the Securities and Exchange Commission on or prior to the 90th
calendar day following the date of original issue of the Notes, (b) the
Exchange Offer Registration Statement (as such term is defined in the Notes
Registration Rights Agreement) has not been declared effective on or prior to
the 150th calendar day following the date of original issue of the Notes, (c)
the Exchange Offer (as such term is defined in the Notes Registration Rights
Agreement) is not consummated or, if required, a Shelf Registration Statement
(as such term is defined in the Notes Registration Rights Agreement) with
respect to the Notes is not declared effective on or prior to the 180th
calendar day following the date of original issue of the Notes or (d) the
Exchange Offer Registration Statement or the Shelf Registration Statement is
declared effective but thereafter ceases to be effective or usable except in
accordance with the Notes Registration Rights Agreement, the Company shall
pay additional interest on the
A-6
<PAGE>
Notes (in addition to the interest otherwise due on the Notes) in cash in
arrears on each Interest Payment Date in an amount equal to one-half of one
percent per annum of the principal amount of the Notes with respect to the
first 90-day period following any of such events described in clauses (a)
through (d) above, which rate shall be increased by an additional one-half of
one percent per annum to a maximum of one and one-half percent per annum for
each subsequent 90-day period until such Registration Default has been cured.
Upon (w) the filing of the Exchange Offer Registration Statement after the
90-day period described in clause (a) above, (x) the effectiveness of the
Exchange Offer Registration Statement after the 150-day period described in
clause (b) above, (y) the consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement, as the case may be, after
the 180-day period described in clause (c) above or (z) the cure of any event
described in clause (d) above, such additional interest rate borne by this
Note from the date of such filing, effectiveness, consummation or cure, as
the case may be, shall cease to accrue; PROVIDED, HOWEVER, that, if after any
such additional interest ceases to accrue, a different event specified in
clause (a), (b), (c) or (d) above occurs, such additional interest rate may
again be increased pursuant to the foregoing provisions.
Interest on this Note shall accrue at the rate of 13% per annum
from the most recent Interest Payment Date to which cash interest has been
paid or duly provided for; PROVIDED that, if there is no existing default in
the payment of interest and if this Note is authenticated between a Regular
Record Date referred to on the face hereof and the next succeeding Interest
Payment Date, interest shall accrue from such Interest Payment Date.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful,
at a rate per annum equal to the rate of interest applicable to the Notes.
2. METHOD OF PAYMENT.
The Company shall pay interest (except defaulted interest) on the
principal amount of the Notes on each April 1 and October 1 to the Persons
who are Holders (as reflected in the Note Register at the close of business
on the March 15 and September 15 immediately preceding the Interest Payment
Date), in each case, even if the Note is cancelled on registration of
transfer or registration of exchange after such Regular Record Date; PROVIDED
that, with respect to the payment of principal, the Company will make payment
to the Holder that surrenders this Note to any Paying Agent on or after April
1, 2008.
The Company shall pay principal (and premium, if any) and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Company may pay principal
(and premium, if any) and interest by its check payable in immediately
available funds. The Company may pay
A-7
<PAGE>
interest on the Notes either (a) by mailing a check for such interest to a
Holder's registered address (as reflected in the Note Register) or (b) by
wire transfer to an account located in the United States maintained by the
payee. If a payment date is a date other than a Business Day at a place of
payment, payment may be made at that place on the next succeeding day that is
a Business Day and no interest shall accrue for the intervening period.
3. PAYING AGENT AND REGISTRAR.
Initially, the Trustee shall act as Paying Agent and Note
Registrar. The Company may change any Paying Agent or Note Registrar upon
written notice thereto. The Company and any Person authorized by the Company
may act as Paying Agent, Note Registrar or co-Note Registrar.
4. INDENTURE; LIMITATIONS.
The Company issued the Notes under an Indenture dated as of April
2, 1998 (the "INDENTURE"), between the Company and Norwest Bank, N.A.,
trustee (the "Trustee"). Capitalized terms herein are used as defined in the
Indenture unless otherwise indicated. 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. The Notes are subject to all such terms, and
Holders are referred to the Indenture and the Trust Indenture Act for a
statement of all such terms. To the extent permitted by applicable law, in
the event of any inconsistency between the terms of this Note and the terms
of the Indenture, the terms of the Indenture shall control.
The Notes are unsecured senior obligations of the Company. The
Indenture limits the aggregate principal amount of the Notes to $160,000,000.
5. REDEMPTION.
The Notes shall be redeemable, at the option of the Company, as a
whole or from time to time in part, at any time on or after April 1, 2003 on
not less than 30 nor more than 60 days' prior notice at the Redemption Prices
(expressed as percentages of principal amount) set forth below, together with
accrued and unpaid interest, if any, to the Redemption Date, if redeemed
during the 12-month period beginning on April 1 of the years indicated below
(subject to the right of holders of record on relevant record dates to
receive interest due on a relevant Interest Payment Date):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003 ................... 106.50%
A-8
<PAGE>
2004 ................... 104.33
2005 ................... 102.17
2006 and thereafter..... 100.00
</TABLE>
Notwithstanding the foregoing, on or prior to April 1 2001, the
Company may, at its option, use the net proceeds of one or more Public Equity
Offerings or one or more sales of Common Stock to a Strategic Equity Investor
yielding gross cash proceeds to the Company of not less than $50 million to
redeem up to 35% of the aggregate principal amount of the originally issued
Notes, in each case on a PRO RATA basis, at a Redemption Price equal to
113% of the principal amount thereof, together with accrued and unpaid
interest to the Redemption Date; PROVIDED that, not less than 65% of the
originally issued aggregate principal amount of Notes would remain
Outstanding immediately after each such redemption.
If less than all the Notes are to be redeemed, the particular Notes
to be redeemed will be selected not more than 60 days prior to the Redemption
Date by the Trustee by lot; PRO RATA or by such other method as the Trustee
in its sole discretion will deem fair and appropriate or in such manner as
complies with the requirements of the principal securities exchange, if any,
on which the Notes being redeemed are listed and DTC; PROVIDED that any
redemption following one or more Public Equity Offerings or sales of Common
Stock to a Strategic Equity Investor will be made on a PRO RATA or on as
nearly a PRO RATA basis as practicable (subject to the procedures of DTC);
PROVIDED, HOWEVER, that no such partial redemption will reduce the principal
amount of a Note not redeemed to less than $1,000. Notice of redemption will
be mailed, first-class postage prepaid, at least 30 but not more than 60 days
before the Redemption Date to each Holder of Notes to be redeemed at its
registered address. On and after the Redemption Date, cash interest will
cease to accrue on Notes or portions thereof called for redemption and
accepted for payment.
6. REPURCHASE UPON A CHANGE IN CONTROL AND ASSET SALES.
Upon the occurrence of a Change of Control, the Company is
obligated to make an offer to purchase all Outstanding Notes at a purchase
price of 101% of the principal amount, plus accrued and unpaid cash
interest, if any, to the date of purchase. Upon the occurrence of certain
Asset Sales, the Company may be obligated to make offers to purchase Notes
with a portion of the Net Cash Proceeds of such Asset Sales at a purchase
price of 100% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase.
7. DENOMINATIONS; TRANSFER; EXCHANGE.
The Notes are in registered form without coupons, in denominations
of $1,000 and multiples of $1,000 in excess thereof. A Holder may register
the transfer or
A-9
<PAGE>
exchange of Notes in accordance with the Indenture. The Note Registrar may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted
by the Indenture.
8. PERSONS DEEMED OWNERS.
A Holder may be treated as the owner of a Note for all purposes.
9. UNCLAIMED MONEY.
If money for the payment of the principal (and premium, if any) or
interest remains unclaimed for one year, the Trustee and the Paying Agent
will pay the money back to the Company at its request. After that, Holders
entitled to the money must look to the Company for payment, unless an
abandoned property law designates another Person, and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
10. DISCHARGE PRIOR TO MATURITY.
If the Company irrevocably deposits, or causes to be deposited,
with the Trustee money or U.S. Government Securities (or a combination
thereof) sufficient to pay the then Outstanding principal amount (including
premium, if any) and accrued interest, if any, on the Notes on the Stated
Maturity (or upon redemption, if applicable), and complies with the other
applicable conditions set forth in the Indenture, the Company will be
discharged from the Indenture and the Notes, except in certain circumstances
for certain sections thereof, or from certain covenants set forth in the
Indenture.
11. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions and conditions, the Indenture or the
Notes may be amended or supplemented with the consent of the Holders of at
least a majority in aggregate principal amount of the Notes then Outstanding,
and any existing default or compliance with any provision may be waived with
the consent of the Holders of a majority in aggregate principal amount of the
Notes then Outstanding. Without notice to or the consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Notes to, among
other things, cure any ambiguity, defect or inconsistency and make any change
that does not adversely affect the rights of any Holder.
12. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i)
Indebtedness; (ii) Restricted Payments; (iii) issuances and sales of Capital
Stock of Restricted Subsidiaries;
A-10
<PAGE>
(iv) transactions with Affiliates; (v) Liens; (vi) issuances of guarantees of
Indebtedness by Restricted Subsidiaries; (vii) disposition of proceeds of
Asset Sales; (viii) dividend and other payment restrictions affecting
Restricted Subsidiaries; (ix) consolidation, merger and certain transfers of
assets; and (x) transactions with Affiliates. Within 120 days after the end
of each fiscal year and within 50 days after the end of each fiscal quarter
of each year, the Company must report to the Trustee on compliance with such
limitations.
13. SUCCESSOR PERSONS.
Except as provided in the Indenture, when a successor person or
other entity assumes all the obligations of its predecessor under the Notes
and the Indenture, the predecessor person will be released from those
obligations.
14. REMEDIES FOR EVENTS OF DEFAULT.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of at least 25% of the aggregate
principal amount of the Notes then Outstanding may declare all the Notes to
be immediately due and payable. If a bankruptcy or insolvency default with
respect to the Company or any of its Material Restricted Subsidiaries occurs
and is continuing, the Notes automatically become immediately due and
payable. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may require indemnity satisfactory to
it before it enforces the Indenture or the Notes. Subject to certain
limitations, Holders of at least a majority in aggregate principal amount of
the Notes then Outstanding may direct the Trustee in its exercise of any
trust or power.
15. TRUSTEE DEALINGS WITH COMPANY.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Notes and may make loans to,
accept deposits from, perform services for, and otherwise deal with, the
Company and its Affiliates as if it were not the Trustee.
16. AUTHENTICATION.
This Note shall not be valid until the Trustee signs the
certificate of authentication on the other side of this Note.
17. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in
A-11
<PAGE>
common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to Convergent
Communication, Inc., 67 Inverness Drive East, Suite 110, Englewood, Colorado
80112, Attention: Chief Financial Officer.
A-12
<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.
- ------------------------------------------------------------------------------
Your Signature:
---------------------------------------------------------------
(Sign exactly as your name appears on the face of this Note)
Date:
----------------------------------
By:
-------------------------------------------------------
Notice: To be executed by an executive officer
Signature Guarantee:(2)
-----------------------------------
- --------------------------------
(2) (Signature must be guaranteed by a financial institution that is a member
of the Securities Transfer Agent Medallion Program ("STAMP"), the Stock
Exchange Medallion Program ("SEMP"), the New York Stock
A-13
<PAGE>
- ------------------------------------------------------------------------------
Exchange, Inc. Medallion Signature Program ("MSP") or such other signature
guarantee program as may be determined by the Security Registrar in addition
to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the
Securities Exchange Act of 1934, as amended.)
A-14
<PAGE>
In connection with any transfer of any of the Notes evidenced by this
certificate occurring prior to the date that is two years after the later of
the date of original issuance of such Notes and the last date, if any, on
which such Notes were owned by the Company or any Affiliate of the Company,
the undersigned confirms that such Notes are being transferred
CHECK ONE BOX BELOW
(1) / / to the Company; or
(2) / / pursuant to and in compliance with Rule 144A under the
Securities Act of 1933; or
(3) / / pursuant to and in compliance with Regulation S under the
Securities Act of 1933; or
(4) / / pursuant to another available exemption from the
registration requirements of the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to
register any of the Notes evidenced by this certificate in the name of
any person other than the registered holder thereof, PROVIDED,
HOWEVER, that if box (3) or (4) is checked, the Trustee may require,
prior to registering any such transfer of the Notes such legal
opinions, certifications and other information as the Company has
reasonably requested to confirm that such transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act of 1933, such as the
exemption provided by Rule 144 under such Act.
----------------------------
Signature
Signature Guarantee (1)
- -----------------------------
(1) (Signature must be guaranteed by a financial institution that is a member
of the Securities Transfer Agent Medallion Program ("STAMP"), the Stock
Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc.
Medallion Signature Program ("MSP") or such other signature guarantee program
as may be determined by the Security Registrar in addition to, or in
substitution for, STAMP, SEMP or MSP, all in accordance with the Securities
Exchange Act of 1934, as amended.)
A-15
<PAGE>
- -------------------------- ----------------------------
Signature must be guaranteed Signature
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it (a) is purchasing
this Note for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933, (b) is aware that the sale to it is being made in
reliance on Rule 144A, (c) acknowledges (i) it has been afforded an
opportunity to request from the Company and to review, and has received, all
additional information considered by such person to be necessary to evaluate
an investment in the Notes and it has not relied on the Initial Purchasers or
any person affiliated with the Initial Purchasers in connection with its
investigation of the accuracy of such information or its investment decision,
and (iii) no person has been authorized to give information or to make any
representation concerning the Company or the Notes other than information
given by officers and employees of the Company in connection with such
person's examination of the Company and, if given or made, such other
representation should not be relied upon as having been authorized by the
Company or the Initial Purchasers and (d) is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim
the exemption from registration provided by Rule 144A.
Date:
-----------------------
NOTICE: To be executed by an executive officer
- -------------------------
A-16
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 1014 or 1015 of the Indenture, check the box below:
/ / Section 1014 / / Section 1015
If you want to elect to have only part of the Note purchased by the Company
pursuant to Section 1014 or Section 1015 of the Indenture, state the amount you
elect to have purchased: $
---------------
Date: Your Signature:
------------ ------------------------------
(Sign exactly as your name appears on
the Note)
Tax Identification
No.:
------------------------
Signature Guarantee.(1)
Signature must be guaranteed.
- --------------------------------
(1) (Signature must be guaranteed by a financial institution that is a
member of the Securities Transfer Agent Medallion Program ("STAMP"), the
Stock Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc.
Medallion Signature Program ("MSP") or such other signature guarantee program
as may be determined by the Security Registrar in addition to, or in
substitution for, STAMP, SEMP or MSP, all in accordance with the Securities
Exchange Act of 1934, as amended.)
A-17
<PAGE>
SCHEDULE A
SCHEDULE OF PRINCIPAL AMOUNT*
The following increases or decreases in the principal amount of this
Global Note have been made:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Date of Amount of Amount of Principal Signature of
Exchange or decrease in increase in Amount of authorized
Transfer Principal Principal this Global signatory of
Amount of Amount of Note Trustee or
this Global this Global following Note
Note Note such decrease Custodian
or increase
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ------------------------------------------
* TO BE ATTACHED ONLY TO GLOBAL NOTES.
A-18
<PAGE>
EXHIBIT B
[FORM OF FACE OF EXCHANGE NOTE]
[GLOBAL NOTES LEGEND, IF APPLICABLE]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK,
TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT
IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF.
B-1
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
13% Series B Senior Note due 2008
CUSIP/INIS
-----------
No.
-------
CONVERGENT COMMUNICATIONS, INC., a Colorado corporation (the
"COMPANY", which term includes any successor under this Indenture hereinafter
referred to), for value received, promises to pay to ___________, or its
registered assigns, the principal sum of ______ ______ Dollars ($________),
on April 1, 2008
Issue Date: April 2,1998
Initial Interest Rate: 13% per annum.
Interest Payment Dates: April 1 and October 1 of each year.
Regular Record Dates: March 15 and September 15 of each year.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
B-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: CONVERGENT COMMUNICATIONS, INC.
---------------------
By:
----------------------------------
Name:
Title:
(SEAL)
(Form of Trustee's Certificate of Authentication)
This is one of the 13% Series B Senior Notes due 2008 referred to in the
within-mentioned Indenture.
Dated: NORWEST BANK COLORADO, N.A.,
-------------------- Trustee
By:
----------------------------------
Authorized Signatory
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<PAGE>
[REVERSE SIDE OF NOTE]
CONVERGENT COMMUNICATIONS, INC.
13% Series B Senior Note due 2008
1. PRINCIPAL AND INTEREST.
The Company shall pay the principal of this Note on April 1,2008.
The Company promises to pay interest on the principal amount of this
Note on each Interest Payment Date at the rate of 13% per annum.
Interest shall be payable semi-annually (to the Holders of record
of the Notes (or any Predecessor Notes) at the close of business on the March
15 or September 15 immediately preceding the Interest Payment Date). The
Company shall pay interest on overdue principal and premium, if any, from
time to time on demand at the interest rate then in effect and shall pay
interest on overdue installments of interest (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful.
Interest on this Note shall accrue at the rate of 13% per annum
from the most recent Interest Payment Date to which cash interest has been
paid or duly provided for; PROVIDED that, if there is no existing default in
the payment of interest and if this Note is authenticated between a Regular
Record Date referred to on the face hereof and the next succeeding Interest
Payment Date, interest shall accrue from such Interest Payment Date.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful,
at a rate per annum equal to the rate of interest applicable to the Notes.
2. METHOD OF PAYMENT.
The Company shall pay interest (except defaulted interest) on the
principal amount of the Notes on each April 1 and October 1 to the Persons
who are Holders (as reflected in the Note Register at the close of business
on the March 15 and September 15 immediately preceding the Interest Payment
Date), in each case, even if the Note is cancelled on registration of transfer
or registration of exchange after such Regular Record Date; PROVIDED that, with
respect to the payment of principal, the Company will make payment to the Holder
that surrenders this Note to any Paying Agent on or after April 1,
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<PAGE>
2008.
The Company shall pay principal (and premium, if any) and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Company may pay principal
(and premium, if any) and interest by its check payable in immediately
available funds. The Company may pay interest on the Notes either (a) by
mailing a check for such interest to a Holder's registered address (as
reflected in the Note Register) or (b) by wire transfer to an account located
in the United States maintained by the payee. If a payment date is a date
other than a Business Day at a place of payment, payment may be made at that
place on the next succeeding day that is a Business Day and no interest shall
accrue for the intervening period.
3. PAYING AGENT AND REGISTRAR.
Initially, the Trustee shall act as Paying Agent and Note
Registrar. The Company may change any Paying Agent or Note Registrar upon
written notice thereto. The Company and any Person authorized by the Company
may act as Paying Agent, Note Registrar or co-Note Registrar.
4. INDENTURE; LIMITATIONS.
The Company issued the Notes under an Indenture dated as of April
2, 1998 (the "INDENTURE"), between the Company and Norwest Bank, N.A.,
trustee (the "TRUSTEE"). Capitalized terms herein are used as defined in the
Indenture unless otherwise indicated. 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. The Notes are subject to all such terms, and
Holders are referred to the Indenture and the Trust Indenture Act for a
statement of all such terms. To the extent permitted by applicable law, in
the event of any inconsistency between the terms of this Note and the terms
of the Indenture, the terms of the Indenture shall control.
The Notes are unsecured senior obligations of the Company. The
Indenture limits the aggregate principal amount of the Notes to $160,000,000.
5. REDEMPTION.
The Notes shall be redeemable, at the option of the Company, as a
whole or from time to time in part, at any time on or after April 1, 2003 on
not less than 30 nor more than 60 days' prior notice at the Redemption Prices
(expressed as percentages of principal amount) set forth below, together with
accrued and unpaid interest, if any, to the Redemption Date, if redeemed
during the 12-month period beginning on April 1 of the
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<PAGE>
years indicated below (subject to the right of holders of record on relevant
record dates to receive interest due on a relevant Interest Payment Date):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003..................................... 106.50%
2004..................................... 104.33
2005..................................... 102.17
2006 and thereafter...................... 100.00
</TABLE>
Notwithstanding the foregoing, on or prior to April 1, 2001, the
Company may, at its option, use the net proceeds of one or more Public Equity
Offerings or one or more sales of Common Stock to a Strategic Equity Investor
yielding gross cash proceeds to the Company of not less than $50 million to
redeem up to 35% of the aggregate principal amount of the originally issued
Notes, in each case on a PRO RATA basis, at a Redemption Price equal to 113%
of the principal amount thereof, together with accrued and unpaid interest to
the Redemption Date; PROVIDED that, not less than 65% of the originally
issued aggregate principal amount of Notes would remain Outstanding
immediately after each such redemption.
If less than all the Notes are to be redeemed, the particular Notes
to be redeemed will be selected not more than 60 days prior to the Redemption
Date by the Trustee by lot; PRO RATA or by such other method as the Trustee
in its sole discretion will deem fair and appropriate or in such manner as
complies with the requirements of the principal securities exchange, if any,
on which the Notes being redeemed are listed and DTC; PROVIDED that any
redemption following one or more Public Equity Offerings or sales of Common
Stock to a Strategic Equity Investor will be made on a PRO RATA or on as
nearly a PRO RATA basis as practicable (subject to the procedures of DTC);
PROVIDED, HOWEVER, that no such partial redemption will reduce the principal
amount of a Note not redeemed to less than $1,000. Notice of redemption will
be mailed, first-class postage prepaid, at least 30 but not more than 60 days
before the Redemption Date to each Holder of Notes to be redeemed at its
registered address. On and after the Redemption Date, cash interest will
cease to accrue on Notes or portions thereof called for redemption and
accepted for payment.
6. REPURCHASE UPON A CHANGE IN CONTROL AND ASSET SALES.
Upon the occurrence of a Change of Control, the Company is
obligated to make an offer to purchase all Outstanding Notes at a purchase
price of 101% of the principal amount, plus accrued and unpaid cash interest,
if any, to the date of purchase. Upon the occurrence of certain Asset Sales,
the Company may be obligated to make offers to purchase Notes with a portion
of the Net Cash Proceeds of such Asset Sales at a
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<PAGE>
purchase price of 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase.
7. DENOMINATIONS; TRANSFER; EXCHANGE.
The Notes are in registered form without coupons, in denominations
of $1,000 and multiples of $1,000 in excess thereof. A Holder may register
the transfer or exchange of Notes in accordance with the Indenture. The Note
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture.
8. PERSONS DEEMED OWNERS.
A Holder may be treated as the owner of a Note for all purposes.
9. UNCLAIMED MONEY.
If money for the payment of the principal (and premium, if any) or
interest remains unclaimed for one year, the Trustee and the Paying Agent
will pay the money back to the Company at its request. After that, Holders
entitled to the money must look to the Company for payment, unless an
abandoned property law designates another Person, and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
10. DISCHARGE PRIOR TO MATURITY.
If the Company irrevocably deposits, or causes to be deposited,
with the Trustee money or U.S. Government Securities (or a combination
thereof) sufficient to pay the then Outstanding principal amount (including
premium, if any) and accrued interest, if any, on the Notes on the Stated
Maturity (or upon redemption, if applicable), and complies with the other
applicable conditions set forth in the Indenture, the Company will be
discharged from the Indenture and the Notes, except in certain circumstances
for certain sections thereof, or from certain covenants set forth in the
Indenture.
11. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions and conditions, the Indenture or the
Notes may be amended or supplemented with the consent of the Holders of at
least a majority in aggregate principal amount of the Notes then Outstanding,
and any existing default or compliance with any provision may be waived with
the consent of the Holders of a majority in aggregate principal amount of the
Notes then Outstanding. Without notice to or the consent of any Holder, the
parties thereto may amend or supplement the Indenture
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<PAGE>
or the Notes to, among other things, cure any ambiguity, defect or
inconsistency and make any change that does not adversely affect the rights
of any Holder.
12. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i)
Indebtedness; (ii) Restricted Payments; (iii) issuances and sales of Capital
Stock of Restricted Subsidiaries; (iv) transactions with Affiliates; (v)
Liens; (vi) issuances of guarantees of Indebtedness by Restricted
Subsidiaries; (vii) disposition of proceeds of Asset Sales; (viii) dividend
and other payment restrictions affecting Restricted Subsidiaries; (ix)
consolidation, merger and certain transfers of assets; and (x) transactions
with Affiliates. Within 120 days after the end of each fiscal year and
within 50 days after the end of each fiscal quarter of each year, the Company
must report to the Trustee on compliance with such limitations.
13. SUCCESSOR PERSONS.
When a successor person or other entity assumes all the obligations
of its predecessor under the Notes and the Indenture, the predecessor person
will be released from those obligations.
14. REMEDIES FOR EVENTS OF DEFAULT.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of at least 25% of the aggregate
principal amount of the Notes then Outstanding may declare all the Notes to
be immediately due and payable. If a bankruptcy or insolvency default with
respect to the Company or any of its Material Restricted Subsidiaries occurs
and is continuing, the Notes automatically become immediately due and
payable. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may require indemnity satisfactory to
it before it enforces the Indenture or the Notes. Subject to certain
limitations, Holders of at least a majority in aggregate principal amount of
the Notes then Outstanding may direct the Trustee in its exercise of any
trust or power.
15. TRUSTEE DEALINGS WITH COMPANY.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Notes and may make loans to,
accept deposits from, perform services for, and otherwise deal with, the
Company and its Affiliates as if it were not the Trustee.
16. AUTHENTICATION.
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<PAGE>
This Note shall not be valid until the Trustee signs the certificate
of authentication on the other side of this Note.
17. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to Convergent
Communication, Inc., 67 Inverness Drive East, Suite 110, Englewood, Colorado
80112, Attention: Chief Financial Officer.
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<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.
- --------------------------------------------------------------------------------
Your Signature:
------------------------------------------------------------
(Sign exactly as your name appears on the face of this Note)
Date:
---------------------------------------
By:
----------------------------------------------------------------------
Notice: To be executed by an executive officer
Signature Guarantee:(2)
----------------------------------------------------
- --------------------------------------
(2) (Signature must be guaranteed by a financial institution that is a member
of the Securities Transfer Agent Medallion Program ("STAMP"), the Stock
Exchange Medallion Program ("SEMP"), the New York Stock
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<PAGE>
- ----------------------------------------------------------------------------
Exchange, Inc. Medallion Signature Program ("MSP") or such other signature
guarantee program as may be determined by the Security Registrar in addition
to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the
Securities Exchange Act of 1934, as amended.)
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<PAGE>
In connection with any transfer of any of the Notes evidenced by this
certificate occurring prior to the date that is two years after the later of
the date of original issuance of such Notes and the last date, if any, on
which such Notes were owned by the Company or any Affiliate of the Company,
the undersigned confirms that such Notes are being transferred
CHECK ONE BOX BELOW
(1) / / to the Company; or
(2) / / pursuant to and in compliance with Rule 144A under the
Securities Act of 1933; or
(3) / / pursuant to and in compliance with Regulation S under the
Securities Act of 1933; or
(4) / / pursuant to another available exemption from the
registration requirements of the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to
register any of the Notes evidenced by this certificate in the name of
any person other than the registered holder thereof, PROVIDED,
HOWEVER, that if box (3) or (4) is checked, the Trustee may require,
prior to registering any such transfer of the Notes such legal
opinions, certifications and other information as the Company has
reasonably requested to confirm that such transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act of 1933, such as the
exemption provided by Rule 144 under such Act.
-----------------------------------
Signature
Signature Guarantee (1)
- ---------------------------------------
(1) (Signature must be guaranteed by a financial institution that is a
member of the Securities Transfer Agent Medallion Program ("STAMP"), the
Stock Exchange Medallion Program ("SEMP"), the New York Stock Exchange,
Inc. Medallion Signature Program ("MSP") or such other signature guarantee
program as may be determined by the Security Registrar in addition to, or
in substitution for, STAMP, SEMP or MSP, all in accordance with the
Securities Exchange Act of 1934, as amended.)
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<PAGE>
- --------------------------- --------------------------------------
Signature must be guaranteed Signature
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it (a) is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, (b) is aware that the sale to it is being made in reliance on Rule 144A,
(c) acknowledges (i) it has been afforded an opportunity to request from the
Company and to review, and has received, all additional information considered
by such person to be necessary to evaluate an investment in the Notes and it has
not relied on the Initial Purchasers or any person affiliated with the Initial
Purchasers in connection with its investigation of the accuracy of such
information or its investment decision, and (iii) no person has been authorized
to give information or to make any representation concerning the Company or the
Notes other than information given by officers and employees of the Company in
connection with such person's examination of the Company and, if given or made,
such other representation should not be relied upon as having been authorized by
the Company or the Initial Purchasers and (d) is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Date:
---------------------------
NOTICE: To be executed by an executive officer
- ----------------------------------
B-13
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant
to Section 1014 or 1015 of the Indenture, check the box below:
/ / Section 1014 / / Section 1015
If you want to elect to have only part of the Note purchased by the Company
pursuant to Section 1014 or Section 1015 of the Indenture, state the amount you
elect to have purchased: $
------------------
Date: Your Signature:
---------------- ----------------------------
(Sign exactly as your name
appears on the Note)
Tax Identification
No.:
-----------------------------
Signature Guarantee.(1)
Signature must be guaranteed.
- --------------------------------------
(1) (Signature must be guaranteed by a financial institution that is a member
of the Securities Transfer Agent Medallion Program ("STAMP"), the Stock
Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc.
Medallion Signature Program ("MSP") or such other signature guarantee
program as may be determined by the Security Registrar in addition to, or
in substitution for, STAMP, SEMP or MSP, all in accordance with the
Securities Exchange Act of 1934, as amended.)
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<PAGE>
SCHEDULE A
SCHEDULE OF PRINCIPAL AMOUNT*
The following increases or decreases in the principal amount of this Global
Note have been made:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Date of Amount of Amount of Principal Signature of
Exchange or decrease in increase in Amount of authorized
Transfer Principal Principal this Global signatory of
Amount of Amount of Note Trustee or
this Global this Global following Note
Note Note such decrease Custodian
or increase
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
- ---------------------------------
* TO BE ATTACHED ONLY TO GLOBAL NOTES.
B-15
<PAGE>
EXHIBIT C
FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM
U.S. GLOBAL NOTE
TO REGULATION S TEMPORARY GLOBAL NOTE
(Transfers pursuant to Section 311(a)(ii) of the Indenture)
Norwest Bank Colorado, N.A.
1740 Broadway
Denver, CO 80274
Attn: Amy E. Buck
Corporate Trust and Escrow Services
Re: Convergent Communications, Inc.
13% Senior Notes due 2008 (the "Notes")
---------------------------------------
Reference is hereby made to the Indenture dated as of April 2, 1998
(the "INDENTURE") between Convergent Communications, Inc., as Issuer, and
Norwest Bank, N.A., as Trustee. Capitalized terms used and not defined herein
have the meanings given them in the Indenture. Capitalized terms used herein
and not defined herein or in the Indenture have the meanings set forth in
Regulation S.
This letter relates to U.S. $[principal amount] aggregate principal
amount of Notes which are held in the form of the U.S. Global Note
(CUSIP No. ) with the Depositary in the name of [name of transferor] (the
"Transferor") to effect the transfer of the Notes in exchange for an equivalent
security entitlement in the Regulation S Temporary Global Note.
In connection with such request, the Transferor does hereby certify
that such transfer has been effected in accordance with the transfer
restrictions set forth in the Notes and (i) with respect to transfers made in
reliance on Regulation S, does hereby certify that:
(1) the offer of the Notes was not made to a person in the
United States;
(2) the transaction was executed in on or through the facilities
of a designated offshore securities market and neither the Transferor
nor any person
C-1
<PAGE>
acting on its behalf knows that the transaction was pre-arranged with a
buyer in the United States;
(3) no directed selling efforts have been made in contravention
of the requirements of Rule 903(a)(2) or 904(a)(2) of Regulation S, as
applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the United States Securities Act of 1933,
as amended (the "SECURITIES ACT");
(ii) with respect to transfers made in reliance on Rule 144, does hereby
certify that the Notes are being transferred in a transaction permitted by Rule
144 under the Securities Act; and (iii) with respect to transfers made in
reliance on Rule 144, does hereby certify that such Notes are being transferred
in accordance with Rule 144A under the Securities Act to a transferee that the
Transferor reasonably believes is purchasing the Notes for its own account or an
account with respect to which the transferee exercises sole investment
discretion and the transferee and any such account is a "qualified institutional
buyer" within the meaning of Rule 144A, in a transaction meeting the
requirements of Rule 144A and in accordance with applicable securities laws of
any state of the United States or any other jurisdiction.
In addition, if the sale is made during a distribution compliance
period and the provisions of Rule 903(b)(2) or (3) or Rule 904(a)(1) of
Regulation S are applicable thereto, we confirm that such sale has been made in
accordance with the applicable provisions of Rule 903(b)(2) or (3) or Rule
904(a)(1), as the case may be.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
[Name of Transferor]
By:
----------------
Name:
Title:
Date:
cc: Convergent Communications, Inc.
67 Inverness Drive East
Suite 110
Englewood, CO 80112
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<PAGE>
Attn: Chief Financial Officer
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<PAGE>
EXHIBIT D
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
FROM REGULATION S TEMPORARY GLOBAL NOTE
TO U.S. GLOBAL NOTE
(Transfers pursuant to Section 311(a)(iii) of the Indenture)
Norwest Bank Colorado, N.A.
1740 Broadway
Denver, CO 80274
Attn: Amy E. Buck
Corporate Trust and Escrow Services
Re: Convergent Communications, Inc.
13% Senior Notes due 2008 (the "Notes")
---------------------------------------
Reference is hereby made to the Indenture dated as of April 2, 1998
(the "INDENTURE") between Convergent Communications, Inc., as Issuer, and
Norwest Bank, N.A., as Trustee. Capitalized terms used and not defined herein
have the meanings given them in the Indenture.
This letter relates to U.S. $[principal amount] aggregate principal
amount of Notes which are held in the form of the Regulation S Temporary Global
Note (ISIN No. [ ]) with the Depositary in the name of [name of transferor]
(the "Transferor") to effect the transfer of the Notes in exchange for an
equivalent security entitlement in the U.S. Global Note.
In connection with such request, and in respect of such Notes, the
Transferor does hereby certify that such Notes are being transferred in
accordance with (i) the transfer restrictions set forth in the Notes and (ii)
Rule 144A under the United States Securities Act of 1933, as amended, to a
transferee that the Transferor reasonably believes is purchasing the Notes for
its own account or an account with respect to which the transferee exercises
sole investment discretion and the transferee and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A, in a
transaction meeting the requirements of Rule 144A.
[Name of Transferor],
By:
-------------------
Name:
D-1
<PAGE>
Title:
Dated:
cc: Convergent Communications, Inc.
67 Inverness Drive East
Suite 110
Englewood, CO 80112
Attn: Chief Financial Officer
D-2
<PAGE>
EXHIBIT E
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
FROM GLOBAL NOTE OR TRANSFER RESTRICTED SECURITY
TO TRANSFER RESTRICTED SECURITY
(Transfers pursuant to Section 311(a)(iv) or
Section 311(a)(v) of the Indenture)
Norwest Bank Colorado, N.A.
1740 Broadway
Denver, CO 80274
Attn: Amy E. Buck
Corporate Trust and Escrow Services
Re: Convergent Communications, Inc.
13% Senior Notes due 2008 (the "Notes")
---------------------------------------
Reference is hereby made to the Indenture dated as of April 2, 1998
(the "Indenture") between Convergent Communications, Inc., as Issuer, and
Norwest Bank, N.A., as Trustee. Capitalized terms used and not defined herein
have the meanings given them in the Indenture.
This letter relates to U.S. $[principal amount] aggregate principal
amount of Notes which are held [in the form of the [U.S./Regulation S] [Global]
[Transfer Restricted] [Note] [Security] (CUSIP Nos. /ISIN No. )
with the Depositary(10) in the name of [name of transferor] (the "Transferor")
to effect the transfer of the Notes.
In connection with such request, and in respect of such Notes, the
Transferor does hereby certify that such Notes are being transferred (i) in
accordance with the transfer restrictions set forth in the Notes and (ii) in
accordance with applicable securities laws of any state of the United States or
any other jurisdiction.
[Name of Transferor]
By:
-------------------
Name:
Title:
- -------------------------------------
(1) Insert and modify, if appropriate.
E-1
<PAGE>
Dated:
cc: Convergent Communications, Inc.
67 Inverness Drive East
Suite 110
Englewood, CO 80112
Attn: Chief Financial Officer
E-2
<PAGE>
EXHIBIT F
FORM OF CERTIFICATE FOR TRANSFERS OF
REGULATION S TEMPORARY GLOBAL NOTE
FOR REGULATION S PERMANENT GLOBAL NOTE
(Transfers pursuant to Section 2.07(a)(viii))
(Transferor)
[MORGAN GUARANTY TRUST HOLDINGS
OF NEW YORK, BRUSSELS OFFICE AS
OPERATOR OF THE EUROCLEAR SYSTEM]
[CEDEL BANK, SOCIETE ANONYME]
Re: Convergent Communications, Inc.
13% Senior Notes due 2008 (the "Notes")
---------------------------------------
Reference is hereby made to the Indenture dated as of April 2, 1998
(the "INDENTURE") between Convergent Communications, Inc., as Issuer, and
Norwest Bank, N.A., as Trustee. Capitalized terms used and not defined herein
have the meanings given them in the Indenture.
This certificate relates to U.S. $[principal amount] aggregate
principal amount of Notes which are held in the form of the Regulation S
Temporary Global Note (ISIN No. ) with the Depositary in the name
[name of transferor] (the "Transferor") to effect the transfer of the security
entitlement in such Regulation S Temporary Global Note for a security
entitlement in an equivalent aggregate principal amount of the Regulation S
Permanent Global Note.
In connection with such request, and in respect of such Notes, we
confirm that:
1. We are either not a U.S. person (as defined below) or we have
purchased our security entitlement in the above referenced Regulation S
Temporary Global Note in a transaction that is exempt from the registration
requirements under the Securities Act.
2. We are delivering this certificate in connection with obtaining a
security entitlement in the Regulation S Permanent Global Note in exchange
for our security entitlement in the Regulation S Temporary Global Note.
F-1
<PAGE>
For purposes of this certificate. "U.S. PERSON" means (i) any
individual resident in the United States, (ii) any partnership or corporation
organized or incorporated under the laws of the United States, (iii) any estate
of which an executor or administrator is a U.S. person (other than an estate
governed by foreign law and of which at least one executor or administrator is a
non-U.S. person who has sole or shared investment discretion with respect to its
assets), (iv) any trust of which any trustee is a U.S. person (other than a
trust of which at least one trustee is a non-U.S. person who has sole or shared
investment discretion with respect to its assets and no beneficiary of the trust
(and no settlor if the trust is revocable) is a U.S. person), (v) any agency or
branch of a foreign entity located in the United States, (vi) any
non-discretionary or similar account (other than an estate or trust) held by a
dealer or other fiduciary for the benefit or account of a U.S. person, (vii) any
discretionary or similar account (other than an estate or trust) held by a
dealer or other fiduciary organized, incorporated or (if an individual) resident
in the United States (other than such an account held for the benefit or account
of a non-U.S. person), (viii) any partnership or corporation organized or
incorporated under the laws of a foreign jurisdiction and formed by a U.S.
person principally for the purpose of investing in securities not registered
under the Securities Act (unless it is organized or incorporated, and owned, by
accredited investors within the meaning of Rule 501 (a) under the Securities Act
who are not natural persons, estates or trusts); PROVIDED, HOWEVER, that the
term "U.S. person" shall not include (A) a branch or agency of a U.S. person
that is located and operating outside the United States for valid business
purposes as a locally regulated branch or agency engaged in the banking or
insurance business, (B) any employee benefit plan established and administered
in accordance with the law, customary practices and documentation of a foreign
country and (C) the international organizations set forth in Section 902(o)(7)
of Regulation S under the Securities Act and any other similar international
organizations, and their agencies, affiliates and pension plans.
We irrevocably authorize you to produce this certificate or a copy
hereof to any interested party in any administrative or other proceedings with
respect to the matters covered by this certificate.
Very truly yours,
[TRANSFEROR]
By:
--------------------------
Name:
Title:
To be completed by the account
holder as, or as agent for, the
entitlement holder(s) of the Notes
to which this certificate relates.
F-2
<PAGE>
Dated:
cc: Convergent Communications, Inc.
67 Inverness Drive East
Suite 110
Englewood, CO 80112
Attn: Chief Financial Officer
F-3
<PAGE>
EXHIBIT G
FORM OF CERTIFICATE FOR TRANSFERS OF
REGULATION S TEMPORARY GLOBAL NOTE
FOR REGULATION S PERMANENT GLOBAL NOTE
(Transfers pursuant to Section 2.07(a)(viii))
(Euroclear or Cedel)
Norwest Bank Colorado, N.A., as Trustee
1740 Broadway
Denver, CO 80274
Attn: Amy E. Buck
Corporate Trust and Escrow Services
Re: Convergent Communications, Inc.
13% Senior Notes due 2008 (the "Notes")
---------------------------------------
Reference is hereby made to the Indenture dated as of April 2, 1998
(the "Indenture") between Convergent Communications, Inc., as Issuer, and
Norwest Bank, N.A., as Trustee. Capitalized terms used but not defined herein
shall have the meanings given them in the Indenture.
This certificate relates to U.S. $[principal amount] aggregate
principal amount of Notes which are held in the form of the Regulation S
Temporary Global Note (ISIN No. ) with the Depositary to effect the transfer
of the security entitlement in such Regulation S Temporary Global Note for a
security entitlement in an equivalent aggregate principal amount of the
Regulation S Permanent Global Note.
In connection with such request, this is to certify that, based solely
on certificates we have received in writing, by tested telex or by electronic
transmission from member organizations appearing in our records as persons being
entitled to a portion of the principal amount of the Regulation S Temporary
Global Note set forth above (our "MEMBER ORGANIZATIONS") substantially to the
effect set forth in the Indenture, U.S. $[ ] aggregate principal amount of
the Notes is owned by persons that are not citizens or residents of the United
States, domestic partnerships, domestic corporations or any estate or trust the
income of which is subject to United States Federal income taxation regardless
of its source or any other person deemed a "U.S. person" under Regulation S
under the Securities Act of 1993, as amended.
G-1
<PAGE>
We further certify (i) that we are not making available herewith for
exchange (or if relevant, exercise of any rights of collection of any interest)
any portion of the Regulation S Global Note excepted in such certificates and
(ii) that, as of the date hereof, we have not received any notification from any
of our Member Organizations to the effect that the statements made by such
Member Organizations with respect to any portion of the part submitted herewith
for exchange (or, if relevant, exercise of any rights of collection of any
interest) are no longer true and cannot be relied upon as of the date hereof.
We understand that this certificate is required in connection with
certain laws, and, if applicable, certain securities laws of the United States.
In connection therewith, if administrative or legal proceedings are commenced or
threatened in connection with which this certificate is or would be relevant, we
irrevocably authorize you to produce this certification to any interested party
in such proceedings.
Very truly yours,
[MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, BRUSSELS OFFICE AS OPERATOR OF THE
EUROCLEAR SYSTEM]
[CEDEL BANK, SOCIETE ANONYME]
By:
----------------------------------
Name:
Title:
Dated:
cc: Convergent Communications, Inc.
67 Inverness Drive East
Suite 110
Englewood, CO 80112
Attn: Chief Financial Officer
G-2
<PAGE>
EXHIBIT H
FORM OF CERTIFICATE FOR TRANSFERS OF
REGULATION S PERMANENT GLOBAL NOTE FOR
CERTIFICATED SECURITIES
(Transfers pursuant to Section 2.07(a)(viii))
(Transferor)
Norwest Bank Colorado, N.A.
1740 Broadway
Denver, CO 80274
Attn:
Re: Convergent Communications, Inc.
13% Senior Notes due 2008 (the "Notes")
---------------------------------------
Reference is hereby made to the Indenture dated as of April 2, 1998
(the "Indenture") between Convergent Communications ,Inc., as Issuer and Norwest
Bank, N.A., as Trustee. Capitalized terms used and not defined herein have the
meanings given them in the Indenture.
This certificate relates to U.S. $[principal amount] aggregate
principal amount of Notes which are held in the form of the Regulation S
Permanent Global Note (ISIN No. ) with the Depositary in the name of [name of
transferor] (the "TRANSFEROR") to effect the transfer of the security
entitlement in such Regulation S Permanent Global Note for an equivalent
aggregate principal amount of certificated notes.
In connection with such request, and in respect of such Notes, we
confirm that:
1. We are either not a U.S. person (as defined below) or we have
purchased our security entitlement in the above referenced Regulation S
Permanent Global Note in a transaction that is exempt from the registration
requirements under the Securities Act.
2. We are delivering this certificate in connection with obtaining a
certificated security in exchange for our security entitlement in the
Regulation S Permanent Global Note.
For purposes of this certificate, "U.S. PERSON" means (i) any
individual resident in the United States, (ii) any partnership or
corporation organized or incorporated
H-1
<PAGE>
under the laws of the United States, (iii) any estate of which an
executor or administrator is a U.S. person (other than an estate
governed by foreign law and of which at least one executor or
administrator is a non-U.S. person who has sole or shared investment
discretion with respect to its assets), (iv) any trust of which any
trustee is a U.S. person (other than a trust of which at least one
trustee is a non-U.S. person who has sole or shared investment
discretion with respect to its assets and no beneficiary of the trust
(and no settlor if the trust is revocable) is a U.S. person), (v) any
agency or branch of a foreign entity located in the United States, (vi)
any discretionary or similar account (other than an estate or trust)
held by a dealer or other fiduciary for the benefit or account of a U.S.
person, (vii) any discretionary or similar account (other than an estate
or trust) held by a dealer or other fiduciary organized, incorporated or
(if an individual) resident in the United States (other than such an
account held for the benefit or account of a non-U.S. person), (viii)
any partnership or corporation organized or incorporated under the laws
of a foreign jurisdiction and formed by a U.S. person principally for
the purpose of investing in securities not registered under the
Securities Act (unless it is organized or incorporated, and owned, by
accredited investors within the meaning of Rule 501 (a) under the
Securities Act who are not natural persons, estates or trusts);
PROVIDED, HOWEVER, that the term "U.S. person" shall not include (A) a
branch or agency of a U.S. person that is located and operating outside
the United States for valid business purposes as a locally regulated
branch or agency engaged in the banking or insurance business, (B) any
employee benefit plan established and administered in accordance with
the law, customary practices and documentation of a foreign country and
(C) the international organizations set forth in Section 902(o)(7) of
Regulation S under the Securities Act and any other similar
international organizations, and their agencies, affiliates and pension
plans.
We irrevocably authorize you to produce this certificate or a copy
hereof to any interested party in any administrative or other
proceedings with respect to the matters covered by this certificate.
Very truly yours,
[TRANSFEROR]
By:
---------------------------
Name:
Title:
To be completed by the account holder
as, or as agent for, the entitlement
holder(s) of the Notes to which this
certificate relates.
Dated:
cc: Convergent Communications, Inc.
H-2
<PAGE>
67 Inverness Drive East
Suite 110
Englewood, CO 80112
Attn: Chief Financial Officer
H-3
<PAGE>
----------------------------------------------------------
----------------------------------------------------------
WARRANT AGREEMENT
Dated as of April 2, 1998
By and Between
CONVERGENT COMMUNICATIONS, INC.
and
AMERICAN STOCK TRANSFER & TRUST COMPANY,
Warrant Agent
Warrants to Purchase Common Stock
(No Par Value)
----------------------------------------------------------
----------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I ISSUANCE, FORM, EXECUTION, DELIVERY AND REGISTRATION OF WARRANT
CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.01. Issuance of Warrants. . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.02. Form of Warrant Certificates. . . . . . . . . . . . . . . . . . .2
SECTION 1.03. Execution of Warrant Certificates . . . . . . . . . . . . . . . .2
SECTION 1.04. Authentication and Delivery . . . . . . . . . . . . . . . . . . .3
SECTION 1.05. Temporary Warrant Certificates. . . . . . . . . . . . . . . . . .3
SECTION 1.06. Separation of Warrants and Notes. . . . . . . . . . . . . . . . .4
SECTION 1.07. Registration. . . . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 1.08. Registration of Transfers or Exchanges. . . . . . . . . . . . . .5
SECTION 1.09. Lost, Stolen, Destroyed, Defaced or Mutilated Warrant
Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . .9
SECTION 1.10. Offices for Exercise, etc.. . . . . . . . . . . . . . . . . . . .9
ARTICLE II DURATION, EXERCISE OF WARRANTS; EXERCISE PRICE AND REPURCHASE OF
WARRANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
SECTION 2.01. Duration of Warrants. . . . . . . . . . . . . . . . . . . . . . .10
SECTION 2.02. Exercise, Exercise Price, Settlement and Delivery . . . . . . . .11
SECTION 2.03. Cancellation of Warrant Certificates. . . . . . . . . . . . . . .13
SECTION 2.04. Notice of an Exercise Event . . . . . . . . . . . . . . . . . . .13
ARTICLE III OTHER PROVISIONS RELATING TO RIGHTS OF HOLDERS OF WARRANTS . . . .14
SECTION 3.01. Enforcement of Rights . . . . . . . . . . . . . . . . . . . . . .14
SECTION 3.02. Obtaining Stock Exchange Listings . . . . . . . . . . . . . . . .14
ARTICLE IV CERTAIN COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . .14
SECTION 4.01. Payment of Taxes. . . . . . . . . . . . . . . . . . . . . . . . .14
SECTION 4.02. Rules 144 and 144A. . . . . . . . . . . . . . . . . . . . . . . .15
SECTION 4.03. Form of Initial Public Equity Offering. . . . . . . . . . . . . .15
SECTION 4.04. Securities Act and Applicable State Securities Laws . . . . . . .15
SECTION 4.05. Resolution of Preemptive Rights, if Any . . . . . . . . . . . . .15
ARTICLE V ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .15
SECTION 5.01. Adjustment of Exercise Rate; Notices. . . . . . . . . . . . . . .15
SECTION 5.02. Fractional Warrant Shares . . . . . . . . . . . . . . . . . . . .21
SECTION 5.03. Certain Distributions . . . . . . . . . . . . . . . . . . . . . .22
ARTICLE VI CONCERNING THE WARRANT AGENT . . . . . . . . . . . . . . . . . . .22
SECTION 6.01. Warrant Agent . . . . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 6.02. Conditions of Warrant Agent's Obligations . . . . . . . . . . . .22
SECTION 6.03. Resignation and Appointment of Successor. . . . . . . . . . . . .26
ARTICLE VII MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . .27
SECTION 7.01. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
SECTION 7.02. Notices and Demands to the Company and Warrant Agent. . . . . . .28
SECTION 7.03. Addresses for Notices to Parties and for Transmission of
Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
SECTION 7.04. Notices to Holders. . . . . . . . . . . . . . . . . . . . . . . .29
SECTION 7.05. Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . .29
SECTION 7.06. Persons Having Rights Under Agreement . . . . . . . . . . . . . .29
-i-
<PAGE>
SECTION 7.07. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . .29
SECTION 7.08. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . .29
SECTION 7.09. Inspection of Agreement . . . . . . . . . . . . . . . . . . . .29
SECTION 7.10. Availability of Equitable Remedies. . . . . . . . . . . . . . .30
SECTION 7.11. Obtaining of Governmental Approvals . . . . . . . . . . . . . .30
</TABLE>
-ii-
<PAGE>
EXHIBIT A - Form of Warrant Certificate
EXHIBIT B - Form of Legend for Global Warrant
EXHIBIT C - Certificate to Be Delivered upon Exchange or
Registration of Transfer of Warrants
EXHIBIT D - Form of Certificate to Be Delivered in Connection with
Regulation S Transfers
-iii-
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined Term Page
<S> <C>
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Business Day. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Cashless Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Cashless Exercise Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Convertible Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . 20
Current Market Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Definitive Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Distribution Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Election to Exercise. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Exercisability Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Exercise Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Exercise Event. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Exercise Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Exercise Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Expiration Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Global Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Global Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Independent Financial Expert. . . . . . . . . . . . . . . . . . . . . . . . . 21
Initial Public Equity Offering. . . . . . . . . . . . . . . . . . . . . . . . 11
Initial Purchasers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Issue Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Legended Regulation S Global Warrant. . . . . . . . . . . . . . . . . . . . . 3
Merrill Lynch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Private Placement Legend. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Purchase Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Requisite Warrant Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Resale Restriction Termination Date . . . . . . . . . . . . . . . . . . . . . 6
Securities Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Separability Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-iv-
<PAGE>
Separation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Subject Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Surviving Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Time of Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Warrant Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Warrant Agent Office. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Warrant Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Warrant Exercise Office . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Warrant Register. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Warrant Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . 1
Warrant Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
</TABLE>
-v-
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT ("AGREEMENT"), dated as of April 2, 1998 by and
between CONVERGENT COMMUNICATIONS, INC. (the "COMPANY"), a Colorado corporation,
and AMERICAN STOCK TRANSFER & TRUST COMPANY, warrant agent (with any successor
Warrant Agent, the "WARRANT AGENT").
WHEREAS, the Company has entered into a purchase agreement (the
"PURCHASE AGREEMENT") dated March 26, 1998 with Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MERRILL LYNCH"), Bear, Stearns &
Co. Inc. and BT Alex. Brown Incorporated (collectively, the "INITIAL
PURCHASERS"), severally, in which the Company has agreed to sell to the Initial
Purchasers 160,000 units (the "UNITS"), each consisting of (i) $1,000 principal
amount of Senior Notes due 2008 (the "NOTES") of the Company to be issued under
an indenture dated as of April 2, 1998 (the "INDENTURE"), between the Company
and Norwest Bank, N.A., trustee (in such capacity, the "TRUSTEE"), and (ii) four
warrants (the "WARRANTS"), each Warrant initially entitling the holder thereof
to purchase 2.7 shares of Common Stock (as defined herein) of the Company
(1,728,000 shares of Common Stock in the aggregate), set forth opposite such
Initial Purchaser's name on Schedule A to the Purchase Agreement. The
certificates evidencing the Warrants are herein referred to collectively as the
"WARRANT CERTIFICATES;" and
WHEREAS, the Notes and the Warrants comprising the Units shall not be
separately transferable until the Separability Date (as defined herein); and
WHEREAS, the holders of the Warrants are entitled to the benefits of a
Warrant Registration Rights Agreement dated as of April 2, 1998 by and among the
Company and the Initial Purchasers (the "WARRANT REGISTRATION RIGHTS
AGREEMENT"); and
WHEREAS, the Company desires the Warrant Agent as warrant agent to
assist the Company in connection with the issuance, exchange, cancellation,
replacement and exercise of the Warrants, and in this Agreement wishes to set
forth, among other things, the terms and conditions on which the Warrants may be
issued, exchanged, cancelled, replaced and exercised;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 1.01. ISSUANCE OF WARRANTS. Warrants comprising part of the
Units shall be originally issued in connection with the issuance of the Units
and such Warrants shall not be separately transferable from the Notes until on
or after the Separability Date as provided in Section 1.06 hereof.
Each Warrant Certificate shall evidence the number of Warrants
specified therein. Each Warrant evidenced by a Warrant Certificate shall, when
it becomes exercisable as provided herein
1
<PAGE>
and therein, represent the right, subject to the provisions contained herein and
therein, to purchase from the Company (and the Company shall issue and sell to
the holder of such Warrant) 2.7 fully paid, registered and non-assessable
Warrant Shares at an exercise price of $0.01 per share. The number of shares of
the Company's common stock, no par value, and any other class or series of
common equity equivalent shares of the Company hereafter created (the "COMMON
STOCK") issuable upon exercise of a Warrant is subject to adjustment as provided
herein and in the Warrant. The shares of Common Stock issuable upon exercise of
a Warrant are hereinafter referred to as the "WARRANT SHARES" and, unless the
context otherwise requires, such term shall also include any other securities or
property issuable and deliverable upon exercise of a Warrant as provided in
Article V, subject to adjustment as provided herein and in the Warrant.
SECTION 1.02. FORM OF WARRANT CERTIFICATES. The Warrant Certificates
will initially be issued either in global form (the "GLOBAL WARRANTS") or in
registered form as definitive Warrant Certificates (the "DEFINITIVE WARRANTS"),
in either case substantially in the form of EXHIBIT A attached hereto. Any
Global Warrants to be delivered pursuant to this Agreement shall bear the legend
set forth in EXHIBIT B attached hereto. The Global Warrants shall represent
such of the outstanding Warrants as shall be specified therein, and each Global
Warrant shall provide that it shall represent the aggregate amount of
outstanding Warrants from time to time endorsed thereon and that the aggregate
amount of outstanding Warrants represented thereby may from time to time be
reduced or increased, as appropriate. Any endorsement of a Global Warrant to
reflect the amount of any increase or decrease in the amount of outstanding
Warrants represented thereby shall be made by the Warrant Agent and the
Depositary (as defined below) in accordance with instructions given by the
holder thereof. The Depository Trust Company shall act as the "DEPOSITARY" with
respect to the Global Warrants until a successor shall be appointed by the
Company and the Warrant Agent. Upon written request, a holder of Warrants may
receive from the Warrant Agent or the Depositary Definitive Warrants as set
forth in Section 1.08 hereof.
SECTION 1.03. EXECUTION OF WARRANT CERTIFICATES. The Warrant
Certificates shall be executed on behalf of the Company by its chief executive
officer, its president, its chief financial officer or any executive vice
president and attested by its secretary or assistant secretary. Such signatures
may be the manual or facsimile signatures of the present or any future such
officers. The seal of the Company may be in the form of a facsimile thereof and
may be impressed, affixed, imprinted or otherwise reproduced on the Warrant
Certificates. Typographical and other minor errors or defects in any such
reproduction of any such signature shall not affect the validity or
enforceability of any Warrant Certificate that has been duly countersigned and
delivered by the Warrant Agent.
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificate so signed shall be authenticated and delivered by the Warrant Agent
or disposed of by the Company, such Warrant Certificate nevertheless may be
authenticated and delivered or disposed of as though the person who signed such
Warrant Certificate had not ceased to be such officer of the Company. Any
Warrant Certificate may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Warrant Certificate, shall be the
proper officers of the Company, although at the date of the execution and
delivery of this Agreement any such person was not such an officer.
2
<PAGE>
SECTION 1.04. AUTHENTICATION AND DELIVERY. Subject to the
immediately following paragraph, Warrant Certificates shall be authenticated by
manual signature and dated the date of authentication by the Warrant Agent and
shall not be valid for any purpose unless so authenticated and dated. The
Warrant Certificates shall be numbered and shall be registered in the Warrant
Register (as defined in Section 1.07 hereof).
Upon the receipt by the Warrant Agent of a written order of the
Company, which order shall be signed by its chief executive officer, its
president, its chief financial officer or any executive vice president and
attested by its secretary or assistant secretary, and shall specify the amount
of Warrants to be authenticated, whether the Warrants are to be Global Warrants
or Definitive Warrants, the date of such Warrants and such other information as
the Warrant Agent may reasonably request, without any further action by the
Company, the Warrant Agent is authorized, upon receipt from the Company at any
time and from time to time of the Warrant Certificates, duly executed as
provided in Section 1.03 hereof, to authenticate the Warrant Certificates and
upon the holder's request deliver them. Such authentication shall be by a duly
authorized signatory of the Warrant Agent (although it shall not be necessary
for the same signatory to sign all Warrant Certificates).
In case any authorized signatory of the Warrant Agent who shall have
authenticated any of the Warrant Certificates shall cease to be such authorized
signatory before the Warrant Certificate shall be disposed of by the Company or
the Warrant Agent, such Warrant Certificate nevertheless may be delivered or
disposed of as though the person who authenticated such Warrant Certificate had
not ceased to be such authorized signatory of the Warrant Agent; and any Warrant
Certificate may be authenticated on behalf of the Warrant Agent by such persons
as, at the actual time of authentication of such Warrant Certificates, shall be
the duly authorized signatories of the Warrant Agent, although at the time of
the execution and delivery of this Agreement any such person is not such an
authorized signatory.
The Warrant Agent's authentication on all Warrant Certificates shall
be in substantially the form set forth in EXHIBIT A hereto.
SECTION 1.05. TEMPORARY WARRANT CERTIFICATES. Warrants sold in
offshore transactions in reliance on Regulation S will initially be represented
by one or more permanent legended global Warrants in definitive, fully
registered form (each a "LEGENDED REGULATION S GLOBAL WARRANT"). The Company
may execute, and the Warrant Agent shall authenticate and deliver, Legended
Regulation S Global Warrant Certificates, which are printed, lithographed,
typewritten or otherwise produced, substantially of the tenor of the definitive
Warrant Certificates in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Warrant Certificates may determine, as evidenced by their
execution of such Warrant Certificates.
The Legended Regulation S Global Warrants will be exchangeable for one
or more unlegended permanent global Warrants on or after one year following the
Issue Date (as defined herein) upon certification that the security entitlements
in such global Warrants are owned by non-U.S. persons at any office or agency
maintained by the Company for that purpose pursuant to
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Section 1.10 hereof. Subject to the provisions of Section 4.01 hereof, such
exchange shall be without charge to the holder. Upon surrender for cancellation
of any one or more Legended Regulation S Global Warrant Certificates, the
Company shall execute, and the Warrant Agent shall authenticate and deliver in
exchange therefor, one or more unlegended permanent global Warrant Certificates
representing in the aggregate a like number of Warrants. Until so exchanged,
the holder of a Legended Regulation S Global Warrant Certificate shall in all
respects be entitled to the same benefits under this Agreement as a holder of an
unlegended permanent global Warrant Certificate PROVIDED that prior to one year
after the Issue Date, security entitlements in the Legended Regulation S Global
Warrant may be only held through Euroclear or Cedel Bank. Cedel Bank and
Euroclear will hold interests in the Global Warrant on behalf of their
participants through DTC.
SECTION 1.06. SEPARATION OF WARRANTS AND NOTES. The Notes and the
Warrants will not be separately transferable until the Separability Date.
"SEPARABILITY DATE" shall mean the earliest of: (i) the date that is six months
after the initial sale of the Units, (ii) the date on which a registration
statement under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
with respect to a registered exchange offer for the Notes is declared effective
under the Securities Act, (iii) the occurrence of an Exercise Event (as defined
herein), (iv) the occurrence of an Event of Default (as defined in the
Indenture) or (v) such earlier date as determined by Merrill Lynch in its sole
discretion and specified to the Company and the Warrant Agent in writing.
Notwithstanding the foregoing, in the event a Change of Control (as defined in
the Indenture) is proposed and the Company commences a Change of Control Offer
(as defined in the Indenture) prior to the Separability Date, as determined by
the preceding sentence, the Separability Date shall be such earlier date of
commencement. The separation of the Warrants and the Notes is herein referred
to as a "SEPARATION."
SECTION 1.07. REGISTRATION. The Company will keep or cause to be
kept, at the office or agency maintained or designated by the Company for such
purpose, a register or registers in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of, and registration of transfer and exchange of, Warrants as provided in this
Article. Each person designated by the Company from time to time as a person
authorized to register the transfer and exchange of the Warrants is hereinafter
called, individually and collectively, the "REGISTRAR." The Company hereby
initially appoints the Warrant Agent as Registrar. Upon written notice to the
Warrant Agent and any acting Registrar, the Company may appoint a successor
Registrar for such purposes.
The Company will at all times designate one person (who may be the
Company and who need not be a Registrar) to act as repository of a master list
of names and addresses of the holders of Warrants (the "WARRANT REGISTER"). The
Warrant Agent will act as such repository unless and until some other person is,
by written notice from the Company to the Warrant Agent and the Registrar,
designated by the Company to act as such. The Company shall cause each
Registrar to furnish to such repository, on a current basis, such information as
to all registrations of transfer and exchanges effected by such Registrar, as
may be necessary to enable such repository to maintain the Warrant Register on
as current a basis as is practicable.
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SECTION 1.08. REGISTRATION OF TRANSFERS OR EXCHANGES.
(a) TRANSFER OR EXCHANGE OF DEFINITIVE WARRANTS. When Definitive
Warrants are presented to the Warrant Agent with a request from the holder:
(i) to register the transfer of the Definitive Warrants; or
(ii) to exchange such Definitive Warrants for an equal number
of Definitive Warrants of other authorized denominations,
the Warrant Agent shall register the transfer or make the exchange as requested
if the requirements under this Warrant Agreement as set forth in this Section
1.08 hereof for such transactions are met; PROVIDED, HOWEVER, that the
Definitive Warrants presented or surrendered by a holder for registration of
transfer or exchange:
(x) shall be duly endorsed or accompanied by a written
instruction of transfer or exchange in form satisfactory to the Company and the
Warrant Agent, duly executed by such holder or by his attorney, duly authorized
in writing; and
(y) in the case of Warrants the offer and sale of which have
not been registered under the Securities Act and are presented for transfer or
exchange prior to (X) the date which is two years (or such shorter period as may
be prescribed by Rule 144(k) (or any successor provision thereto)) after the
later of the date of original issuance of the Warrants and the last date on
which the Company or any affiliate of the Company was the owner of such
Warrants, or any predecessor thereto, and (Y) such later date, if any, as may be
required by any subsequent change in applicable law (the "RESALE RESTRICTION
TERMINATION DATE"), such Warrants shall be accompanied by the following
additional information and documents, as applicable:
(A) if such Warrants are being delivered to the Warrant
Agent by a holder for registration in the name of such holder, without
transfer, a certification from such holder to that effect (in
substantially the form of EXHIBIT C hereto); or
(B) if such Warrants are being transferred to a qualified
institutional buyer as such term is defined in Rule 144A under the
Securities Act (a "QIB") in accordance with Rule 144A under the
Securities Act, a certification from the transferor to that effect (in
substantially the form of EXHIBIT C hereto); or
(C) if such Warrants are being transferred in reliance on
Regulation S under the Securities Act, delivery by the transferor of a
certification to that effect (in substantially the form of EXHIBIT C
hereto), and a Certificate for Regulation S Transfers (in
substantially the form of EXHIBIT D hereto); or
(D) if such Warrants are being transferred in reliance on
Rule 144 under the Securities Act, delivery by the transferor of (i) a
certification from the transferor to that effect (in substantially the
form of EXHIBIT C hereto), and (ii) an opinion of counsel reasonably
satisfactory to the Company to the effect that such transfer is in
compliance with the Securities Act; or
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(E) if such Warrants are being transferred in reliance on
another exemption from the registration requirements of the Securities
Act, a certification from the transferor to that effect (in
substantially the form of EXHIBIT C hereto) and an opinion of counsel
reasonably satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act.
(b) RESTRICTIONS ON TRANSFER OF A DEFINITIVE WARRANT FOR A SECURITY
ENTITLEMENT IN A GLOBAL WARRANT. A Definitive Warrant may not be transferred by
a holder for a security entitlement in a Global Warrant except upon satisfaction
of the requirements set forth below. Upon receipt by the Warrant Agent of a
Definitive Warrant, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Warrant Agent, together with:
(A) certification from such holder (in substantially the
form of EXHIBIT C hereto) that such Definitive Warrant is being
transferred to a QIB in accordance with Rule 144A under the Securities
Act; and
(B) written instructions directing the Warrant Agent to
make, or to direct the Depositary to make, an endorsement on the
Global Warrant to reflect an increase in the aggregate amount of the
Warrants represented by the Global Warrant,
then the Warrant Agent shall cancel such Definitive Warrant and cause, or direct
the Depositary to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Warrant Agent, the number of
Warrant Shares represented by the Global Warrant to be increased accordingly.
If no Global Warrant is then outstanding, the Company shall issue, and the
Warrant Agent shall upon written instructions from the Company authenticate, a
new Global Warrant in the appropriate amount.
(c) TRANSFER OR EXCHANGE OF GLOBAL WARRANTS. The transfer or
exchange of Global Warrants or security entitlements therein shall be effected
through the Depositary, in accordance with this Section 1.08, the Private
Placement Legend (as defined below), this Agreement (including those
restrictions on transfer set forth herein) and the procedures of the Depositary
therefor.
(d) TRANSFER OR EXCHANGE OF A SECURITY ENTITLEMENT IN A GLOBAL
WARRANT FOR A DEFINITIVE WARRANT.
(i) Any person having a security entitlement in a Global
Warrant may transfer or exchange such security entitlement for a Definitive
Warrant upon receipt by the Warrant Agent of written instructions (or such other
form of instructions as is customary for the Depositary) from the Depositary or
its nominee on behalf of any person having a security entitlement in a Global
Warrant, including a written order containing registration instructions and, in
the case of any such transfer or exchange prior to the Resale Restriction
Termination Date, the following additional information and documents:
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(A) if such security entitlement is being transferred to
the person designated by the Depositary as being the entitlement
holder, a certification from such person to that effect (in
substantially the form of EXHIBIT C hereto); or
(B) if such security entitlement is being transferred to
a QIB in accordance with Rule 144A under the Securities Act, a
certification from the transferor to that effect (in substantially the
form of EXHIBIT C hereto); or
(C) if such security entitlement is being transferred in
reliance on Regulation S under the Securities Act, delivery by the
transferor of (i) a certification to that effect (in substantially in
the form of EXHIBIT C hereto), and (ii) a Certificate for Regulation S
Transfers in substantially the form of EXHIBIT D hereto; or
(D) if such security entitlement is being transferred in
reliance on Rule 144 under the Securities Act, delivery by the
transferor of (i) a certification to that effect (in substantially the
form of EXHIBIT C hereto), and (ii) an opinion of counsel reasonably
satisfactory to the Company to the effect that such transfer is in
compliance with the Securities Act; or
(E) if such security entitlement is being transferred in
reliance on another exemption from the registration requirements of
the Securities Act, a certification from the transferor to that effect
(in substantially the form of EXHIBIT C hereto) and an opinion of
counsel reasonably satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act;
then the Warrant Agent will cause, in accordance with the standing instructions
and procedures existing between the Depositary and the Warrant Agent, the
aggregate amount of the Global Warrant to be reduced and, following such
reduction, the Company will execute and, upon receipt of an authentication order
in the form of an officers' certificate (a certificate signed by the chief
executive officer, the president, the chief financial officer or any executive
vice president of the Company signing alone, or by any vice president signing
together with the secretary, any assistant secretary, the treasurer, or any
assistant treasurer of the Company) (an "OFFICERS' CERTIFICATE"), the Warrant
Agent will authenticate and deliver to the transferee a Definitive Warrant.
(ii) Definitive Warrants issued in exchange for a security entitlement
in a Global Warrant pursuant to this Section 1.08(d) shall be registered in such
names and in such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Warrant Agent in writing. The Warrant Agent shall deliver such
Definitive Warrants to the persons in whose names such Warrants are so
registered and adjust the Global Warrant pursuant to paragraph (h) of this
Section 1.08.
(e) RESTRICTIONS ON TRANSFER OR EXCHANGE OF GLOBAL WARRANTS.
Notwithstanding any other provisions of this Agreement (other than the
provisions set forth in subsection (f) of this Section 1.08), a Global Warrant
may not be transferred or exchanged as a whole except by the Depositary to a
nominee of the Depositary; by a nominee of the Depositary to the Depositary or
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another nominee of the Depositary; or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) AUTHENTICATION OF DEFINITIVE WARRANTS IN ABSENCE OF DEPOSITARY.
If at any time:
(i) the Depositary for the Global Warrants notifies the
Company that the Depositary is unwilling or unable to continue as Depositary for
the Global Warrant and a successor Depositary for the Global Warrant is not
appointed by the Company within 90 days after delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the Warrant
Agent in writing that it elects to cause the issuance of Definitive Warrants for
all Global Warrants under this Agreement,
then the Company will execute, and the Warrant Agent will, upon receipt of an
Officers' Certificate requesting the authentication and delivery of Definitive
Warrants, authenticate and deliver Definitive Warrants, in an aggregate number
equal to the aggregate number of warrants represented by the Global Warrant, in
exchange for such Global Warrant.
(g) PRIVATE PLACEMENT LEGEND. Upon the transfer or exchange of
Warrant Certificates not bearing the legend set forth in the first paragraph of
EXHIBIT A attached hereto (the "PRIVATE PLACEMENT LEGEND"), the Warrant Agent
shall deliver Warrant Certificates that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Warrant Certificates
bearing the Private Placement Legend, the Warrant Agent shall deliver Warrant
Certificates that bear the Private Placement Legend unless, and the Warrant
Agent is hereby authorized to deliver Warrant Certificates without the Private
Placement Legend if, (i) there is delivered to the Warrant Agent an opinion of
counsel reasonably satisfactory to the Company and the Warrant Agent to the
effect that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the Securities
Act or (ii) the Warrants to be transferred or exchanged represented by such
Warrant Certificates are being transferred or exchanged pursuant to an effective
registration statement under the Securities Act.
(h) CANCELLATION OR ADJUSTMENT OF A GLOBAL WARRANT. At such time as
all security entitlements in a Global Warrant have either been exchanged for
Definitive Warrants, redeemed, repurchased or cancelled, such Global Warrant
shall be returned to the Company or, upon written order to the Warrant Agent in
the form of an Officers' Certificate from the Company, retained and cancelled by
the Warrant Agent. At any time prior to such cancellation, if any security
entitlement in a Global Warrant is exchanged for Definitive Warrants, redeemed,
repurchased or cancelled, the number of Warrants represented by such Global
Warrant shall be reduced and an endorsement shall be made on such Global Warrant
by the Warrant Agent to reflect such reduction.
(i) OBLIGATIONS WITH RESPECT TO TRANSFERS OR EXCHANGES OF DEFINITIVE
WARRANTS.
(i) To permit registrations of transfers or exchanges, the
Company shall execute, at the Warrant Agent's request, and the Warrant Agent
shall authenticate, Definitive Warrants and Global Warrants.
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(ii) All Definitive Warrants and Global Warrants issued upon
any registration, transfer or exchange of Definitive Warrants or Global
Warrants, as the case may be, shall be the valid obligations of the Company,
entitled to the same benefits under this Warrant Agreement as the Definitive
Warrants or Global Warrants surrendered upon the registration of transfer or
exchange.
(iii) Prior to due presentment for registration of transfer of
any Warrant, the Warrant Agent and the Company may deem and treat the person in
whose name any Warrant is registered as the absolute owner of such Warrant, and
neither the Warrant Agent nor the Company shall be affected by notice to the
contrary.
SECTION 1.09. LOST, STOLEN, DESTROYED, DEFACED OR MUTILATED WARRANT
CERTIFICATES. Upon receipt by the Company and the Warrant Agent (or any agent
of the Company or the Warrant Agent, if requested by the Company) of evidence
satisfactory to them of the loss, theft, destruction, defacement, or mutilation
of any Warrant Certificate and of indemnity satisfactory to them (including but
not limited to a lost instrument affidavit and the posting of a bond) and, in
the case of mutilation or defacement, upon surrender thereof to the Warrant
Agent for cancellation, then, in the absence of notice to the Company or the
Warrant Agent that such Warrant Certificate has been acquired by a BONA FIDE
purchaser or holder in due course, the Company shall execute, and an authorized
signatory of the Warrant Agent shall manually authenticate and deliver, in
exchange for or in lieu of the lost, stolen, destroyed, defaced or mutilated
Warrant Certificate, a new Warrant Certificate representing a like number of
Warrants, bearing a number or other distinguishing symbol not contemporaneously
outstanding. Upon the issuance of any new Warrant Certificate under this
Section in a name other than the prior registered holder of the lost, stolen,
destroyed, defaced or mutilated Warrant Certificate, the Company may require the
payment from the holder of such Warrant Certificate of a sum sufficient to cover
any tax, stamp tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Warrant
Agent and the Registrar) in connection therewith. Every substitute Warrant
Certificate executed and delivered pursuant to this Section in lieu of any lost,
stolen or destroyed Warrant Certificate shall constitute an additional
contractual obligation of the Company, whether or not the lost, stolen or
destroyed Warrant Certificate shall be at any time enforceable by anyone, and
shall be entitled to the benefits of (but shall be subject to all the
limitations of rights set forth in) this Agreement equally and proportionately
with any and all other Warrant Certificates duly executed and delivered
hereunder. The provisions of this Section 1.09 are exclusive with respect to
the replacement of lost, stolen, destroyed, defaced or mutilated Warrant
Certificates and shall preclude (to the extent lawful) any and all other rights
or remedies notwithstanding any law or statute existing or hereafter enacted to
the contrary with respect to the replacement of lost, stolen, destroyed, defaced
or mutilated Warrant Certificates.
The Warrant Agent is hereby authorized to authenticate in accordance
with the provisions of this Agreement and deliver the new Warrant Certificates
required pursuant to the provisions of this Section.
SECTION 1.10. OFFICES FOR EXERCISE, ETC. So long as any of the
Warrants remain outstanding, the Company will designate and maintain in the
Borough of Manhattan, The City of
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New York: (a) an office or agency where the Warrant Certificates may be
presented for exercise (each a "WARRANT EXERCISE OFFICE"), (b) an office or
agency where the Warrant Certificates may be presented for registration of
transfer and for exchange (including the exchange of temporary Warrant
Certificates for definitive Warrant Certificates pursuant to Section 1.05
hereof), and (c) an office or agency where notices and demands to or upon the
Company in respect of the Warrants or of this Agreement may be served. The
Company may from time to time change or rescind such designation, as it may deem
desirable or expedient; PROVIDED, HOWEVER, that an office or agency shall at all
times be maintained in the Borough of Manhattan, The City of New York, as
provided in the first sentence of this Section. In addition to such office or
offices or agency or agencies, the Company may from time to time designate and
maintain one or more additional offices or agencies within or outside The City
of New York, where Warrant Certificates may be presented for exercise or for
registration of transfer or for exchange, and the Company may from time to time
change or rescind such designation, as it may deem desirable or expedient. The
Company will give to the Warrant Agent written notice of the location of any
such office or agency and of any change of location thereof. The Company hereby
designates the Warrant Agent at its principal corporate trust office identified
in Section 7.03 in the Borough of Manhattan, The City of New York (the "WARRANT
AGENT OFFICE"), as the initial agency maintained for each such purpose. In case
the Company shall fail to maintain any such office or agency or shall fail to
give such notice of the location or of any change in the location thereof,
presentations and demands may be made and notice may be served at the Warrant
Agent Office and the Company appoints the Warrant Agent as its agent to receive
all such presentations, surrenders, notices and demands.
ARTICLE II
DURATION, EXERCISE OF WARRANTS; EXERCISE PRICE
AND REPURCHASE OF WARRANTS
SECTION 2.01. DURATION OF WARRANTS. Subject to the terms and
conditions established herein, the Warrants shall expire at 5:00 p.m., New York
City time, on April 1, 2008. The applicable date of expiration of a particular
Warrant is referred to herein as the "EXPIRATION DATE" of such Warrant. Each
Warrant may be exercised on any Business Day (as defined below) on or after the
Exercisability Date (as defined in Section 2.02) and on or prior to the close of
business on the Expiration Date.
Any Warrant not exercised before the close of business on the
Expiration Date shall become void, and all rights of the holder under the
Warrant Certificate evidencing such Warrant and under this Agreement shall
cease.
"BUSINESS DAY" shall mean any day on which (i) banks in The City of
New York, (ii) the principal U.S. securities exchange or market, if any, on
which any Common Stock is listed or admitted to trading and (iii) the principal
U.S. securities exchange or market, if any, on which the Warrants are listed or
admitted to trading, are open for business.
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SECTION 2.02. EXERCISE, EXERCISE PRICE, SETTLEMENT AND DELIVERY.
(a) Subject to the provisions of this Agreement, a holder of a
Warrant shall have the right to purchase from the Company on or after the
Exercisability Date and on or prior to the close of business on the Expiration
Date 1,728,000 fully paid, registered and non-assessable Warrant Shares (and any
other securities or property purchasable or deliverable upon exercise of such
Warrant as provided in Article V), subject to adjustment in accordance with
Article V hereof, at the purchase price of $0.01 for each share purchased (the
"EXERCISE PRICE"). The number and amount of Warrant Shares issuable upon
exercise of a Warrant (the "EXERCISE RATE") shall be subject to adjustment from
time to time as set forth in Article V hereof.
"EXERCISABILITY DATE" means, with respect to each Warrant, the first
day on or after the Separability Date on which there shall have occurred an
Exercise Event (as defined herein).
"EXERCISE EVENT" means, with respect to each Warrant, the date of the
occurrence of the earliest of: (i) the time immediately prior to the occurrence
of a Change of Control (as such term is defined in the Indenture); (ii)(a) the
180th day (or such earlier date as determined by the Company in its sole
discretion) following the closing of an Initial Public Equity Offering (as
defined herein) or (b) upon the closing of an Initial Public Equity Offering,
but only in respect of Warrants, if any, required to be exercised to permit the
holders thereof to sell Warrant Shares pursuant to their respective registration
rights, (iii) a class of equity securities of the Company is listed on a
national securities exchange or authorized for quotation on The Nasdaq National
Market or is otherwise subject to registration under the Exchange Act, or
(iv) October 2, 1999.
"INITIAL PUBLIC EQUITY OFFERING" means a primary public offering
(whether or not underwritten, but excluding any offering pursuant to Form S-8
under the Securities Act or any other publicly registered offering pursuant to
the Securities Act pertaining to an issuance of shares of Common Stock or
securities exercisable therefor under any benefit plan, employee compensation
plan, or employee or director stock purchase plan) of Common Stock pursuant to
an effective registration statement under the Securities Act.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
(b) Warrants may be exercised on or after the date they are
exercisable hereunder by (i) surrendering at any Warrant Exercise Office the
Warrant Certificate evidencing such Warrants with the form of election to
purchase Warrant Shares set forth on the reverse side of the Warrant Certificate
(the "ELECTION TO EXERCISE") duly completed and signed by the registered holder
or holders thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney, and in the case of a transfer, such signature shall be
guaranteed by an eligible guarantor institution, and (ii) paying in full the
Exercise Price for each such Warrant exercised. Each Warrant may be exercised
only in whole.
(c) Simultaneously with the exercise of each Warrant, payment in full
of the aggregate Exercise Price may be made, at the option of the holder, (i) in
cash or by certified or official bank
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check, (ii) by a Cashless Exercise (as defined below) or (iii) by any
combination of (i) and (ii), to the office or agency where the Warrant
Certificate is being surrendered. For purposes of this Agreement, a "CASHLESS
EXERCISE" shall mean an exercise of a Warrant in accordance with the immediately
following two sentences. To effect a Cashless Exercise, the holder may exercise
a Warrant or Warrants without payment of the Exercise Price in cash by
surrendering such Warrant or Warrants (represented by one or more Warrant
Certificates) and, in exchange therefor, receiving such number of shares of
Common Stock equal to the product of (1) that number of shares of Common Stock
for which such Warrant or Warrants are exercisable and which would be issuable
in the event of an exercise with payment in cash of the Exercise Price and (2)
the Cashless Exercise Ratio (as defined below). The "CASHLESS EXERCISE RATIO"
shall equal a fraction, the numerator of which is the excess of the Current
Market Value (calculated as set forth in this Agreement) per share of Common
Stock on the date of exercise over the Exercise Price per share of Common Stock
as of the date of exercise and the denominator of which is the Current Market
Value per share of Common Stock on the date of exercise. Upon surrender of a
Warrant Certificate representing more than one Warrant in connection with a
holder's option to elect a Cashless Exercise, such holder must specify the
number of Warrants for which such Warrant Certificate is to be exercised
(without giving effect to such Cashless Exercise). All provisions of this
Agreement shall be applicable with respect to a Cashless Exercise of a Warrant
Certificate for less than the full number of Warrants represented thereby. No
payment or adjustment shall be made on account of any distributions of dividends
on the Common Stock issuable upon exercise of a Warrant. If the Company has not
effected the registration under the Securities Act of the offer and sale of the
Warrant Shares by the Company to the holders of the Warrants on or prior to the
Exercise Date (as defined below) thereof, the Company may elect to require that
the holders of the Warrants effect the exercise thereof solely pursuant to the
Cashless Exercise option and may also amend the Warrants to eliminate the
requirement for payment of the Exercise Price with respect to such Cashless
Exercise option. The Warrant Agent shall have no obligation under this section
to calculate the Cashless Exercise Ratio.
(d) Upon surrender of a Warrant Certificate and payment and
collection of the Exercise Price at any Warrant Exercise Office (other than any
Warrant Exercise Office that also is an office of the Warrant Agent), such
Warrant Certificate and payment shall be promptly delivered to the Warrant
Agent. The "EXERCISE DATE" for a Warrant shall be the date when all of the
items referred to in the first sentence of paragraphs (b) and (c) of this
Section 2.02 are received by the Warrant Agent at or prior to 11:00 a.m., New
York City time, on a Business Day and the exercise of the Warrants will be
effective as of such Exercise Date. If any items referred to in the first
sentence of paragraphs (b) and (c) are received after 11:00 a.m., New York City
time, on a Business Day, the exercise of the Warrants to which such item relates
will be effective on the next succeeding Business Day. Notwithstanding the
foregoing, in the case of an exercise of Warrants on the Expiration Date, if all
of the items referred to in the first sentence of paragraphs (b) and (c) are
received by the Warrant Agent at or prior to 5:00 p.m., New York City time, on
the Expiration Date, the exercise of the Warrants to which such items relate
will be effective on the Expiration Date.
(e) Upon the exercise of a Warrant in accordance with the terms
hereof, the receipt of a Warrant Certificate and payment of the Exercise Price
(or election of the Cashless Exercise option), the Warrant Agent shall: (i)
except to the extent exercise of the Warrant has been
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effected through a Cashless Exercise, cause an amount equal to the aggregate
Exercise Price to be paid to the Company by crediting such amount in immediately
available funds to the account designated by the Company in writing to the
Warrant Agent for that purpose; (ii) advise the Company immediately by telephone
of the amount so deposited to the Company's account and promptly confirm such
telephonic advice in writing; and (iii) as soon as practicable, advise the
Company in writing of the number of Warrants exercised in accordance with the
terms and conditions of this Agreement and the Warrant Certificates, the
instructions of each exercising holder of the Warrant Certificates with respect
to delivery of the Warrant Shares to which such holder is entitled upon such
exercise, and such other information as the Company shall reasonably request.
(f) Subject to Section 5.02 hereof, as soon as practicable after the
exercise of any Warrant or Warrants in accordance with the terms hereof, the
Company shall issue or cause to be issued to or upon the written order of the
registered holder of the Warrant Certificate evidencing such exercised Warrant
or Warrants, a certificate or certificates evidencing the Warrant Shares to
which such holder is entitled, in fully registered form, registered in such name
or names as may be directed by such holder pursuant to the Election to Exercise,
as set forth on the reverse of the Warrant Certificate. Such certificate or
certificates evidencing the Warrant Shares shall be deemed to have been issued
and any persons who are designated to be named therein shall be deemed to have
become the holders of record of such Warrant Shares as of the close of business
on the Exercise Date; the Warrant Shares may initially be issued in global form
(the "GLOBAL SHARES"). Such Global Shares shall represent such of the
outstanding Warrant Shares as shall be specified therein and each Global Share
shall provide that it represents the aggregate amount of outstanding Warrant
Shares from time to time endorsed thereon and that the aggregate amount of
outstanding Warrant Shares represented thereby may from time to time be reduced
or increased, as appropriate. Any endorsement of a Global Share to reflect any
increase or decrease in the amount of outstanding Warrant Shares represented
thereby shall be made by the registrar for the Warrant Shares and the Depositary
(referred to below) in accordance with instructions given by the holder thereof.
The Depository Trust Company shall (if possible) act as the Depositary with
respect to the Global Shares until a successor shall be appointed by the Company
and the registrar for the Warrant Shares. After exercise of any Warrant or
Warrant Shares, the Company shall also issue or cause to be issued to or upon
the written order of the registered holder of such Warrant Certificate, a new
Warrant Certificate, countersigned by the Warrant Agent pursuant to written
instruction, evidencing the number of Warrants, if any, remaining unexercised
unless such Warrants shall have expired.
SECTION 2.03. CANCELLATION OF WARRANT CERTIFICATES. In the event the
Company shall purchase or otherwise acquire Warrants, the Warrant Certificates
evidencing such Warrants may thereupon be delivered to the Warrant Agent, and if
so delivered, shall at the Company's written instruction be canceled by it and
retired. The Warrant Agent shall cancel all Warrant Certificates properly
surrendered for exchange, substitution, transfer or exercise. Upon the
Company's written request, the Warrant Agent shall deliver such canceled Warrant
Certificates to the Company.
SECTION 2.04. NOTICE OF AN EXERCISE EVENT.
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The Company shall, as soon as practicable after the occurrence of an
Exercise Event, send or cause to be sent to each holder of Warrants and to each
entitlement holder of the Warrants with respect to which such Exercise Event has
occurred to the extent that the Warrants are held of record by a depositary or
other agent (with a copy to the Warrant Agent), by first-class mail, at the
addresses appearing on the Warrant Register, a notice prepared by the Company
advising such holder of the Exercise Event which has occurred, which notice
shall describe the type of Exercise Event and the date of the occurrence
thereof, as applicable, and, in either case, the date of expiration of the right
to exercise the Warrants prominently set forth in the face of such notice.
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.01. ENFORCEMENT OF RIGHTS.
(a) Notwithstanding any of the provisions of this Agreement, any
holder of any Warrant Certificate, without the consent of the Warrant Agent, the
holder of any Warrant Shares or the holder of any other Warrant Certificate,
may, in and for his own behalf, enforce, and may institute and maintain any
suit, action or proceeding against the Company suitable to enforce, his right to
exercise the Warrant or Warrants evidenced by his Warrant Certificate in the
manner provided in such Warrant Certificate and in this Agreement.
(b) Neither the Warrants nor any Warrant Certificate shall entitle
the holders thereof to any of the rights of shareholders of the Company,
including, without limitation, the right to vote or to receive any dividends or
other payments or to consent or to receive notice as shareholders in respect of
the meetings of shareholders or for the election of directors of the Company or
any other matter, or any rights whatsoever as shareholders of the Company,
except as expressly provided in Section 5.03 hereof.
SECTION 3.02. OBTAINING STOCK EXCHANGE LISTINGS. The Company will
from time to time take all action which may be necessary so that the Warrant
Shares, immediately upon their issuance upon the exercise of Warrants, will be
listed on the principal securities exchanges and markets within the United
States (including The Nasdaq National Market), if any, on which other shares of
Common Stock are then listed.
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.01. PAYMENT OF TAXES. The Company will pay all documentary
stamp taxes attributable to the initial issuance of Warrants and of the Warrant
Shares upon the exercise of Warrants; PROVIDED, HOWEVER, that the Company shall
not be required to pay any tax or other governmental charge which may be payable
in respect of any transfer or exchange of any Warrant Certificates or any
certificates for Warrant Shares in a name other than the registered holder of a
Warrant Certificate surrendered upon the exercise of a Warrant. In any such
case, no transfer or
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exchange shall be made unless or until the person or persons requesting issuance
thereof shall have paid to the Company the amount of such tax or other
governmental charge or shall have established to the satisfaction of the Company
that such tax or other governmental charge has been paid or an exemption is
available therefrom.
SECTION 4.02. RULES 144 AND 144A. The Company covenants that it will
file the reports required to be filed by it under the Securities Act and the
Exchange Act and the rules, regulations and policies adopted by the Securities
and Exchange Commission thereunder in a timely manner in accordance with the
requirements of the Securities Act and the Exchange Act and, if at any time the
Company is not required to file such reports, it will make available upon
request to each owner or entitlement holder of Warrants, such information as is
referred to in Rule 144A(d)(4) under the Securities Act.
SECTION 4.03. FORM OF INITIAL PUBLIC EQUITY OFFERING. The Company
agrees that it will not make an Initial Public Equity Offering of any class of
its Capital Stock (as defined below) (other than the class of Capital Stock into
which the Warrants are exercisable) without adopting any amendments to the terms
of the Company's articles of incorporation that may be necessary to provide that
the Warrant Shares are convertible into such class of Capital Stock subject to
the Initial Public Equity Offering (the "SUBJECT CLASS") on a share-for-share
basis or other equitable basis and that the rights, conditions and privileges of
the Subject Class shall not be adverse to the holders of the Warrant Shares.
SECTION 4.04. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
The Company will also agree to comply with all applicable laws, including the
Securities Act and any applicable state securities laws, in connection with the
offer and sale of Common Stock (and other securities and property deliverable)
upon exercise of the Warrants; PROVIDED, HOWEVER, that the Company shall not be
required in connection therewith to qualify as a foreign corporation in any
jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation, other
than as to matters and transactions relating to the Warrant Shares, in any
jurisdiction in which it is not now so subject.
SECTION 4.05. RESOLUTION OF PREEMPTIVE RIGHTS, IF ANY. The Warrant
Shares shall not be subject to any preemptive or similar rights.
ARTICLE V
ADJUSTMENTS
SECTION 5.01. ADJUSTMENT OF EXERCISE RATE; NOTICES. The Exercise
Rate is subject to adjustment from time to time as provided in this Section.
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If, after the Issue Date
(as defined herein), the Company:
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(i) pays a dividend or makes a distribution on shares of its
Common Stock payable in shares of its Common Stock or certain other Capital
Stock of the Company (other than any such dividend to the extent covered by
Section 5.03);
(ii) subdivides or splits any of its outstanding shares of
Common Stock into a greater number of shares;
(iii) combines any of its outstanding shares of Common Stock
into a smaller number of shares; or
(iv) issues by reclassification of any of its Common Stock or
any shares of any of its Capital Stock;
then the Exercise Rate in effect immediately prior to such action for each
Warrant then outstanding shall be adjusted so that the holder of a Warrant
thereafter exercised may receive the number of shares of Capital Stock of the
Company which such holder would have owned immediately following such action if
such holder had exercised the Warrant immediately prior to such action or
immediately prior to the record date applicable thereto, if any (regardless of
whether the Warrants then outstanding are then exercisable and without giving
effect to the Cashless Exercise option). If there are no outstanding shares of
Common Stock that are of the same class as the Warrant Shares at the time of any
such action and such action has therefore been taken only in respect of shares
of another class of Common Stock, such adjustment shall relate to the Warrant
Shares as Warrant Shares (and not in the form of shares of Common Stock) if it
would not frustrate the intent and purposes of this Section 5.01.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
In the event that such dividend or distribution is not so paid or made or such
subdivision, combination or reclassification is not effected, the Exercise Rate
shall again be adjusted to be the Exercise Rate which would then be in effect if
such record date or effective date had not been so fixed.
If after an adjustment a holder of a Warrant upon exercise of such
Warrant may receive shares of two or more classes of Capital Stock of the
Company, the Exercise Rate shall thereafter be subject to adjustment upon the
occurrence of an action taken with respect to any such class of Capital Stock as
is contemplated by this Article V with respect to the Common Stock, on terms
comparable to those applicable to Common Stock in this Article V.
(b) ADJUSTMENT FOR SALE OF COMMON STOCK BELOW CURRENT MARKET VALUE.
If, after the Issue Date, the Company grants or sells to any Affiliate of the
Company (other than a wholly-owned subsidiary) any Common Stock or any
securities convertible into or exchangeable or exercisable for any Common Stock
(other than (1) pursuant to the exercise of the Warrants, (2) pursuant to any
security convertible into, or exchangeable or exercisable for, shares of Common
Stock outstanding as of the Issue Date, (3) upon the conversion, exchange or
exercise of any convertible, exchangeable or exercisable security as to which
upon the issuance thereof an adjustment pursuant to this Article V has been made
or which did not require any adjustment
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pursuant to this Article V or (4) upon the conversion, exchange or exercise of
convertible, exchangeable or exercisable securities of the Company outstanding
on the Issue Date (to the extent in accordance with the terms of such securities
as in effect on such date)) at a price below the then Current Market Value
(calculated as set forth in Section 5.01(l) hereof), the Exercise Rate for each
Warrant then outstanding shall be adjusted in accordance with the formula:
E(1) = Ex (O + N)
---------------
(O + (N x PIM))
where:
E(1) = the adjusted Exercise Rate for each Warrant then outstanding;
E = the then current Exercise Rate for each Warrant then outstanding;
O = the number of shares of Common Stock outstanding immediately
prior to the sale of Common Stock or issuance of securities
convertible, exchangeable or exercisable for Common Stock;
N = the number of shares of Common Stock so sold or the maximum
stated number of shares of Common Stock issuable upon the
conversion, exchange or exercise of any such convertible,
exchangeable or exercisable securities, as the case may be;
P = the proceeds per share of Common Stock received by the Company,
which (i) in the case of shares of Common Stock is the amount
received by the Company in consideration for the sale and
issuance of such shares; and (ii) in the case of securities
convertible into or exchangeable or exercisable for shares of
Common Stock is the amount received by the Company in
consideration for the sale and issuance of such convertible or
exchangeable or exercisable securities, plus the minimum
aggregate amount of additional consideration, other than the
surrender of such convertible or exchangeable securities, payable
to the Company upon exercise, conversion or exchange thereof; and
M = the Current Market Value as of the Time of Determination (as
defined herein) or at the time of sale, as the case may be
(calculated as set forth in Section 5.01(l) hereof.
The adjustment shall become effective immediately after the record
date for the determination of shareholders entitled to receive the rights,
warrants or options to which this paragraph (b) applies or upon consummation of
the sale of Common Stock, as the case may be. To the extent that shares of
Common Stock are not delivered after the expiration of such rights, warrants or
options, the Exercise Rate for each Warrant then outstanding shall be readjusted
to the Exercise Rate which would otherwise be in effect had the adjustment made
upon the issuance of such rights, warrants or options been made on the basis of
delivery of only the number of shares of Common Stock actually delivered. In
the event that such rights or warrants are not so issued, the Exercise Rate for
each Warrant then outstanding shall again be adjusted to be the
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Exercise Rate which would then be in effect if such date fixed for determination
of shareholders entitled to receive such rights, warrants or options had not
been so fixed.
No adjustment shall be made under this paragraph (b) if the
application of the formula stated above in this paragraph (b) would result in a
value of E1 that is lower than the value of E.
No adjustment shall be made under this paragraph (b) for any
adjustment which is the subject of paragraphs (a) and (d) of this Section 5.01.
No adjustment in the Exercise Rate shall be made under this paragraph
(b) upon the grant, conversion, exchange or exercise of options to acquire
shares of Common Stock by officers, directors or employees of the Company;
PROVIDED that the exercise price of such options, at the time of issuance
thereof, was at least equal to the then Current Market Value of the Common Stock
underlying such options.
"AFFILIATE" has the meaning set forth in the Indenture.
"ISSUE DATE" means the date of the Indenture.
(c) NOTICE OF ADJUSTMENT. Whenever the Exercise Rate is adjusted,
the Company shall promptly mail to holders of Warrants then outstanding at the
addresses appearing on the Warrant Register a notice of the adjustment. The
Company shall file with the Warrant Agent and any other Registrar such notice
and a certificate from the Company's independent public accountants briefly
stating the facts requiring the adjustment and the manner of computing it. The
certificate shall be conclusive evidence that the adjustment is correct.
Neither the Warrant Agent nor any such Registrar shall be under any duty or
responsibility with respect to any such certificate except to exhibit the same
during normal business hours to any holder desiring inspection thereof.
(d) REORGANIZATION OF COMPANY; SPECIAL DISTRIBUTIONS.
(i) If the Company, in a single transaction or through a series
of related transactions, consolidates with or merges with or into any other
person or sells, assigns, transfers, leases, conveys or otherwise disposes of
all or substantially all of its properties and assets to another person or group
of affiliated persons or is a party to a merger or binding share exchange which
reclassifies or changes its outstanding Common Stock (a "FUNDAMENTAL
TRANSACTION"), as a condition to consummating any such transaction the person
formed by or surviving any such consolidation or merger if other than the
Company or the person to whom such transfer has been made (the "SURVIVING
PERSON") shall enter into a supplemental warrant agreement. The supplemental
warrant agreement shall provide (a) that the holder of a Warrant then
outstanding may exercise it for the kind and amount of securities, cash or other
assets which such holder would have received immediately after the Fundamental
Transaction if such holder had exercised the Warrant immediately before the
effective date of the transaction (whether or not the Warrants were then
exercisable and without giving effect to the Cashless Exercise option); it being
understood that the Warrants will remain exercisable only in accordance with
their terms so that conditions to exercise will remain applicable, such as
payment of Exercise Price, assuming (to the extent applicable) that such holder
(i) was not a constituent person or an affiliate of a constituent
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person to such transaction, (ii) made no election with respect thereto, and
(iii) was treated alike with the plurality of non-electing holders, and (b) that
the Surviving Person shall succeed to and be substituted to every right and
obligation of the Company in respect of this Agreement and the Warrants. The
supplemental warrant agreement shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Article V. The Surviving Person shall mail to holders of Warrants at the
addresses appearing on the Warrant Register a notice briefly describing the
supplemental warrant agreement. If the issuer of securities deliverable upon
exercise of Warrants is an affiliate of the Surviving Person, that issuer shall
join in the supplemental warrant agreement.
(ii) Notwithstanding the foregoing, if the Company enters into
a Fundamental Transaction with another Person (other than a subsidiary of the
Company) and consideration is payable to holders of shares of Capital Stock (or
other securities or property) issuable or deliverable upon exercise of the
Warrants that are exercisable in exchange for such shares in connection with
such Fundamental Transaction which consists solely of cash, then the holders of
Warrants shall be entitled to receive distributions on the date of such event on
an equal basis with holders of such shares (or other securities issuable upon
exercise of the Warrants) as if the Warrants had been exercised immediately
prior to such event, less the aggregate Exercise Price therefor. Upon receipt
of such payment, if any, the rights of a holder of such Warrant shall terminate
and cease and such holder's Warrants shall expire.
(iii) If this paragraph (d) applies, it shall supersede the
application of paragraph (a) of this Section 5.01.
(e) COMPANY DETERMINATION FINAL. Any determination that the Company
or the board of directors of the Company must make pursuant to this Article V
shall be conclusive.
(f) WARRANT AGENT'S ADJUSTMENT DISCLAIMER. The Warrant Agent shall
have no duty to determine when an adjustment under this Article V should be
made, how it should be made or what it should be. The Warrant Agent shall have
no duty to determine whether a supplemental warrant agreement under paragraph
(d) need be entered into or whether any provisions of any supplemental warrant
agreement are correct. The Warrant Agent shall not be accountable for and makes
no representation as to the validity or value of any securities or assets issued
upon exercise of Warrants. The Warrant Agent shall not be responsible for the
Company's failure to comply with this Article V.
(g) ADJUSTMENT FOR TAX PURPOSES. In the event of a taxable
distribution to holders of shares of Common Stock which results in an adjustment
to the number of shares of Common Stock or other consideration for which such a
Warrant may be exercised, the holders of the Warrants may, in certain
circumstances, be deemed to have received a distribution subject to United
States federal income tax as a dividend.
(h) UNDERLYING WARRANT SHARES. The Company shall at all times
reserve and keep available, free from preemptive rights, out of its authorized
but unissued Common Stock or Common Stock held in the treasury of the Company,
for the purpose of effecting the exercise of Warrants, the full number of
Warrant Shares then deliverable upon the exercise of all Warrants
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then outstanding and payment of the exercise price, and the shares so
deliverable shall be fully paid and nonassessable and free from all liens and
security interests.
(i) SPECIFICITY OF ADJUSTMENT. Regardless of any adjustment in the
number or kind of shares purchasable upon the exercise of the Warrants, Warrant
Certificates theretofore or thereafter issued may continue to express the same
number and kind of Warrant Shares per Warrant as are stated on the Warrant
Certificates initially issuable pursuant to this Agreement.
(j) VOLUNTARY ADJUSTMENT. The Company from time to time may increase
the Exercise Rate by any number and for any period of time (PROVIDED that such
period is not less than 20 Business Days). Whenever the Exercise Rate is so
increased, the Company shall mail to holders at the addresses appearing on the
Warrant Register and file with the Warrant Agent a notice of the increase. The
Company shall give the notice at least 15 days before the date the increased
Exercise Rate takes effect. The notice shall state the increased Exercise Rate
and the period it will be in effect. A voluntary increase in the Exercise Rate
shall not change or adjust the Exercise Rate otherwise in effect as determined
by this Section 5.01.
(k) MULTIPLE ADJUSTMENTS. After an adjustment to the Exercise Rate
for outstanding Warrants under this Article V, any subsequent event requiring an
adjustment under this Article V shall cause an adjustment to the Exercise Rate
for outstanding Warrants as so adjusted.
(l) DEFINITIONS.
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock, whether
outstanding on the Issue Date or issued after the Issue Date, and any and all
rights (other than any evidence of Indebtedness), warrants or options
exchangeable for or convertible into such capital stock.
"CONVERTIBLE PREFERRED STOCK" shall mean any securities convertible or
exercisable or exchangeable into Common Stock of the Company, whether
outstanding on the Issue Date or thereafter issued.
"CURRENT MARKET VALUE" per share of Common Stock of the Company or any
other security at any date shall mean (i) if the security is not registered
under the Exchange Act, (a) the value of the security, determined in good faith
by the board of directors of the Company and certified in a board resolution,
based on the most recently completed arm's-length transaction between the
Company and a person other than an Affiliate of the Company and the closing of
which occurs on such date or shall have occurred within the six-month period
preceding such date, or (b) if no such transaction shall have occurred on such
date or within such six-month period, the fair market value of the security as
determined by a nationally recognized Independent Financial Expert (as defined
herein), including but not limited to Quist Financial, Inc., (PROVIDED that, in
the case of the calculation of Current Market Value for determining the cash
value of fractional shares, any such determination within six months that is, in
the good faith judgment of the board of directors, a reasonable determination of
value, may be utilized) or (ii) (a) if the security is registered under the
Exchange Act, the average of the daily closing sales prices of the
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securities for the 20 consecutive trading days immediately preceding such date,
or (b) if the security has been registered under the Exchange Act for less than
20 consecutive trading days before such date, then the average of the daily
closing sales prices for all of the trading days before such date for which
closing sales prices are available, in the case of each of (ii)(a) and (ii)(b),
as certified to the Warrant Agent by the chief executive officer, the president,
any executive vice president or the chief financial officer of the Company. The
closing sales price for each such trading day shall be: (A) in the case of a
security listed or admitted to trading on any U.S. national securities exchange
or quotation system, the closing sales price, regular way, on such day, or if no
sale takes place on such day, the average of the closing bid and asked prices on
such day, (B) in the case of a security not then listed or admitted to trading
on any U.S. national securities exchange or quotation system, the last reported
sale price on such day, or if no sale takes place on such day, the average of
the closing bid and asked prices on such day, as reported by a reputable
quotation source designated by the Company, (C) in the case of a security not
then listed or admitted to trading on any U.S. national securities exchange or
quotation system and as to which no such reported sale price or bid and asked
prices are available, the average of the reported high bid and low asked prices
on such day, as reported by a reputable quotation service, or a newspaper of
general circulation in the Borough of Manhattan, The City and State of New York,
customarily published on each Business Day, designated by the Company, or, if
there shall be no bid and asked prices on such day, the average of the high bid
and low asked prices, as so reported, on the most recent day (not more than 30
days prior to the date in question) for which prices have been so reported and
(D) if there are not bid and asked prices reported during the 30 days prior to
the date in question, the Current Market Value shall be determined as if the
securities were not registered under the Exchange Act.
"INDEPENDENT FINANCIAL EXPERT" means a U.S. investment banking firm of
national standing in the United States (i) which does not, and whose directors,
officers and employees or Affiliates do not, have a direct or indirect material
financial interest for its proprietary account in the Company or any of its
Affiliates and (ii) which, in the judgment of the board of directors of the
Company, is otherwise independent with respect to the Company and its Affiliates
and qualified to perform the task for which it is to be engaged.
"TIME OF DETERMINATION" means, (i) in the case of any distribution of
securities or other property to existing shareholders to which paragraph (b)
applies, the time and date of the determination of shareholders entitled to
receive such securities or property or (ii) in the case of any other issuance
and sale to which paragraph (b) applies, the time and date of such issuance or
sale.
(m) WHEN DE MINIMIS ADJUSTMENT MAY BE DEFERRED. No adjustment in the
Exercise Rate need be made unless the adjustment would require an increase of at
least 1% in the Exercise Rate. Any adjustments that are not made shall be
carried forward and taken into account in any subsequent adjustments. All
calculations under this Article V shall be made to the nearest 1/1000th of a
share, as the case may be.
SECTION 5.02. FRACTIONAL WARRANT SHARES. The Company shall not be
required to issue fractional Warrant Shares upon exercise of the Warrants or
distribute Warrant Certificates that evidence fractional Warrant Shares. In the
event a holder is required by Section 2.02(c) to
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make a Cashless Exercise, the number of Warrant Shares issuable shall be rounded
up to the nearest whole number. In addition, in no event shall any holder of
Warrants be required to make any payment of a fractional cent. In lieu of
fractional Warrant Shares, there shall be paid to the registered holders of
Warrant Certificates at the time Warrants evidenced thereby are exercised as
herein provided an amount in cash equal to the same fraction of the Current
Market Value per Warrant Share on the Business Day preceding the date the
Warrant Certificates evidencing such Warrants are surrendered for exercise.
Such payments shall be made by check or by transfer to an account maintained by
such registered holder with a bank in The City of New York. If any holder
surrenders for exercise more than one Warrant Certificate, the number of Warrant
Shares deliverable to such holder may, at the option of the Company, be computed
on the basis of the aggregate amount of all the Warrants exercised by such
holder.
SECTION 5.03. CERTAIN DISTRIBUTIONS. If at any time after the
Exercisability Date, the Company grants, issues or sells options, convertible
securities, or rights to purchase Capital Stock, warrants or other securities
PRO RATA to the record holders of Common Stock (the "DISTRIBUTION RIGHTS") or,
without duplication, makes any dividend or otherwise makes any distribution,
including (subject to applicable law) pursuant to any plan of liquidation
("DISTRIBUTION") on shares of Common Stock (whether in cash, property, evidences
of indebtedness or otherwise), then the Company shall grant, issue, sell or make
to each registered holder of Warrants then outstanding the aggregate
Distribution Rights or Distribution, as the case may be, which such holder would
have acquired if such holder had held the maximum number of shares of Common
Stock acquirable upon complete exercise of each holder's Warrants (regardless of
whether the Warrants are then exercisable and without giving effect to the
Cashless Exercise option) immediately before the record date for the grant,
issuance or sale of such Distribution Rights or Distribution, as the case may
be, or, if there is no such record date, the date as of which the record holders
of shares of Common Stock are to be determined for the grant, issue or sale of
such Distribution Rights or Distribution, as the case may be.
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.01. WARRANT AGENT. The Company hereby appoints American
Stock Transfer & Trust Company as Warrant Agent of the Company in respect of the
Warrants and the Warrant Certificates upon the terms and subject to the
conditions set forth herein and in the Warrant Certificates; and American Stock
Transfer & Trust Company hereby accepts such appointment. The Warrant Agent
shall have the powers and authority specifically granted to and conferred upon
it in the Warrant Certificates and hereby and such further powers and authority
to act on behalf of the Company as the Company may hereafter grant to or confer
upon it and it shall accept in writing. All of the terms and provisions with
respect to such powers and authority contained in the Warrant Certificates are
subject to and governed by the terms and provisions hereof. The Warrant Agent
may act through agents and shall not be responsible for the misconduct or
negligence of any such agent appointed with due care.
SECTION 6.02. CONDITIONS OF WARRANT AGENT'S OBLIGATIONS. The Warrant
Agent accepts its obligations herein set forth upon the terms and conditions
hereof and in the Warrant
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Certificates, including the following, to all of which the Company agrees and to
all of which the rights hereunder of the holders from time to time of the
Warrant Certificates shall be subject:
(a) The Warrant Agent shall be entitled to compensation to be agreed
upon with the Company in writing for all services rendered by it and the Company
agrees promptly to pay such compensation and to reimburse the Warrant Agent for
its reasonable out-of-pocket expenses (including reasonable fees and expenses of
counsel) incurred without gross negligence or willful misconduct on its part in
connection with the services rendered by it hereunder. The Company also agrees
to indemnify the Warrant Agent and any predecessor Warrant Agent, their
directors, officers, affiliates, agents and employees for, and to hold them and
their directors, officers, affiliates, agents and employees harmless against,
any loss, liability or expense of any nature whatsoever (including, without
limitation, reasonable fees and expenses of counsel) incurred without gross
negligence or willful misconduct on the part of the Warrant Agent, arising out
of or in connection with its acting as such Warrant Agent hereunder and its
exercise of its rights and performance of its obligations hereunder. The
obligations of the Company under this Section 6.02 shall survive the exercise
and the expiration of the Warrant Certificates and the resignation and removal
of the Warrant Agent.
(b) In acting under this Agreement and in connection with the Warrant
Certificates, the Warrant Agent is acting solely as agent of the Company and
does not assume any obligation or relationship of agency or trust for or with
any of the owners or holders of the Warrant Certificates.
(c) The Warrant Agent may consult with counsel of its selection and
any advice or written opinion of such 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 accordance with such advice or opinion.
(d) The Warrant Agent shall be fully protected and shall incur no
liability for or in respect of any action taken or omitted to be taken or thing
suffered by it in reliance upon any Warrant Certificate, notice, direction,
consent, certificate, affidavit, opinion of counsel, instruction, statement or
other paper or document reasonably believed by it to be genuine and to have been
presented or signed by the proper parties.
(e) The Warrant Agent, and its officers, directors, affiliates and
employees ("RELATED PARTIES"), may become the owners of, or acquire any interest
in, Warrant Certificates, shares or other obligations of the Company with the
same rights that it or they would have if it were not the Warrant Agent
hereunder and, to the extent permitted by applicable law, it or they may engage
or be interested in any financial or other transaction with the Company and may
act on, or as depositary, trustee or agent for, any committee or body of holders
of shares or other obligations of the Company as freely as if it were not the
Warrant Agent hereunder. Nothing in this Agreement shall be deemed to prevent
the Warrant Agent or such Related Parties from acting in any other capacity for
the Company.
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(f) The Warrant Agent shall not be under any liability for interest
on, and shall not be required to invest, any monies at any time received by it
pursuant to any of the provisions of this Agreement or of the Warrant
Certificates.
(g) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement (or any term or provision hereof) or
the execution and delivery hereof (except the due execution and delivery hereof
by the Warrant Agent) or in respect of the validity or execution of any Warrant
Certificate (except its authentication thereof).
(h) The recitals and other statements contained herein and in the
Warrant Certificates (except as to the Warrant Agent's authentication thereon)
shall be taken as the statements of the Company and the Warrant Agent assumes no
responsibility for the correctness of the same. The Warrant Agent does not make
any representation as to the validity or sufficiency of this Agreement or the
Warrant Certificates, except for its due execution and delivery of this
Agreement; PROVIDED, HOWEVER, that the Warrant Agent shall not be relieved of
its duty to authenticate the Warrant Certificates as authorized by this
Agreement. The Warrant Agent shall not be accountable for the use or
application by the Company of the proceeds of the exercise of any Warrant.
(i) Before the Warrant Agent acts or refrains from acting with
respect to any matter contemplated by this Warrant Agreement, it may require:
(1) an Officers' Certificate (as defined in the Indenture)
stating on behalf of the Company that, in the opinion of the signers, all
conditions precedent, if any, provided for in this Warrant Agreement relating to
the proposed action have been complied with; and
(2) if reasonably necessary in the sole judgment of the
Warrant Agent, an opinion of counsel for the Company stating that, in the
opinion of such counsel, all such conditions precedent have been complied with,
PROVIDED that such matter is one customarily opined upon by counsel.
Each Officers' Certificate or, if requested, an opinion of counsel
with respect to compliance with a condition or covenant provided for in this
Warrant Agreement shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he or she
has made such examination or investigation as is necessary to enable him or her
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
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(j) The Warrant Agent shall be obligated to perform such duties as
are specifically set forth herein and in the Warrant Certificates, and no
implied duties or obligations shall be read into this Agreement or the Warrant
Certificates against the Warrant Agent. The Warrant Agent shall not be
accountable or under any duty or responsibility for the use by the Company of
any of the Warrant Certificates duly authenticated by the Warrant Agent and
delivered by it to the Company pursuant to this Agreement. The Warrant Agent
shall have no duty or responsibility in case of any default by the Company in
the performance of its covenants or agreements contained in the Warrant
Certificates or in the case of the receipt of any written demand from a holder
of a Warrant Certificate with respect to such default, including, without
limiting the generality of the foregoing, any duty or responsibility to initiate
or attempt to initiate any proceedings at law or otherwise or, except as
provided in Section 7.02 hereof, to make any demand upon the Company.
(k) Unless otherwise specifically provided herein, any order,
certificate, notice, request, direction or other communication from the Company
made or given under any provision of this Agreement shall be sufficient if
signed by its chief executive officer, its president, its chief financial
officer or any executive vice president of the Company signing alone, or by any
vice president signing together with the secretary, any assistant secretary, the
treasurer or any assistant treasurer of the Company.
(l) The Warrant Agent shall have no responsibility in respect of any
adjustment pursuant to Article V hereof.
(m) The Company agrees that it will perform, execute, acknowledge and
deliver, or cause to be performed, executed, acknowledged and delivered, all
such further and other acts, instruments and assurances as may reasonably be
required by the Warrant Agent for the carrying out or performing by the Warrant
Agent of the provisions of this Agreement.
(n) The Warrant Agent is hereby authorized and directed to accept
written instructions with respect to the performance of its duties hereunder
from any one of the chief executive officer, the president, the chief financial
officer, any executive vice president alone, or any vice president together with
the secretary, assistant secretary, the treasurer or any assistant treasurer of
the Company or any other officer or official of the Company reasonably believed
to be authorized to give such instructions and to apply to such officers or
officials for advice or instructions in connection with its duties, and it shall
not be liable for any action taken or suffered to be taken by it in good faith
in accordance with instructions with respect to any matter arising in connection
with the Warrant Agent's duties and obligations arising under this Agreement.
Such application by the Warrant Agent for written instructions from the Company
may, at the option of the Warrant Agent, set forth in writing any action
proposed to be taken or omitted by the Warrant Agent with respect to its duties
or obligations under this Agreement and the date on or after which such action
shall be taken and the Warrant Agent shall not be liable for any action taken or
omitted in accordance with a proposal included in any such application on or
after the date specified therein (which date shall be not less than 10 Business
Days after the Company receives such application unless the Company consents to
a shorter period); PROVIDED that (i) such application includes a statement to
the effect that it is being made pursuant to this paragraph (n) and that unless
objected to prior to such date specified in the application, the Warrant Agent
will not be liable for any such action or omission to the extent set forth in
such paragraph (n) and (ii) prior to taking or omitting
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<PAGE>
any such action, the Warrant Agent has not received written instructions
objecting to such proposed action or omission.
(o) Whenever in the performance of its duties under this Agreement
the Warrant Agent shall deem it necessary or desirable that any fact or matter
be proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed on behalf of the Company by any one of the
chief executive officer, the president, the chief financial officer, any
executive vice president alone, or any vice president together with the
secretary, assistant secretary, the treasurer or any assistant treasurer of the
Company or any other officer or official of the Company reasonably believed to
be authorized to give such instructions and delivered to the Warrant Agent; and
such certificate shall be full authorization to the Warrant Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(p) The Warrant Agent shall not be required to risk or expend its own
funds in the performance of its obligations and duties hereunder.
SECTION 6.03. RESIGNATION AND APPOINTMENT OF SUCCESSOR. (a) The
Company agrees, for the benefit of the holders from time to time of the Warrant
Certificates, that there shall at all times be a Warrant Agent hereunder.
(b) The Warrant Agent may at any time resign as Warrant Agent by
giving written notice to the Company of such intention on its part, specifying
the date on which its desired resignation shall become effective; PROVIDED,
HOWEVER, that such date shall be at least 60 days after the date on which such
notice is given unless the Company agrees to accept less notice. Upon receiving
such notice of resignation, the Company shall promptly appoint a successor
Warrant Agent, qualified as provided in Section 6.03(d) hereof, by written
instrument in duplicate signed on behalf of the Company, one copy of which shall
be delivered to the resigning Warrant Agent and one copy to the successor
Warrant Agent. As provided in Section 6.03(d) hereof, such resignation shall
become effective upon the earlier of (x) the acceptance of the appointment by
the successor Warrant Agent or (y) 60 days after receipt by the Company of
notice of such resignation. The Company may, at any time and for any reason,
and shall, upon any event set forth in the next succeeding sentence, remove the
Warrant Agent and appoint a successor Warrant Agent by written instrument in
duplicate, specifying such removal and the date on which it is intended to
become effective, signed on behalf of the Company, one copy of which shall be
delivered to the Warrant Agent being removed and one copy to the successor
Warrant Agent. The Warrant Agent shall be removed as aforesaid if it shall
become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a
receiver of the Warrant Agent or of its property shall be appointed, or any
public officer shall take charge or control of it or of its property or affairs
for the purpose of rehabilitation, conservation or liquidation. Any removal of
the Warrant Agent and any appointment of a successor Warrant Agent shall become
effective upon acceptance of appointment by the successor Warrant Agent as
provided in Section 6.03(d). As soon as practicable after appointment of the
successor Warrant Agent, the Company shall cause written notice of the change in
the Warrant Agent to be given to each of the registered holders of the Warrants
in the manner provided for in Section 7.04 hereof.
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(c) Upon resignation or removal of the Warrant Agent, if the Company
shall fail to appoint a successor Warrant Agent within a period of 60 days after
receipt of such notice of resignation or removal, then the holder of any Warrant
Certificate or the retiring Warrant Agent may apply to a court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Pending
appointment of a successor to the Warrant Agent, either by the Company or by
such a court, the duties of the Warrant Agent shall be carried out by the
Company.
(d) Any successor Warrant Agent, whether appointed by the Company or
by a court, shall be a bank or trust company or transfer agent in good standing,
incorporated under the laws of the United States of America or any State thereof
and having, at the time of its appointment, a combined capital surplus of at
least $10 million. Such successor Warrant Agent shall execute and deliver to
its predecessor and to the Company an instrument accepting such appointment
hereunder and all the provisions of this Agreement, and thereupon such successor
Warrant Agent, without any further act, deed or conveyance, shall become vested
with all the rights, powers, duties and obligations of its predecessor
hereunder, with like effect as if originally named as Warrant Agent hereunder,
and such predecessor shall thereupon become obligated to (i) transfer and
deliver, and such successor Warrant Agent shall be entitled to receive, all
securities, records or other property on deposit with or held by such
predecessor as Warrant Agent hereunder and (ii) upon payment of the amounts then
due it pursuant to Section 6.02(a) hereof, pay over, and such successor Warrant
Agent shall be entitled to receive, all monies deposited with or held by any
predecessor Warrant Agent hereunder.
(e) Any corporation or bank into which the Warrant Agent hereunder
may be merged or converted, or any corporation or bank with which the Warrant
Agent may be consolidated, or any corporation or bank resulting from any merger,
conversion or consolidation to which the Warrant Agent shall be a party, or any
corporation or bank to which the Warrant Agent shall sell or otherwise transfer
all or substantially all of its corporate trust business, shall be the successor
to the Warrant Agent under this Agreement (PROVIDED that such corporation or
bank shall be qualified as aforesaid) without the execution or filing of any
document or any further act on the part of any of the parties hereto.
(f) No Warrant Agent under this Warrant Agreement shall be personally
liable for any action or omission of any successor Warrant Agent.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. AMENDMENT. This Agreement and the terms of the
Warrants may be amended by the Company and the Warrant Agent, without the
consent of the holder of any Warrant Certificate, for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective or
inconsistent provision contained herein or therein, or to effect any assumptions
of the Company's obligations hereunder and thereunder by a successor corporation
under certain circumstances or in any other manner which the Company may deem
necessary or desirable and which shall not adversely affect the interests of the
holders of the Warrant Certificates.
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The Company and the Warrant Agent may amend, modify or supplement this
Agreement and the terms of the Warrants, and waivers to departures from the
terms hereof and thereof may be given, with the consent of the Requisite Warrant
Holders (as defined below) for the purpose of adding any provision to or
changing in any manner or eliminating any of the provisions of this Agreement or
modifying in any manner the rights of the holders of the outstanding Warrants.
"REQUISITE WARRANT HOLDERS" means (i) in the case of any amendment,
modification, supplement or waiver affecting only Warrant Holders as such
holders of a majority in number of the outstanding Warrants, voting separately
as a class, or (ii) in the case of any amendment, modification, supplement or
waiver affecting Warrant Holders, a majority in number of Warrant Shares
represented by the Warrants that would be issuable assuming exercise thereof at
the time such amendment, modification, supplement or waiver is voted upon.
Notwithstanding any other provision of this Agreement, the Warrant Agent's
consent must be obtained regarding any supplement or amendment which alters the
Warrant Agent's rights or duties (it being expressly understood that the
foregoing shall not be in derogation of the right of the Company to remove the
Warrant Agent in accordance with Section 6.03 hereof). For purposes of any
amendment, modification or waiver hereunder, Warrants held by the Company or any
of its Affiliates shall be disregarded.
Any modification or amendment made in accordance with this Agreement
will be conclusive and binding on all present and future holders of Warrant
Certificates whether or not they have consented to such modification or
amendment or waiver and whether or not notation of such modification or
amendment is made upon such Warrant Certificates. Any instrument given by or on
behalf of any holder of a Warrant Certificate in connection with any consent to
any modification or amendment will be conclusive and binding on all subsequent
holders of such Warrant Certificate.
SECTION 7.02. NOTICES AND DEMANDS TO THE COMPANY AND WARRANT AGENT.
If the Warrant Agent shall receive any notice or demand addressed to the Company
by the holder of a Warrant Certificate pursuant to the provisions hereof or of
the Warrant Certificates, the Warrant Agent shall promptly forward such notice
or demand to the Company.
SECTION 7.03. ADDRESSES FOR NOTICES TO PARTIES AND FOR TRANSMISSION
OF DOCUMENTS. All notices hereunder to the parties hereto shall be deemed to
have been given when sent by certified or registered mail, postage prepaid, or
by facsimile transmission, confirmed by first class mail, postage prepaid,
addressed to any party hereto as follows:
To the Company:
Convergent Communications, Inc.
67 Iverness Drive, Suite 110
Englewood, Colorado 80112
Facsimile: (303) 749-3000
Attention: Martin E. Freidel, Esq.
with copies to:
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Gibson, Dunn & Crutcher L.L.P.
1801 California Street, 41st Floor
Denver, Colorado 80202
Facsimile: (303) 296-5310
Attention: Richard M. Russo, Esq.
To the Warrant Agent:
American Stock Transfer & Trust Company
6201 15th Avenue, 3rd Floor
Brooklyn, New York 11219
Facsimile: (718) 331-1852
Attention: Herbert J. Lemmer
or at any other address of which either of the foregoing shall have notified the
other in writing.
SECTION 7.04. NOTICES TO HOLDERS. Notices to holders of Warrants
shall be mailed to such holders at the addresses of such holders as they appear
in the Warrant Register. Any such notice shall be sufficiently given if sent by
first-class mail, postage prepaid to the address of such holder.
SECTION 7.05. APPLICABLE LAW. THIS AGREEMENT AND EACH WARRANT
CERTIFICATE ISSUED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 7.06. PERSONS HAVING RIGHTS UNDER AGREEMENT. Nothing in this
Agreement expressed or implied and nothing that may be inferred from any of the
provisions hereof is intended, or shall be construed, to confer upon, or give
to, any person or corporation other than the Company, the Warrant Agent and the
holders of the Warrant Certificates and, with respect to Sections 4.03 and 4.04,
the holders of Warrant Shares issued pursuant to Warrants, any right, remedy or
claim under or by reason of this Agreement or of any covenant, condition,
stipulation, promise or agreement hereof; and all covenants (except for Section
4.03 which shall be for the benefit of all holders of Warrant Shares issued
pursuant to Warrants), conditions, stipulations, promises and agreements in this
Agreement contained shall be for the sole and exclusive benefit of the Company
and the Warrant Agent and their successors and of the holders of the Warrant
Certificates.
SECTION 7.07. HEADINGS. The descriptive headings of the several
Articles and Sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
hereof.
SECTION 7.08. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original; but such counterparts shall together constitute but one and the same
instrument.
SECTION 7.09. INSPECTION OF AGREEMENT. A copy of this Agreement
shall be available during regular business hours at the principal corporate
trust office of the Warrant Agent, for
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inspection by the holder of any Warrant Certificate. The Warrant Agent may
require such holder to submit his Warrant Certificate for inspection by it.
SECTION 7.10. AVAILABILITY OF EQUITABLE REMEDIES. Since a breach of
the provisions of this Agreement could not adequately be compensated by money
damages, holders of Warrants shall be entitled, in addition to any other right
or remedy available to them, to an injunction restraining such breach or a
threatened breach and to specific performance of any such provision of this
Agreement, and in either case no bond or other security shall be required in
connection therewith, and the parties hereby consent to such injunction and to
the ordering of specific performance.
SECTION 7.11. OBTAINING OF GOVERNMENTAL APPROVALS. The Company will
from time to time take all action required to be taken by it which may be
necessary to obtain and keep effective any and all permits, consents and
approvals of governmental agencies and authorities and securities acts filings
under U.S. federal and state laws, and the rules and regulations of all stock
exchanges on which the Warrants may become listed which may be or become
requisite in connection with the issuance, sale, transfer, and delivery of the
Warrant Certificates, the exercise of the Warrants or the issuance, sale,
transfer and delivery of the Warrant Shares issued upon exercise of the
Warrants.
[Signature Page Follows]
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
CONVERGENT COMMUNICATIONS, INC.
By: /s/ Keith V. Burge
---------------------------------
Name: Keith V. Burge
Title: President
AMERICAN STOCK TRANSFER & TRUST
COMPANY
Warrant Agent
By: /s/ Herbert J. Lemmer
---------------------------------
Name: Herbert J. Lemmer
Title: Vice President
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EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
[FACE]
[THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES
LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN
AN "OFFSHORE TRANSACTION" PURSUANT TO REGULATION S, (2) AGREES THAT IT WILL NOT
PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SHORTER PERIOD AS MAY BE PRESCRIBED
BY RULE 144(K) (OR ANY SUCCESSOR PROVISION THEREOF) UNDER THE SECURITIES ACT)
AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF THIS
SECURITY) OR THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY
WAS THE OWNER OF THIS SECURITY OR ANY PREDECESSOR OF THIS SECURITY AND (Y) SUCH
LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE
RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE
SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, PURSUANT TO RULE 904 OF REGULATION S OR
(E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL NOT ENGAGE IN HEDGING
TRANSACTIONS INVOLVING THIS SECURITY EXCEPT IN COMPLIANCE WITH THE SECURITIES
ACT AND (4) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION
WITH ANY TRANSFER OF THESE SECURITIES WITHIN THE TIME PERIOD REFERRED TO ABOVE,
THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF
RELATING TO THE MANNER OF SUCH
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TRANSFER AND SUBMIT THIS CERTIFICATE TO THE WARRANT AGENT. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION
DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND
"U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER
THE SECURITIES ACT.]
[THE WARRANTS EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED AS PART OF
AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1,000 PRINCIPAL AMOUNT OF 13%
SENIOR NOTES DUE 2008 OF CONVERGENT COMMUNICATIONS, INC. (THE "NOTES") AND FOUR
WARRANTS, EACH WARRANT ENTITLING THE HOLDER THEREOF TO PURCHASE 2.7 SHARES OF
COMMON STOCK, NO PAR VALUE, OF CONVERGENT COMMUNICATIONS, INC. PRIOR TO THE
CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (i) THE DATE THAT IS SIX MONTHS
AFTER THE INITIAL SALE OF THE UNITS; (ii) THE DATE ON WHICH A REGISTRATION
STATEMENT WITH RESPECT TO A REGISTERED EXCHANGE OFFER FOR THE NOTES IS DECLARED
EFFECTIVE UNDER THE SECURITIES ACT; (iii) THE OCCURRENCE OF AN EXERCISE EVENT
(AS DEFINED HEREIN), (iv) THE OCCURRENCE OF AN EVENT OF DEFAULT (AS DEFINED IN
THE INDENTURE); OR (v) SUCH EARLIER DATE AS DETERMINED BY MERRILL LYNCH (AS
DEFINED IN THE WARRANT AGREEMENT) IN ITS SOLE DISCRETION, THE WARRANTS EVIDENCED
BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY
BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE NOTES.](*)
- ---------------
* To be included on Warrant Certificates issued prior to the Separation Date.
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CUSIP #[ ]
No. ___ [ ] Warrants
WARRANT CERTIFICATE
CONVERGENT COMMUNICATIONS, INC.
This Warrant Certificate certifies that [ ], or registered
assigns, is the registered holder of [ ] Warrants (the "WARRANTS") to
purchase shares of Common Stock, no par value, issuable upon exercise of the
Warrants (the "WARRANT SHARES") of CONVERGENT COMMUNICATIONS, INC., a Colorado
corporation (the "COMPANY," which term includes its successors and assigns).
Each Warrant entitles the holder to purchase from the Company at any time from
9:00 a.m. New York City time on or after the Exercisability Date until 5:00
p.m., New York City time, on April 1, 2008 (the "EXPIRATION DATE"),
fully paid, registered and non-assessable Warrant Shares, SUBJECT TO ADJUSTMENT
AS PROVIDED IN ARTICLE V OF THE WARRANT AGREEMENT, at an exercise price of $0.01
for each share purchased (the "EXERCISE PRICE"); upon surrender of this Warrant
Certificate and payment of the Exercise Price (i) in cash or by certified or
official bank check, (ii) by a Cashless Exercise or (iii) by any combination of
(i) and (ii), at any office or agency maintained for that purpose by the Company
(the "WARRANT EXERCISE OFFICE"), subject to the conditions set forth herein and
in the Warrant Agreement. For purposes of this Warrant, a "CASHLESS EXERCISE"
shall mean an exercise of a Warrant in accordance with the immediately following
two sentences. To effect a Cashless Exercise, the holder may exercise a Warrant
or Warrants without payment of the Exercise Price in cash by surrendering such
Warrant or Warrants (represented by one or more Warrant Certificates) and in
exchange therefor, receiving such number of shares of Common Stock equal to the
product of (1) that number of shares of Common Stock for which such Warrant or
Warrants are exercisable and which would be issuable in the event of an exercise
with payment of the Exercise Price and (2) the Cashless Exercise Ratio. The
"CASHLESS EXERCISE RATIO" shall equal a fraction, the numerator of which is the
excess of the Current Market Value (calculated as set forth in this Warrant) per
share of Common Stock on the date of exercise over the Exercise Price per share
of Common Stock as of the date of exercise and the denominator of which is the
Current Market Value per share of Common Stock on the date of exercise. Upon
surrender of a Warrant Certificate representing more than one Warrant in
connection with the holder's option to elect a Cashless Exercise, the holder
must specify the number of Warrants for which such Warrant Certificate is to be
exercised (without giving effect to the Cashless Exercise). All provisions of
the Warrant Agreement shall be applicable with respect to a Cashless Exercise of
a Warrant Certificate for less than the full number of Warrants represented
thereby.
Capitalized terms used herein without being defined herein shall have
the definitions ascribed to such terms in the Warrant Agreement.
"CURRENT MARKET VALUE" per share of Common Stock of the Company or any
other security at any date shall mean (i) if the security is not registered
under the Exchange Act, (a) the value of the security, determined in good faith
by the board of directors of the Company and
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certified in a board resolution, based on the most recently completed
arm's-length transaction between the Company and a person other than an
Affiliate of the Company and the closing of which occurs on such date or shall
have occurred within the six-month period preceding such date, or (b) if no such
transaction shall have occurred on such date or within such six-month period,
the fair market value of the security as determined by a nationally or
regionally recognized Independent Financial Expert (as defined herein),
including but not limited to Quist Financial, Inc. (provided that, in the case
of the calculation of Current Market Value for determining the cash value of
fractional shares, any such determination within six months that is, in the good
faith judgment of the board of directors, a reasonable determination of value,
may be utilized) or (ii) (a) if the security is registered under the Exchange
Act, the average of the daily closing sales prices of the securities for the 20
consecutive trading days immediately preceding such date, or (b) if the security
has been registered under the Exchange Act for less than 20 consecutive trading
days before such date, then the average of the closing sales prices for all of
the trading days before such date for which closing sales prices are available,
in the case of each of (ii)(a) and (ii)(b), as certified to the Warrant Agent by
[the chief executive officer, the president, any executive vice president or the
chief financial officer] of the Company. The closing sales price for each such
trading day shall be: (A) in the case of a security listed or admitted to
trading on any U.S. national securities exchange or quotation system, the
closing sales price, regular way, on such day, or if no sale takes place on such
day, the average of the closing bid and asked prices on such day, (B) in the
case of a security not then listed or admitted to trading on any U.S. national
securities exchange or quotation system, the last reported sale price on such
day, or if no sale takes place on such day, the average of the closing bid and
asked prices on such day, as reported by a reputable quotation source designated
by the Company, (C) in the case of a security not then listed or admitted to
trading on any U.S. national securities exchange or quotation system and as to
which no such reported sale price or bid and asked prices are available, the
average of the reported high bid and low asked prices on such day, as reported
by a reputable quotation service, or a newspaper of general circulation in the
Borough of Manhattan, The City and State of New York, customarily published on
each Business Day, designated by the Company, or, if there shall be no bid and
asked prices on such day, the average of the high bid and low asked prices, as
so reported, on the most recent day (not more than 30 days prior to the date in
question) for which prices have been so reported and (D) if there are not bid
and asked prices reported during the 30 days prior to the date in question, the
Current Market Value shall be determined as if the securities were not
registered under the Exchange Act.
"EXERCISE EVENT" means, with respect to each Warrant, the date of the
occurrence of the earliest of: (i) the time immediately prior to a Change of
Control (as such term is defined in the Indenture); (ii)(a) the 180th day (or
such earlier date as determined by the Company in its sole discretion) following
the closing of an Initial Public Equity Offering (as defined herein) or (b) upon
the closing of an Initial Public Equity Offering, but only in respect of
Warrants, if any, required to be exercised to permit the holders thereof to sell
Warrant Shares pursuant to their respective registration rights, (iii) a class
of equity securities of the Company is listed on a national securities exchange
or authorized for quotation on The Nasdaq National Market or is otherwise
subject to registration under the Exchange Act, or (iv) October 2, 1999.
"INDEPENDENT FINANCIAL EXPERT" means a U.S. investment banking firm of
national standing in the United States, (i) which does not, and whose directors,
officers and employees or Affiliates
A-4
<PAGE>
do not, have a direct or indirect material financial interest for its
proprietary account in the Company or any of its Affiliates and (ii) which, in
the judgment of the board of directors of the Company, is otherwise independent
with respect to the Company and its Affiliates and qualified to perform the task
for which it is to be engaged.
"SEPARABILITY DATE" shall mean the earliest of: (i) the date that is
six months after the initial sale of the Units, (ii) the date on which a
registration statement under the Securities Act, with respect to a registered
exchange offer for the Notes is declared effective under the Securities Act,
(iii) the occurrence of an Exercise Event, (iv) the occurrence of an Event of
Default (as defined in the Indenture) or (v) such earlier date as determined by
Merrill Lynch in its sole discretion and specified to the Company and the
Warrant Agent in writing. Notwithstanding the foregoing, in the event a Change
of Control (as defined in the Indenture) is proposed and the Company commences a
Change of Control Offer (as defined in the Indenture) prior to the Separability
Date, as determined by the preceding sentence, the Separability Date shall be
such earlier date of commencement.
The Company has initially designated the principal corporate trust
office of the Warrant Agent in the Borough of Manhattan, The City of New York,
as the initial Warrant Agent Office. The number of shares of Common Stock
issuable upon exercise of the Warrants ("EXERCISE RATE") is subject to
adjustment upon the occurrence of certain events set forth in the Warrant
Agreement.
Any Warrants not exercised on or prior to 5:00 p.m., New York City
time, on April 1, 2008 shall thereafter be void.
If the Company, in a single transaction or through a series of related
transactions, consolidates with or merges with or into, or sells all or
substantially all of its property and assets to, another Person (other than a
subsidiary of the Company) solely for cash, the holders of Warrants which are
then exercisable shall be entitled to receive distributions on the date of such
event on an equal basis with holders of shares of Capital Stock (or other
securities issuable upon exercise of the Warrants) as if the Warrants had been
exercised immediately prior to such event less the aggregate Exercise Price
therefor.
Reference is hereby made to the further provisions on the reverse
hereof which provisions shall for all purposes have the same effect as though
fully set forth at this place.
This Warrant Certificate shall not be valid unless authenticated by
the Warrant Agent, as such term is used in the Warrant Agreement.
THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
WITNESS the facsimile seal of the Company and facsimile signatures of
its duly authorized officers.
Dated: April 2, 1998
CONVERGENT COMMUNICATIONS, INC.
A-5
<PAGE>
By:
---------------------------------
Name:
Title:
Attest:
By:
----------------------------------
Name:
Title:
Certificate of Authentication:
This is one of the Warrants
referred to in the within
mentioned Warrant Agreement:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
Warrant Agent
By:
----------------------------------
Authorized Signatory
A-6
<PAGE>
[FORM OF WARRANT CERTIFICATE]
[REVERSE]
CONVERGENT COMMUNICATIONS, INC.
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants expiring at 5:00 p.m., New York City time,
on April 1, 2008 (the "EXPIRATION DATE"), each of which represents the right
to purchase at any time on or after the Exercisability Date (as defined in
the Warrant Agreement) and on or prior to the Expiration Date ________
Warrant Shares, subject to adjustment as set forth in the Warrant Agreement.
The Warrants are issued pursuant to a Warrant Agreement dated as of April 2,
1998 (the "WARRANT AGREEMENT"), duly executed and delivered by the Company to
American Stock Transfer & Trust Company, as Warrant Agent (the "WARRANT
AGENT"), which Warrant Agreement is hereby incorporated by reference in and
made a part of this instrument and is hereby referred to for a description of
the rights, limitation of rights, obligations, duties and immunities
thereunder of the Warrant Agent, the Company and the holders (the words
"HOLDERS" or "HOLDER" meaning the registered holders or registered holder) of
the Warrants.
Warrants may be exercised by (i) surrendering at any Warrant Exercise
Office this Warrant Certificate with the form of Election to Exercise set forth
hereon duly completed and executed and (ii) to the extent such exercise is not
being effected through a Cashless Exercise by paying in full the Warrant
Exercise Price for each such Warrant exercised and any other amounts required to
be paid pursuant to the Warrant Agreement.
If all of the items referred to in the last sentence of the preceding
paragraph are received by the Warrant Agent at or prior to 11:00 a.m., New York
City time, on a Business Day, the exercise of the Warrant to which such items
relate will be effective on such Business Day. If any items referred to in the
last sentence of the preceding paragraph are received after 11:00 a.m., New York
City time, on a Business Day, the exercise of the Warrants to which such item
relates will be deemed to be effective on the next succeeding Business Day.
Notwithstanding the foregoing, in the case of an exercise of Warrants on April
1, 2008, if all of the items referred to in the last sentence of the preceding
paragraph are received by the Warrant Agent at or prior to 5:00 p.m., New York
City time, on such Expiration Date, the exercise of the Warrants to which such
items relate will be effective on the Expiration Date.
As soon as practicable after the exercise of any Warrant or Warrants,
the Company shall issue or cause to be issued to or upon the written order of
the registered holder of this Warrant Certificate, a certificate or certificates
evidencing such Warrant Share or Warrant Shares to which such holder is
entitled, in fully registered form, registered in such name or names as may be
directed by such holder pursuant to the Election to Exercise, as set forth on
the reverse of this Warrant Certificate. Such certificate or certificates
evidencing the
Warrant Share or Warrant Shares shall be deemed to have been issued
and any persons who are designated to be named therein shall be deemed to have
become the holder of record of
A-7
<PAGE>
such Warrant Share or Warrant Shares as of the close of business on the date
upon which the exercise of this Warrant was deemed to be effective as provided
in the preceding paragraph.
The Company shall not be required to issue fractional Warrant Shares
upon exercise of the Warrants or distribute Warrant Certificates that evidence
fractional Warrant Shares. In lieu of fractional Warrant Shares, there shall be
paid to the registered Holder of this Warrant Certificate at the time such
Warrant Certificate is exercised an amount in cash equal to the same fraction of
the Current Market Value per share of Common Stock on the Business Day preceding
the date this Warrant Certificate is surrendered for exercise.
Warrant Certificates, when surrendered at any office or agency
maintained by the Company for that purpose by the registered holder thereof in
person or by legal representative or attorney duly authorized in writing, may be
exchanged for a new Warrant Certificate or new Warrant Certificates evidencing
in the aggregate a like number of Warrants, in the manner and subject to the
limitations provided in the Warrant Agreement, without charge except for any tax
or other governmental charge imposed in connection therewith.
Upon due presentment for registration of transfer of this Warrant
Certificate at any office or agency maintained by the Company for that purpose,
a new Warrant Certificate evidencing in the aggregate a like number of Warrants
shall be issued to the transferee in exchange for this Warrant Certificate,
subject to the limitations provided in the Warrant Agreement, without charge
except for any tax or other governmental charge imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder hereof as the absolute owner of this Warrant Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone) for the
purpose of any exercise hereof and for all other purposes, and neither the
Company nor the Warrant Agent shall be affected by any notice to the contrary.
The term "Business Day" shall mean any day on which (i) banks in The
City of New York, (ii) the principal U.S. securities exchange or market, if any,
on which the Common Stock is listed or admitted to trading and (iii) the
principal U.S. securities exchange or market, if any, on which the Warrants are
listed or admitted to trading, are open for business.
The Warrants and the Warrant Shares are entitled to the benefits of a
registration rights agreement relating to the Warrants and the Warrant Shares
(the "WARRANT REGISTRATION RIGHTS AGREEMENT"), pursuant to which the holders of
a number of Warrants, Warrant Shares and Registrable Securities (as defined in
the Warrant Registration Rights Agreement) equivalent to at least a majority of
the outstanding Warrants, Warrant Shares and
Registrable Securities have, at any time and from time to time on or
after (i) the time immediately prior to a Change of Control (as such term is
defined in the Indenture); (ii)(a) the 180th day (or such earlier date as
determined by the Company in its sole discretion) following the closing of an
Initial Public Equity Offering (as defined herein) or (b) upon the closing of an
Initial Public Equity Offering, but only in respect of Warrants, if any,
required to be exercised to permit the holders thereof to sell Warrant Shares
pursuant to their respective registration rights, (iii) a
A-8
<PAGE>
class of equity securities of the Company is listed on a national securities
exchange or authorized for quotation on The Nasdaq National Market or is
otherwise subject to registration under the Exchange Act, or (iv) October 2,
1999, the right to require the Company to effect one demand registration of the
Warrants, Warrant Shares and Registrable Securities. The Warrant Registration
Rights Agreement also provides the holders of the Warrants, Warrant Shares and
Registrable Securities with the right, subject to the conditions and limitations
contained therein, to include the Warrants, Warrant Shares and Registrable
Securities in certain registration statements filed by the Company for its
account or for the account of any of its securityholders.
A-9
<PAGE>
[FORM OF ELECTION TO EXERCISE]
(To be executed upon exercise of Warrants on the Exercise Date)
The undersigned hereby irrevocably elects to exercise [ ] of the
Warrants of Convergent Communications, Inc. represented by this Warrant
Certificate and purchase the whole number of Warrant Shares issuable upon the
exercise of such Warrants and herewith tenders payment for such Warrant Shares
as follows:
$__________ in cash or by certified or official bank check; or by
surrender of Warrants pursuant to a Cashless Exercise (as defined in the
Warrant Agreement) for [ ] shares of Common Stock at the current
Cashless Exercise Ratio.
i. The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws, and agrees that the following legend
may be affixed to the stock certificate for the Common Stock if not registered
or if Rule 144(k) is unavailable.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
SAID ACT, OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND
SCOPE REASONABLY ACCEPTABLE TO THE COMPANY, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD
PURSUANT TO RULE 144(K) UNDER SAID ACT.
ii. The undersigned requests that a certificate representing such
Warrant Shares be registered in the name of ______________________ whose address
is _________________________ and that such shares be delivered to
_________________________ whose address is _______________________________. Any
cash payments to be paid in lieu of a fractional share of Common Stock should be
delivered to _________________________ whose address is _______________________
and the check representing payment thereof should be delivered to
_______________ whose address is _______________________________________.
Dated ,
----------- ----
A-10
<PAGE>
Name of holder of
Warrant Certificate:
-------------------------------------------------
(Please Print)
Tax Identification or
Social Security Number:
----------------------------------------------
Address:
------------------------------------------------------------
Signature:
-----------------------------------------------------------
Note: The above signature must correspond with the name as
written upon the face of this Warrant Certificate in
every particular, without alteration or enlargement
or any change whatever and if the certificate
representing the Warrant Shares or any Warrant
Certificate representing Warrants not exercised is to
be registered in a name other than that in which this
Warrant Certificate is registered, or if any cash
payment to be paid in lieu of a fractional share is
to be made to a person other than the registered
holder of this Warrant Certificate, the signature of
the holder hereof must be guaranteed as provided in
the Warrant Agreement.
Signature Guaranteed:
-----------------------------------------------
A-11
<PAGE>
[FORM OF ASSIGNMENT]
For value received __________________________ hereby sells, assigns
and transfers unto _____________________________ the within Warrant Certificate,
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint __________________ attorney, to transfer said Warrant
Certificate on the books of the within-named Company, with full power of
substitution in the premises.
Dated ,
---------------- ----
Signature:
-------------------------------
Note: The above signature must
correspond with the name as
written upon the face of this
Warrant Certificate in every
particular, without alteration
or enlargement or any change
whatever.
Signature Guaranteed:
--------------------
A-12
<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED WARRANTS *
The following exchanges of a part of this Global Warrant for certificated
Warrants have been made:
Number of
Warrants of
this Global
Amount of Amount of Warrant Signature
decrease in increase in following of
Number of Number of such authorized
Warrants of Warrants of decrease officer of
Date of this Global this Global (or Warrant
Exchange Warrant Warrant increase) Agent
-------- ----------- ----------- ----------- ----------
- ----------------------------
* To be attached only to Global Warrants.
A-13
<PAGE>
EXHIBIT B
FORM OF LEGEND FOR GLOBAL WARRANT
Any Global Warrant authenticated and delivered hereunder shall bear a
legend in substantially the following form:
THIS SECURITY IS A GLOBAL WARRANT WITHIN THE MEANING OF THE WARRANT
AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY
OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE WARRANT AGREEMENT, AND NO
TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY
THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY
TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT
IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE WARRANT AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
B-1
<PAGE>
EXHIBIT C
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to Purchase Common Stock (the "WARRANTS") of CONVERGENT
COMMUNICATIONS, INC.
This Certificate relates to ____ Warrants held in* ___ book-entry or*
_______ certificated form by ______ (the "TRANSFEROR").
The Transferor:*
/ / has requested the Warrant Agent by written order to deliver in
exchange for its security entitlement in the Global Warrant held by the
Depositary a Warrant or Warrants in definitive, registered form of authorized
denominations and an aggregate number equal to its security entitlement in such
Global Warrant (or the portion thereof indicated above); or
/ / has requested the Warrant Agent by written order to exchange or
register the transfer of a Warrant or Warrants.
In connection with such request and in respect of each such
Warrant, the Transferor does hereby certify that the Transferor is familiar with
the Warrant Agreement relating to the above captioned Warrants and the
restrictions on transfers thereof as provided in Section 1.08 of such Warrant
Agreement, and that the transfer of this Warrant does not require registration
under the Securities Act of 1933, as amended (the "ACT") because:
/ / Such Warrant is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 1.08 (a)(y)(A) or Section 1.08
(d)(i)(A) of the Warrant Agreement).
/ / Such Warrant is being transferred to a qualified institutional
buyer (as defined in Rule 144A under the Act), in reliance on Rule 144A.
/ / Such Warrant is being transferred in reliance on Regulation S
under the Act.
/ / Such Warrant is being transferred in accordance with Rule 144
under the Act.
- ----------------------
* Check applicable box.
C-1
<PAGE>
/ / Such Warrant is being transferred in reliance on and in
compliance with an exemption from the registration requirements of the Act.
------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
-----------------------------------
Date:
---------------------
C-2
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE TO BE
DELIVERED IN CONNECTION
WITH REGULATION S TRANSFERS
_________, 199_
American Stock Transfer & Trust Company
6201 15th Avenue, 3rd Floor
Brooklyn, New York 11219
Attention: Herbert J. Lemmer
Ladies and Gentlemen:
In connection with our proposed sale of Warrants of Convergent
Communications, Inc. (the "COMPANY"), we confirm that such sale has been
effected pursuant to and in accordance with Regulation S under the Securities
Act of 1933, as amended (the "SECURITIES ACT"), and, accordingly, we represent
that:
(1) the offer of the Warrants was not made to a person in the
United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting
on our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through
the facilities of a designated off-shore securities market and neither
we nor any person acting on our behalf knows that the transaction has
been pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(a)(2) or Rule
904(a)(2) of Regulation S under the Securities Act, as applicable;
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act;
(5) we have advised the transferee of the transfer
restrictions applicable to the Warrants; and
(6) if the circumstances set forth in Rule 904(b) under the
Securities Act are applicable, we have complied with the additional
conditions therein, including (if applicable) sending a confirmation
or other notice stating that the Warrants may be offered and sold
during the distribution compliance period specified in Rule 903(b)(2)
or (3), as applicable, in accordance with the provisions of Regulation
S; pursuant to registration of
D-1
<PAGE>
the Warrants under the Securities Act; or pursuant to an available
exemption from the registration requirements under the Act.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S under the
Securities Act.
Very truly yours,
[Name of Transferor]
By:
---------------------------------
[Authorized Signature]
Upon transfer the Warrants would be registered in the name of the new
entitlement holder as follows:
Name:
------------------------------------
Address:
---------------------------------
Taxpayer ID Number:
----------------------
D-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WARRANT
REGISTRATION RIGHTS AGREEMENT
Dated as of April 2, 1998
Among
CONVERGENT COMMUNICATIONS, INC.,
THE PERMITTED HOLDERS (as defined herein)
and
MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
BEAR, STEARNS & CO. INC.,
BT ALEX. BROWN INCORPORATED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 (a) Demand Registration . . . . . . . . . . . . . . . . . . . . . . 7
(b) Effective Registration . . . . . . . . . . . . . . . . . . . . 8
(c) Restrictions on Sale by Holders. . . . . . . . . . . . . . . . 8
(d) Selection of Underwriter.. . . . . . . . . . . . . . . . . . . 9
(e) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2 (a) Piggy-Back Registration . . . . . . . . . . . . . . . . . . . . 9
(b) Priority in Piggy-Back Registration. . . . . . . . . . . . . . 10
(c) Restrictions on Sale by Holders. . . . . . . . . . . . . . . . 11
2.3 Limitations, Conditions and Qualifications to Obligations Under
Registration Covenants . . . . . . . . . . . . . . . . . . . . 12
2.4 Restrictions on Sale by the Company and Others . . . . . . . . . . . 14
2.5 Rule 144 and Rule 144A . . . . . . . . . . . . . . . . . . . . . . . 14
2.6 Underwritten Registrations . . . . . . . . . . . . . . . . . . . . . 14
Section 3. Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.1 Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2 Tag-Along Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.3 Drag-Along Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5. Indemnification and Contribution. . . . . . . . . . . . . . . . . . . . 24
Section 6. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(a) Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(b) No Inconsistent Agreements . . . . . . . . . . . . . . . . . . 28
(c) No Piggy-Back on Demand Registrations. . . . . . . . . . . . . 28
(d) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . 28
(e) Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(f) Successors and Assigns . . . . . . . . . . . . . . . . . . . . 29
(g) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 29
(h) Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 29
(j) Severability . . . . . . . . . . . . . . . . . . . . . . . . . 29
(k) Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(l) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 30
<PAGE>
(m) Securities Held by the Company or Its Affiliates . . . . . . . 30
</TABLE>
<PAGE>
WARRANT REGISTRATION RIGHTS AGREEMENT
This WARRANT REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is made
and entered into as of April 2, 1998, by and among CONVERGENT COMMUNICATIONS,
INC., a Colorado corporation (the "COMPANY"), the Permitted Holders (as
defined), and MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED ("MERRILL LYNCH"), BEAR, STEARNS & CO. INC. ("BEAR, STEARNS") and
BT ALEX. BROWN INCORPORATED ("BT" and, together with Merrill Lynch and Bear,
Stearns, the "INITIAL PURCHASERS").
This Agreement is made pursuant to the Purchase Agreement dated March
26, 1998 among the Company and the Initial Purchasers (the "PURCHASE
AGREEMENT"), with respect to the issue and sale by the Company and the purchase
by the Initial Purchasers, severally, of the respective number of the Company's
Units (the "UNITS"), each Unit consisting of $1,000 aggregate principal amount
of the Company's 13% Senior Notes due 2008 (the "NOTES") and four warrants (the
"WARRANTS"), each Warrant initially entitling the holder thereof to purchase 2.7
shares of common stock, no par value, of the Company (1,728,000 shares of Common
Stock in the aggregate), set forth opposite such Initial Purchaser's name on
Schedule A to the Purchase Agreement. In order to induce the Initial Purchasers
to enter into the Purchase Agreement, the Company has agreed to provide to the
Initial Purchasers and their respective direct and indirect transferees and
assigns the registration rights set forth in this Agreement. The execution and
delivery of this Agreement is a condition to the obligations of the Initial
Purchasers under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
Section 1. DEFINITIONS. As used in this Agreement, the following
defined terms shall have the following meanings:
"ADVICE" has the meaning ascribed to such term in Section 4 hereof.
"AFFILIATE" of any specified Person means any other Person which,
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with, such specified Person. For the purposes of
this definition, "control" when used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise, and the terms "affiliated," "controlling" and "controlled"
have meanings correlative to the foregoing.
"AGREEMENT" shall have the meaning ascribed to such term in the
preamble hereto.
"BUSINESS DAY" shall mean a day that is not a Legal Holiday.
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"CAPITAL STOCK" shall mean, with respect to any Person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting and/or non-voting) of, such Person's capital
stock, whether outstanding on the Issue Date or issued after the Issue
Date, and any and all rights (other than any evidence of Indebtedness),
warrants or options exchangeable for or convertible into such capital
stock.
"CHANGE OF CONTROL" shall have the meaning ascribed to such term in
the Indenture.
"COMPANY" shall have the meaning ascribed to such term in the preamble
of this Agreement and shall also include the Company's permitted successors
and assigns.
"COMMON STOCK" shall mean the Company's Common Stock, no par value,
and any other class or series of common equity equivalent shares of the
Company hereafter created.
"CONVERTIBLE PREFERRED STOCK" shall mean any securities convertible or
exercisable or exchangeable into Common Stock of the Company, whether
outstanding on the date hereof or thereafter issued.
"CURRENT MARKET VALUE" shall have the meaning ascribed to such term in
the Warrant Agreement.
"DEMAND REGISTRATION" shall have the meaning ascribed to such term in
Section 2.1(a) hereof.
"DRAG-ALONG RIGHT" shall have the meaning ascribed to such term in
Section 3.3(a) hereof.
"DTC" shall have the meaning ascribed to such term in Section 4(i)
hereof.
"EFFECTIVENESS PERIOD" shall have the meaning ascribed to such term in
Section 2.1(a) hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"FAIR MARKET VALUE" shall mean the value of any securities as
determined (without any discount for lack of liquidity, the amount of such
securities proposed to be sold or the fact that such securities held by any
Holder of such security may represent a minority interest in a private
company) by a nationally recognized investment banking firm selected by the
Company for the determination of such value.
"HOLDER" shall mean each holder (including the Initial Purchasers) of
any Warrants, Warrant Shares or Registrable Securities, and each of their
successors, assigns and direct and
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indirect transferees who become registered owners of such Warrants, Warrant
Shares or Registrable Securities.
"INCLUDED SECURITIES" shall have the meaning ascribed to such term in
Section 2.1(a) hereof.
"INDENTURE" shall mean the Indenture, dated as of the date hereof,
between the Company and Norwest Bank Colorado, N.A., as Trustee, pursuant
to which the Notes are issued.
"INITIAL PUBLIC EQUITY OFFERING" shall mean a primary public offering
(whether or not underwritten, but excluding any offering pursuant to Form
S-8 under the Securities Act or any other publicly registered offering
pursuant to the Securities Act pertaining to an issuance of shares of
Common Stock or securities exercisable therefor under any benefit plan,
employee compensation plan, or employee or director stock purchase plan) of
Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
"INITIAL PURCHASERS" shall have the meaning ascribed to such term in
the preamble hereof.
"INSPECTORS" shall have the meaning ascribed to such term in Section
4(m) hereof.
"LEGAL HOLIDAY" shall mean a Saturday, a Sunday or a day on which
(i) banking institutions in The City of New York are required or authorized
by law or other government action to be closed and (ii) the principal U.S.
securities exchange or market, if any, on which any Common Stock is listed
or admitted to trading and the principal U.S. securities exchange or
market, if any, on which the Warrants are listed or admitted to trading are
closed for business.
"MERRILL LYNCH" shall have the meaning ascribed to such term in the
preamble hereto.
"NOTES" shall have the meaning ascribed to such term in the preamble
hereto.
"PARTICIPATING HOLDER" shall have the meaning ascribed to such term in
Section 3.2(c) hereof.
"PERMITTED HOLDERS" shall have the meaning ascribed to such term in
the Indenture.
"PERSON" shall mean any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
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"PIGGY-BACK REGISTRATION" shall have the meaning ascribed to such term
in Section 2.2(a) hereof.
"PROPOSED PURCHASER" shall have the meaning ascribed to such term in
Section 3.2(a) hereof.
"PROSPECTUS" shall mean the prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to
completion and a prospectus that includes any information previously
omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act),
as amended or supplemented by any prospectus supplement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
"PURCHASE AGREEMENT" shall have the meaning ascribed to such term in
the preamble hereof.
"REGISTRABLE SECURITIES" shall mean any of (i) the Common Stock issued
and issuable upon exercise of the Warrants and (ii) any other securities
issued or issuable with respect to the Warrants or Warrant Shares by way of
stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise. As to any particular Registrable Securities, such securities
shall cease to be Registrable Securities when (a) a registration statement
with respect to the offering of such securities by the holder thereof shall
have been declared effective under the Securities Act and such securities
shall have been disposed of by such holder pursuant to such registration
statement, (b) such securities have been sold to the public pursuant to, or
are eligible for sale to the public without volume or manner of sale
restrictions under, Rule 144(k) (or any similar provision then in force,
but not Rule 144A) promulgated under the Securities Act, (c) such
securities shall have been otherwise transferred and new certificates for
such securities not bearing a legend restricting further transfer shall
have been delivered by the Company or its transfer agent and subsequent
disposition of such securities shall not require registration or
qualification under the Securities Act or any similar state law then in
force, or (d) such securities shall have ceased to be outstanding.
"REGISTRATION EXPENSES" shall mean all expenses incident to the
Company's performance of or compliance with this Agreement, including,
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. ("NASD") registration and filing fees and
expenses, (ii) all fees and expenses incurred in connection with compliance
with state or other securities or blue sky laws and compliance with the
rules of the NASD (including, without limitation, reasonable fees and
disbursements of United States and local counsel for any underwriters and
Holders in connection with state or other securities or blue sky
qualification of any of the Registrable Securities), (iii) all expenses
(including, without limitation, all word processing, distribution,
messenger, telephone and
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delivery expenses) of any Persons in preparing, printing and distributing
any documents relating to the performance of and compliance with this
Agreement, (iv) all fees and disbursements of counsel for the Company and
all independent certified public accountants, including the expenses of any
special audits or "cold comfort" letters required by or incident to such
performance and compliance, (v) premiums and other costs of insurance
against liabilities arising out of the public offering of the Registrable
Securities being registered, (vi) the fees and expenses of a "qualified
independent underwriter" as defined by Conduct Rule 2720 of the NASD, if
required by the NASD rules, in connection with the offering of the
Registrable Securities and (vii) the reasonable fees and expenses of the
Registrar and Transfer Agent, including its counsel. Notwithstanding the
foregoing, the holders of the Registrable Securities being registered shall
pay all agency or brokerage fees and commissions and underwriting discounts
and commissions attributable to the sale of such Registrable Securities and
the fees and disbursements of any counsel or other advisors or experts
retained by such holders (severally or jointly), other than the reasonable
fees and disbursements of (A) one counsel for the Holders (which counsel
shall be selected by a majority of the Holders participating in the
offering of the Registrable Securities and may be counsel for the Initial
Purchasers or counsel for the Company) and (B) experts retained by the
Company in connection with any Registration Statement, transfer taxes on
resale of any of the Registrable Securities by such holders and any
advertising expenses customarily required to be paid by issuers or sellers
of securities.
"REGISTRATION STATEMENT" shall mean any appropriate registration
statement of the Company filed with the SEC pursuant to the Securities Act
which covers any of the Subject Equity pursuant to the provisions of this
Agreement and all amendments and supplements to any such Registration
Statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"RULE 144" shall mean Rule 144 promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule (other
than Rule 144A) or regulation hereafter adopted by the SEC providing for
offers and sales of securities made in compliance therewith resulting in
offers and sales by subsequent holders that are not affiliates of an issuer
of such securities being free of the registration and prospectus delivery
requirements of the Securities Act.
"RULE 144A" shall mean Rule 144A promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule (other
than Rule 144) or regulation hereafter adopted by the SEC.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended
from time to time.
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"SELLING HOLDER" shall mean a Holder who is selling Subject Equity or
Registrable Securities in accordance with the provisions of Section 2.1 or
2.2, respectively, hereof.
"SUBJECT EQUITY" shall have the meaning ascribed to such term in
Section 2.1(a) hereof.
"SUSPENSION PERIOD" shall have the meaning ascribed to such term in
Section 2.3(a) hereof.
"TAG-ALONG NOTICE" shall have the meaning ascribed to such term in
Section 3.2(c) hereof.
"TAG-ALONG RIGHT" shall have the meaning ascribed to such term in
Section 3.2(a) hereof.
"TRANSFER" shall have the meaning ascribed to such term in Section
3.2(a) hereof.
"TRANSFER NOTICE" shall have the meaning ascribed to such term in
Section 3.2(c) hereof.
"TRIGGERING DATE" shall mean the date of the consummation of a BONA
FIDE underwritten public offering of Common Stock, as a result of which at
least 20% of the outstanding shares of Common Stock are listed on a U.S.
national securities exchange or The Nasdaq National Market.
"UNITS" shall have the meaning ascribed to such term in the preamble
of this Agreement.
"WARRANT AGENT" shall mean American Stock Transfer & Trust Company and
any successor warrant agent for the Warrants pursuant to the Warrant
Agreement.
"WARRANT AGREEMENT" shall mean the Warrant Agreement dated as of the
date hereof, between the Company and the Warrant Agent, as amended or
supplemented from time to time in accordance with the terms thereof.
"WARRANT SHARES" shall mean shares of Common Stock issuable upon
exercise of the Warrants at an exercise price of $0.01 per share, subject
to adjustment as provided in the Warrant Agreement.
"WARRANTS" shall have the meaning ascribed to such term in the
preamble hereto.
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Section 2. REGISTRATION RIGHTS.
2.1 (a) DEMAND REGISTRATION. After the occurrence of an Exercise
Event (as such term is defined in the Warrant Agreement), the holders of a
number of Warrants, Warrant Shares and Registrable Securities (the "SUBJECT
EQUITY") equivalent to at least a majority of the outstanding Subject Equity,
from time to time, may make a written request to the Company to effect one
registration (a "DEMAND REGISTRATION") under the Securities Act of the Subject
Equity. Within 20 days after the receipt of such written request for a Demand
Registration, the Company shall notify the Holders of all Subject Equity that a
Demand Registration has been requested. In addition, the Company shall
(i) prepare, file with the SEC and use its best efforts to cause to become
effective under the Securities Act within 150 days of such demand a Registration
Statement with respect to such Subject Equity and (ii) keep such Registration
Statement continuously effective until the earlier to occur of (A) the date that
is 60 days after such effectiveness (the "EFFECTIVENESS PERIOD") and (B) such
period of time as all of the Subject Equity included in such registration
statement shall have been sold thereunder. Any such request will specify the
number of shares of Subject Equity proposed to be sold and will also specify the
intended method of disposition thereof. Within 30 days after receipt by any
Holder of Subject Equity of such notice from the Company, such Holder may
request in writing that such Holder's Subject Equity be included in such
Registration Statement and the Company shall include in such Registration
Statement the Subject Equity of any such Holder requested to be so included (the
"INCLUDED SECURITIES"). Each such request by such other Holders shall specify
the number of Included Securities proposed to be sold and the intended method of
disposition thereof. Subject to Section 2.1(b) hereof, the Company shall be
required to effect a Demand Registration of Subject Equity pursuant to this
Section 2.1(a) on one occasion.
If such demand occurs during the "lock up" or "black out" period (not
to exceed 180 days) imposed on the Company pursuant to or in connection with any
underwriting or purchase agreement relating to an underwritten Rule 144A or
registered public offering of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock, the Company shall not be required
to so notify holders of Subject Equity and file such Demand Registration
Statement prior to the end of such "lock up" or "black out" period, in which
event the Company will use its best efforts to cause such Demand Registration
statement to become effective no later than the later of (i) 150 days after such
demand or (ii) 30 days after the end of such "lock up" or "black out" period.
In the event of any "lock up" or "black out" period or any underwriting or other
purchase agreement, the Company shall so notify the holders of Registrable
Securities.
Notwithstanding the foregoing, in lieu of filing and causing to become
effective a Demand Registration, the Company may satisfy its obligation with
respect to such Demand Registration by making and consummating (or having its
designee make and consummate) an offer to purchase all Subject Equity at a price
at least equal to Current Market Value (as defined in the Warrant Agreement, but
without the inclusion of clause (i)(a) thereof), less any applicable Exercise
Price.
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(b) EFFECTIVE REGISTRATION. A Registration Statement shall not be
deemed to have been effected as a Demand Registration unless it shall have been
declared effective by the SEC, no later than the later of (i) 150 days after the
request for a Demand Registration or (ii) 30 days after the end of any "lock up"
or "black out" period described in Section 2.1(a) hereof and the Company has
complied in all material respects with all of its obligations under this
Agreement with respect thereto; PROVIDED, HOWEVER, that if, after such
Registration Statement has become effective, the offering of Subject Equity
pursuant to such Registration Statement is or becomes the subject of any stop
order, injunction or other order or requirement of the SEC or any other
governmental, judicial or administrative order or requirement that prevents,
restrains or otherwise limits the sale of Subject Equity pursuant to such
Registration Statement for any reason not attributable to any Holder
participating in such registration, and such Registration Statement has not
become effective within a reasonable time period thereafter, such Registration
Statement shall be deemed not to have been effected. If (i) a registration
requested pursuant to this Section 2.1 is deemed not to have been effected or
(ii) a Demand Registration does not remain effective under the Securities Act
until at least the earlier of (A) an aggregate of 60 days (subject to Section
2.3 herein) after the effective date thereof or (B) the consummation of the
distribution by the Holders of all of the Subject Equity covered thereby, then
such Demand Registration shall not count towards determining if the Company has
satisfied its obligation to effect one Demand Registration pursuant to this
Section 2.1. For purposes of calculating the 60-day period referred to in the
preceding sentence, any period of time during which such Registration Statement
was not in effect shall be excluded. The Holders of Subject Equity shall be
permitted to withdraw all or any part of the Registrable Securities from a
Demand Registration. Notwithstanding any such withdrawal by a Holder of Subject
Equity, if the Company has complied with all of its obligations hereunder and
has effected a Demand Registration within 150 days after the request for a
Demand Registration, such withdrawal shall not require the Company to effect any
additional Demand Registrations.
(c) RESTRICTIONS ON SALE BY HOLDERS. Each Holder of Warrants and
Registrable Securities whose Warrants and Registrable Securities are covered by
a Registration Statement filed pursuant to this Section 2.1 and are to be sold
thereunder agrees, if and to the extent reasonably requested by the managing
underwriter or underwriters in an underwritten public offering, not to effect
any public sale or distribution of Warrants and Registrable Securities or of
securities of the Company of the same class as any securities included in such
Registration Statement, including a sale pursuant to Rule 144 (except as part of
such underwritten offering), during the 30-day period prior to, and during the
180-day period beginning on, the closing date of each underwritten offering made
pursuant to such Registration Statement, to the extent timely notified in
writing by the Company or such managing underwriter or underwriters.
The foregoing provisions of Section 2.1(c) shall not apply to any
Holders of Warrants and Registrable Securities if such Holder is prevented by
applicable statute or regulation from entering into any such agreement;
PROVIDED, HOWEVER, that any such Holder shall undertake, in its request to
participate in any such underwritten offering, not to effect any public sale or
distribution of any Warrants and Registrable Securities commencing on the date
of sale of such Warrants and
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Registrable Securities unless it has provided 45 days' prior written notice of
such sale or distribution to the managing underwriter or underwriters.
(d) SELECTION OF UNDERWRITER. If the Holders so elect, the offering
of such Subject Equity pursuant to such Demand Registration shall be in the form
of an underwritten offering. The Holders making such Demand Registration shall
select one or more nationally recognized firms of investment bankers, who shall
be reasonably acceptable to the Company, to act as the managing underwriter or
underwriters in connection with such offering and shall select any additional
investment bankers and managers to be used in connection with the offering.
(e) EXPENSES. The Company will pay all Registration Expenses in
connection with the registration requested pursuant to Section 2.1(a) hereof.
Each Holder of Subject Equity shall pay all underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
such Holder's Subject Equity pursuant to a Registration Statement requested
pursuant to this Section 2.1.
2.2 (a) PIGGY-BACK REGISTRATION. If at any time the Company
proposes to file a Registration Statement under the Securities Act with respect
to an offering by the Company for its own account or for the account of any of
its securityholders of Common Stock (other than (i) a registration statement on
Form S-4 or S-8 (or any substitute form that may be adopted by the SEC) or any
other publicly registered offering pursuant to the Securities Act pertaining to
the issuance of shares of Capital Stock or securities exercisable therefor under
any benefit plan, employee compensation plan, or employee or director stock
purchase plan, (ii) a registration statement filed in connection with an offer
of securities solely to the Company's existing securityholders or (iii) a Demand
Registration), then the Company shall give written notice of such proposed
filing to the Holders of Registrable Securities as soon as practicable (but in
no event fewer than 15 days before the anticipated filing date or 10 days if the
Company is subject to filing reports under the Exchange Act and able to use Form
S-3 under the Securities Act), and such notice shall offer such Holders the
opportunity to register such number of shares of Registrable Securities as each
such Holder may request in writing within 12 days (or eight days if the Company
is subject to filing reports under the Exchange Act and able to use Form S-3
under the Securities Act) after receipt of such written notice from the Company
(which request shall specify the Registrable Securities intended to be disposed
of by such Selling Holder and the intended method of distribution thereof) (a
"PIGGY-BACK REGISTRATION"). The Company shall use its best efforts to keep such
Piggy-Back Registration continuously effective under the Securities Act in the
qualifying jurisdictions until at least the earlier of (A) 60 days after the
effective date thereof or (B) the consummation of the distribution by the
Holders of all of the Registrable Securities covered thereby. The Company shall
use its best efforts to cause the managing underwriter or underwriters, if any,
of such proposed offering to permit the Registrable Securities requested to be
included in a Piggy-Back Registration to be included on the same terms and
conditions as any similar securities of the Company or any other securityholder
included therein and to permit the sale or other disposition of such Registrable
Securities in accordance with the intended method of distribution thereof. Any
Selling Holder shall have the right to withdraw its request for inclusion of its
Registrable Securities in any Registration Statement
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pursuant to this Section 2.2 by giving written notice to the Company of its
request to withdraw. The Company may withdraw a Piggy-Back Registration at any
time prior to the time it becomes effective or the Company may elect to delay
the registration; PROVIDED, HOWEVER, that the Company shall give prompt written
notice thereof to participating Selling Holders. The Company will pay all
Registration Expenses in connection with each registration of Registrable
Securities requested pursuant to this Section 2.2, and each Holder of
Registrable Securities shall pay all underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of such Holder's
Registrable Securities pursuant to a Registration Statement effected pursuant to
this Section 2.2.
No registration effected under this Section 2.2, and no failure to
effect a registration under this Section 2.2, shall relieve the Company of its
obligation to effect a registration upon the request of Holders of Registrable
Securities pursuant to Section 2.1 hereof, and no failure to effect a
registration under this Section 2.2 and to complete the sale of securities
registered thereunder in connection therewith shall relieve the Company of any
other obligation under this Agreement.
(b) PRIORITY IN PIGGY-BACK REGISTRATION. In a registration pursuant
to Section 2.2 hereof involving an underwritten offering, if the managing
underwriter or underwriters of such underwritten offering have informed, in
writing, the Company and the Selling Holders requesting inclusion in such
offering that in such underwriter's or underwriters' reasonable opinion the
total number of securities which the Company, the Selling Holders and any other
persons desiring to participate in such registration intend to include in such
offering is such as to materially and adversely affect the success of such
offering, including the price at which such securities can be sold, then the
Company will be required to include in such registration only the amount of
securities which it is so advised should be included in such registration. In
such event: (x) in cases only involving the registration for sale of securities
for the Company's own account (which may include securities included pursuant to
the exercise of piggy-back rights herein and in other contractual commitments of
the Company), securities shall be registered in such offering in the following
order of priority: (i) FIRST, the securities which the Company proposes to
register and (ii) SECOND, PROVIDED that no securities sought to be included by
the Company have been excluded from such registration, on a PRO RATA basis, (a)
the securities which have been requested to be included in such registration by
the Holders of Registrable Securities pursuant to this Agreement (such
securities for the account of the Holders to be allocated among the Holders PRO
RATA based on the amount of securities sought to be registered by the Holder),
together with (b) the securities of other Persons entitled to exercise
"piggy-back" registration rights pursuant to contractual commitments of the
Company (PRO RATA based on the amount of securities sought to be registered by
such Persons); and (y) in cases not involving the registration for sale of
securities for the Company's own account only, securities shall be registered in
such offering in the following order of priority: (i) FIRST, securities to be
sold for the account of the Company and the securities of any Person whose
exercise of a "demand" registration right pursuant to a contractual commitment
of the Company is the basis for the registration (PROVIDED that if such Person
is a Holder of Registrable Securities, as among Holders of Registrable
Securities there shall be no priority and Registrable Securities sought to be
included by Holders of Registrable Securities shall be included PRO RATA based
on the amount of securities sought to be registered by
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such Persons) and (ii) SECOND, PROVIDED that no securities of the Company or
such Person referred to in the immediately preceding clause (i) have been
excluded from such registration, on a PRO RATA basis, (a) the securities
requested to be included in such registration by the Holders of Registrable
Securities pursuant to this Agreement (such securities for the account of the
Holders to be allocated among the Holders PRO RATA based on the total amount of
securities sought to be registered by the Holders), together with (b) the
securities of other Persons entitled to exercise "piggy-back" registration
rights pursuant to contractual commitments (PRO RATA based on the amount of
securities sought to be registered by such Persons).
If, as a result of the provisions of this Section 2.2(b), any Selling
Holder shall not be entitled to include all Registrable Securities in a
Piggy-Back Registration that such Selling Holder has requested to be included,
such Selling Holder may elect to withdraw his request to include Registrable
Securities in such registration.
(c) RESTRICTIONS ON SALE BY HOLDERS. Each Holder of Warrants and
Registrable Securities whose Warrants and Registrable Securities are covered by
a Registration Statement filed pursuant to this Section 2.2 and are to be sold
thereunder agrees, if and to the extent reasonably requested by the managing
underwriter or underwriters in an underwritten public offering, not to effect
any public sale or distribution of Warrants and Registrable Securities or of
securities of the Company of the same class as any securities included in such
Registration Statement, including a sale pursuant to Rule 144 (except as part of
such underwritten offering), during the 30-day period prior to, and during the
180-day period beginning on, the closing date of each underwritten offering made
pursuant to such Registration Statement, to the extent timely notified in
writing by the Company or such managing underwriter or underwriters.
The foregoing provisions of Section 2.2(c) shall not apply to any
Holders of Warrants and Registrable Securities if such Holder is prevented by
applicable statute or regulation from entering into any such agreement;
PROVIDED, HOWEVER, that any such Holder shall undertake, in its request to
participate in any such underwritten offering, not to effect any public sale or
distribution of any Warrants and Registrable Securities commencing on the date
of sale of such Warrants and Registrable Securities unless it has provided 45
days' prior written notice of such sale or distribution to the managing
underwriter or underwriters.
2.3 LIMITATIONS, CONDITIONS AND QUALIFICATIONS TO OBLIGATIONS UNDER
REGISTRATION COVENANTS. The obligations of the Company set forth in Sections
2.1, 2.2 and 2.6 hereof are subject to each of the following limitations,
conditions and qualifications:
(a) Subject to the next sentence of this paragraph, the Company shall
be entitled to postpone, for a reasonable period of time, the filing of, or
suspend the effectiveness of, any registration statement or amendment
thereto, or suspend the use of any Prospectus and shall not be required to
amend or supplement the registration statement, any related Prospectus or
any document incorporated therein by reference (other than an effective
registration statement being used for an underwritten offering); PROVIDED
that the duration of such
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postponement or suspension (a "SUSPENSION PERIOD") may not exceed an
aggregate of 90 days after the event or circumstance giving rise to such
Suspension Period and the duration of such Suspension Period shall be
excluded from the calculation of the 60-day period described in
Section 2.1(b) hereof. Such Suspension Period may be effected only if
(i) an event or circumstance occurs and is continuing as a result of which
the registration statement, any related Prospectus or any document
incorporated therein by reference as then amended or supplemented or
proposed to be filed would, in the Company's good faith judgment, contain
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and (ii) (A) the
Company determines in its good faith judgment that the disclosure of such
an event at such time would have a material adverse effect on the business,
operations or prospects of the Company or (B) the disclosure otherwise
relates to a material business transaction which has not yet been publicly
disclosed; PROVIDED, that the Effectiveness Period shall be extended by the
number of days in any Suspension Period; PROVIDED FURTHER that the Company
may suspend the effectiveness for a period not in excess of five Business
Days to allow for the updating of the financial statements included in a
Registration Statement to the extent required by law, not to exceed 45 days
in aggregate in any 12-month period. If the Company shall so postpone the
filing of a Registration Statement it shall, as promptly as possible,
deliver a certificate signed by the chief executive officer of the Company
to the Selling Holders as to such determination, and the Selling Holders
shall (1) have the right, in the case of a postponement of the filing or
effectiveness of a Registration Statement, upon the affirmative vote of the
Holders of not less than a majority of the Registrable Securities to be
included in such Registration Statement, to withdraw the request for
registration by giving written notice to the Company within 10 days after
receipt of such notice or (2) in the case of a suspension of the right to
make sales, receive an extension of the registration period equal to the
number of days of the suspension. Any Demand Registration as to which the
withdrawal election referred to in the preceding sentence has been effected
shall not be counted for purposes of the Demand Registration the Company is
required to effect pursuant to Section 2.1 hereof.
(b) The Company's obligations shall be subject to the obligations of
the Selling Holders, which the Selling Holders acknowledge, to furnish all
information and materials and to take any and all actions as may be
required under applicable federal and state securities laws and regulations
to permit the Company to comply with all applicable requirements of the
SEC, if applicable, and to obtain any acceleration of the effective date of
such Registration Statement.
2.4 RESTRICTIONS ON SALE BY THE COMPANY AND OTHERS. The Company
covenants and agrees that (i) it shall not, and that it shall not cause or
permit any of its subsidiaries to, effect any public sale or distribution of any
securities of the same class as any of the Warrants or Registrable Securities or
any securities convertible into or exchangeable or exercisable for such
securities (or any option or other right for such securities) during the 90-day
period beginning on, the commencement of any underwritten offering of Warrants
or Registrable Securities pursuant to a
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Demand Registration which has been requested pursuant to this Agreement, prior
to the Company or any of its subsidiaries publicly announcing its intention to
effect any such public sale or distribution; (ii) except as permitted herein,
the Company will not, and the Company will not cause or permit any subsidiary of
the Company to, after the date hereof, enter into any agreement or contract that
conflicts with or limits or prohibits the full and timely exercise by the
Holders of Warrants or Registrable Securities of the rights herein to request a
Demand Registration or to join in any Piggy-Back Registration subject to the
other terms and provisions hereof; and (iii) upon request of the Holders of not
less than a majority of the Warrants or Registrable Securities to be included in
such Registration Statement or any underwriter, it shall use its reasonable best
efforts to secure the written agreement of each of its officers and directors to
not effect any public sale or distribution of any securities of the same class
as the Warrants or Registrable Securities (or any securities convertible into or
exchangeable or exercisable for an such securities), or any option or right for
such securities during the period described in clause (i) of this Section 2.4.
2.5 RULE 144 AND RULE 144A. The Company covenants that it will file
the reports required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations adopted by the SEC thereunder in a timely
manner and, if at any time the Company is not required to file such reports, it
will, upon the request of any Holder or beneficial owner of Warrants or
Registrable Securities, make available such information necessary to permit
sales pursuant to Rule 144A under the Securities Act. The Company further
covenants that it will take such further action as any Holder of Warrants or
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Warrants or Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities Act,
as such Rules may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the SEC. Upon the request of any Holder of
Warrants or Registrable Securities, the Company will in a timely manner deliver
to such Holder a written statement as to whether it has complied with such
information requirements.
2.6 UNDERWRITTEN REGISTRATIONS. If any of the Registrable Securities
covered by any Registration Statement pursuant to a Demand Registration are to
be sold in an underwritten public offering, the investment banker or investment
bankers and manager or managers that will administer the offering will be
selected by the Holders of not less than a majority of the Registrable
Securities to be sold thereunder and will be reasonably acceptable to the
Company.
No Holder of Registrable Securities may participate in any
underwritten registration pursuant to a Registration Statement filed under this
Agreement unless such Holder (a) agrees to (i) sell such Holder's Registrable
Securities on the basis provided in and in compliance with any underwriting
arrangements approved by the Holders of not less than a majority of the
Registrable Securities to be sold thereunder and (ii) comply with Rules 101, 102
and 104 of Regulation M under the Exchange Act and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
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If the Company has complied with all its obligations under this
Agreement with respect to a Demand Registration or a Piggy-Back Registration
relating to an underwritten public offering, all holders of Warrants and
Registrable Securities, upon request of the lead managing underwriter with
respect to such underwritten public offering, will be required to not sell or
otherwise dispose of any Warrant or Registrable Security owned by them for a
period not to exceed 180 days from the consummation of such underwritten public
offering.
Section 3. TRANSFERS.
3.1 GENERALLY. All Subject Equity at any time and from time to time
outstanding shall be held subject to the conditions and restrictions set forth
in this Section 3. All shares of Capital Stock now or hereafter held by the
Permitted Holders shall be held subject to the conditions and restrictions set
forth in this Section 3. Each Holder of Subject Equity and the Permitted
Holders by executing this Agreement or by accepting a certificate representing
Capital Stock or other indicia of ownership therefor from the Company agree with
the Company and with each other stockholder to such conditions and restrictions.
3.2 TAG-ALONG RIGHTS. (a) Prior to the Triggering Date, each of the
Holders of Subject Equity shall have the right (the "TAG-ALONG RIGHT") to
require the Proposed Purchaser (as defined below) to purchase from each of them
all Subject Equity owned by such Holder in the event of any proposed direct or
indirect sale or other disposition (collectively, a "TRANSFER") of Common Stock
or Convertible Preferred Stock (whether now or hereafter issued) to any Person
or Persons (such other Person or Persons being hereinafter referred to as the
"PROPOSED PURCHASER") by any Permitted Holders or any of their Affiliates in any
transaction or a series of related transactions resulting in a Change of
Control.
(b) Any Subject Equity purchased from the Participating Holders (as
defined below) pursuant to this Section 3.2 shall be paid for in the same type
of consideration and at the same price per share of Common Stock and upon the
same terms and conditions of such proposed Transfer of Common Stock by any
Permitted Holder or any of its Affiliates; except that the price per Warrant to
be paid by the Proposed Purchaser shall be less the then aggregate Exercise
Price of such Warrant per share. If the Subject Equity to be purchased includes
securities other than Common Stock, the price to be paid for such securities
shall be the same price per share or other denomination paid by the Proposed
Purchaser for like securities purchased from any Permitted Holder or any of its
Affiliates or, if like securities are not purchased from any Permitted Holder or
any of its Affiliates, the Fair Market Value of such securities determined by a
nationally recognized investment banking firm selected by the Company.
(c) Each Permitted Holder shall notify, or cause to be notified, each
Holder of Subject Equity in writing (a "TRANSFER NOTICE") of each such proposed
Transfer at least 30 days prior to the date thereof. Such notice shall set
forth: (a) the name and address of the Proposed Purchaser and the number of
shares of Common Stock and other securities, if any, proposed to be transferred,
(b) the proposed amount of consideration and terms and conditions of payment
offered by such
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Proposed Purchaser (if the proposed consideration is not cash, the Transfer
Notice shall describe the terms of the proposed consideration) and (c) that
either the Proposed Purchaser has been informed of the "Tag-Along Right" and has
agreed to purchase Subject Equity in accordance with the terms hereof or that
the Permitted Holder or any of its Affiliates will make such purchase. The
Tag-Along Right may be exercised by any Holder of Subject Equity by delivery of
a written notice to the Company (the "TAG-ALONG NOTICE"), within 10 days of such
Holder's receipt of the Transfer Notice, indicating its election to exercise the
Tag-Along Right (a "PARTICIPATING HOLDER"). The Tag-Along Notice shall state
the amount of Subject Equity that such Holder proposes to include in such
Transfer to the Proposed Purchaser. Failure by any Holder to provide a
Tag-Along Notice within the 10-day notice period shall be deemed to constitute
an election by such Holder not to exercise its Tag-Along Right. The closing
with respect to any sale to a Proposed Purchaser pursuant to this Section 3.2
shall be held at the time and place specified in the Transfer Notice but in any
event within 60 days of the date such Transfer Notice is given; PROVIDED that if
through the exercise of reasonable efforts the Company is unable to cause such
transaction to close within 60 days, such period may be extended for such
reasonable period of time as may be necessary to close such transaction.
Consummation of the sale of Common Stock or Convertible Preferred Stock by any
Permitted Holder or any of its Affiliates to a Proposed Purchaser shall be
conditioned upon consummation of the sale by each Participating Holder to such
Proposed Purchaser (or the Permitted Holder) of the Subject Equity entitled to
be transferred as described above, if any.
(d) [reserved]
(e) If the Proposed Purchaser does not purchase the Subject Equity
entitled to be transferred as described in this Section 3.2 on the same terms
and conditions as purchased from the Permitted Holders or any of their
Affiliates, then the Permitted Holders or their Affiliates shall purchase such
Subject Equity if the Transfer occurs.
(f) If at the end of 60 days following the date on which a Transfer
Notice was given, or as otherwise extended pursuant to the provisions of Section
3.2(a), the sale of Common Stock by the Permitted Holders or their Affiliates
and the sale of the Subject Equity entitled to be transferred as provided above
have not been completed in accordance with the terms of the Proposed Purchaser's
offer, all certificates representing such Subject Equity shall be returned to
the Participating Holders, and all the restrictions on Transfer contained in
this Agreement with respect to Common Stock owned by the Permitted Holders and
their Affiliates shall remain in effect.
3.3 DRAG-ALONG RIGHTS. If at any time prior to an Initial Public
Equity Offering, any Permitted Holders or any of their respective Affiliates
determines to sell all of the Capital Stock of the Company owned by them to a
Person other than a Permitted Holder or its Affiliate in a transaction resulting
in a Change of Control, the transferring Permitted Holder (whether directly or
through an Affiliate) shall have the right (the "DRAG-ALONG RIGHT") to require
the Holders of Subject Equity to sell such Subject Equity to such transferee;
PROVIDED that (i) the consideration to be received by the Holders of Subject
Equity shall be the same type of consideration received by the Permitted Holders
and their Affiliates and, in any event, shall be cash or freely transferable
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marketable securities, and (ii) after giving effect to such transaction, the
Permitted Holders making the transfers and its Affiliates shall not own,
directly or indirectly, any Capital Stock or rights to purchase Capital Stock
of the Company. Any Warrants or Registrable Securities, or both, purchased
from the Holders thereof pursuant to this Section 3.3 shall be paid for at
the same price per share of Common Stock and upon the same terms and
conditions as such proposed transfer of Common Stock by the Permitted Holders
and their Affiliates. The price per Warrant to be paid by the Proposed
Purchaser shall be less the aggregate Exercise Price of such Warrant. If the
Subject Equity to be purchased includes securities other than Common Stock,
the price to be paid for such securities shall be the same price per share or
other denomination paid by the Proposed Purchaser for like securities
purchased from the Permitted Holders and their Affiliates or, if like
securities are not purchased from the Permitted Holders and their Affiliates,
the Fair Market Value of such securities determined by a nationally
recognized investment banking firm selected by the Company.
Section 4. REGISTRATION PROCEDURES. In connection with the
obligations of the Company with respect to any Registration Statement
pursuant to Sections 2.1, 2.2 and 2.6 hereof, the Company shall, except as
otherwise provided:
(a) A reasonable period of time prior to the initial filing of a
Registration Statement or Prospectus and a reasonable period of time prior
to the filing of any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by
reference), furnish to the Holders and the managing underwriters, if any,
copies of all such documents proposed to be filed, which documents (other
than those incorporated or deemed to be incorporated by reference) shall be
subject to the review of such Holders, and such underwriters, if any, and
cause the officers and directors of the Company, counsel to the Company and
independent certified public accountants to the Company to respond to such
reasonable inquiries as shall be necessary, in the opinion of counsel to
such underwriters, to conduct a reasonable investigation within the meaning
of the Securities Act; PROVIDED that the foregoing inspection and
information gathering shall be coordinated on behalf of the Holders by
Merrill Lynch. The Company shall not file any such Registration Statement
or related Prospectus or any amendments or supplements thereto to which the
Holders of a majority of the Registrable Securities included in such
Registration Statement shall reasonably object on a timely basis.
(b) Prepare and file with the SEC such amendments, including
post-effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement continuously effective for
the applicable time period required hereunder; cause the related Prospectus
to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 (or any similar provisions
then in force) promulgated under the Securities Act; and comply with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all securities covered by such Registration Statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement as so amended or
in such Prospectus as so supplemented.
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(c) Notify the Holders of Registrable Securities to be sold and the
managing underwriters, if any, promptly, and (if requested by any such
person) confirm such notice in writing, (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment is proposed to be filed,
and (B) with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the
SEC or any other Federal or state governmental authority for amendments or
supplements to a Registration Statement or related Prospectus or for
additional information, (iii) of the issuance by the SEC, any state
securities commission, any other governmental agency or any court of any
stop order suspending the effectiveness of such Registration Statement or
of any order or injunction suspending or enjoining the use of a Prospectus
or the effectiveness of a 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 or
exemption from qualification of any of the Registrable Securities for sale
in any jurisdiction, or the initiation or threatening of any proceeding for
such purpose, and (v) of the happening of any event or the existence of any
information becoming known that makes any statement made in a Registration
Statement or related Prospectus or any document incorporated or deemed to
be incorporated therein by reference untrue in any material respect or
omits to state any material fact required to be stated therein or necessary
to make the statements therein, not misleading, and that in the case of the
Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(d) Use its best efforts to avoid the issuance of or, if issued,
obtain the withdrawal of any order enjoining or suspending the
effectiveness of the Registration Statement or the use of a Prospectus or
the lifting of any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities covered thereby for
sale in any jurisdiction described in Section 4(h) at the earliest
practicable moment.
(e) If requested by the managing underwriters, if any, or if none, by
the Holders of a majority of the Registrable Securities being sold pursuant
to such Registration Statement, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment such information as the managing
underwriters, if any, following consultation with their counsel or if none,
such Holders reasonably request in writing to be included therein, and (ii)
make all required filings of such Prospectus supplement or such
post-effective amendment under the Securities Act as soon as practicable
after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
PROVIDED, HOWEVER, that the Company shall not be required to take any
action pursuant to this Section 4(e) that would in the opinion of counsel
for the Company, violate applicable law.
(f) Upon written request to the Company, furnish to each Holder of
Registrable Securities to be sold pursuant to a Registration Statement and
each managing underwriter,
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if any, without charge, at least one conformed copy of the Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein
by reference, and all exhibits to the extent requested (including those
previously furnished or incorporated by reference) as soon as practicable
after the filing of such documents with the SEC.
(g) Deliver to each Holder of Registrable Securities to be sold
pursuant to a Registration Statement and each managing underwriter, if any,
without charge, as many copies of each Prospectus (including each form of
Prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto and each document
supplemental thereto by each of the Selling Holders of Registrable
Securities and the underwriters or agents, if any, in connection with the
offering and sale of the Registrable Securities covered by such Prospectus
and any amendment or supplement thereto.
(h) Prior to any offering of Registrable Securities, use its best
efforts to register or qualify or cooperate with the Holders of Registrable
Securities to be sold, the managing underwriter or underwriters, if any,
and their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of
such Registrable Securities for offer and sale under the securities or Blue
Sky laws of such jurisdictions as any such Holder or underwriter reasonably
requests in writing; keep each such registration or qualification (or
exemption therefrom) effective during the period such Registration
Statement is required to be kept effective hereunder and do any and all
other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; PROVIDED, HOWEVER, that the Company shall not be
required to (i) qualify generally to do business in any jurisdiction where
it is not then so qualified or (ii) take any action that would subject it
to general service of process in any such jurisdiction where it is not then
so subject or to taxation in any jurisdiction where it is not so subject.
(i) In connection with any sale or transfer of Registrable Securities
that will result in such securities no longer being Registrable Securities,
cooperate with the Holders of Registrable Securities and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends whatsoever and shall be
in a form eligible for deposit with The Depository Trust Company ("DTC");
and to enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriter or underwriters, if
any, or such Holders may reasonably request at least two business days
prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 4(c)(v)
above, as promptly as practicable prepare a supplement or amendment,
including if appropriate a post-effective amendment to each Registration
Statement or a supplement to the related
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Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, such Prospectus will not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(k) Prior to the effective date of a Registration Statement, (i)
provide the registrar for the Registrable Securities with certificates for
such securities in a form eligible for deposit with DTC and (ii) provide a
CUSIP or ISIN number for such securities.
(l) Enter into such agreements (including, except in connection with
a Piggy-Back Registration (other than if the offering relating to the
Piggy-Back Registration is underwritten), an underwriting agreement in
such form, scope and substance as is customary in underwritten offerings)
and take all such other reasonable actions in connection therewith
(including those reasonably requested by the managing underwriters, if any,
or the Holders of a majority of the Registrable Securities being sold) in
order to expedite or facilitate the disposition of such Registrable
Securities, and, whether or not an underwriting agreement is entered into
and whether or not the registration is an underwritten registration, (i)
make such representations and warranties to the Holders of such Registrable
Securities and the underwriter or underwriters, if any, with respect to the
business of the Company and the subsidiaries of the Company (including with
respect to businesses or assets acquired or to be acquired by any of them),
and the Registration Statement, Prospectus and documents, if any,
incorporated or deemed to be incorporated by reference therein, in each
case, in form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings, and confirm the same if and when
requested; (ii) 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 of Registrable Securities and each of the underwriters,
if any), covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably
requested by such underwriters; (iii) obtain customary "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 Registrable Securities and
each of the underwriters, if any, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters
in connection with underwritten offerings; (iv) if an underwriting
agreement is entered into, the same shall contain customary indemnification
provisions and procedures no less favorable to the Selling Holder and the
underwriters, if any, than those set forth in Section 5 hereof (or such
other provisions and procedures acceptable to Holders of a majority of
Registrable Securities covered by such Registration Statement and the
managing underwriter, if any); and (v) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of
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the Registrable Securities being sold and the managing underwriters or
underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause (i) above and evidence compliance with
any customary conditions contained in the underwriting agreement or other
agreements entered into by the Company; PROVIDED, HOWEVER, that the Holders
of Registrable Securities participating in a Piggy-Back Registration shall
not enter into an underwriting agreement other than an underwriting
agreement entered into at the request of the Company or other
securityholders of the Company.
(m) Make available for inspection by a representative of the selling
Holders of Registrable Securities, any underwriter participating in any
such disposition of Registrable Securities, if any, and any attorney,
consultant or accountant retained by such representative of the Selling
Holders of Registrable Securities or underwriter (collectively, the
"INSPECTORS"), at the offices where normally kept, during the reasonable
business hours, all financial and other records, pertinent corporate
documents and properties of the Company and the subsidiaries of the Company
(including with respect to businesses and assets acquired or to be acquired
to the extent that such information is available to the Company), and cause
the officers, directors, agents and employees of the Company and its
subsidiaries of the Company (including with respect to businesses and
assets acquired or to be acquired to the extent that such information is
available to the Company) to supply all information in each case reasonably
requested by any such Inspector in connection with such Registration
Statement; PROVIDED, HOWEVER, that such persons shall first agree in
writing with the Company that any information that is reasonably and in
good faith designated by the Company in writing as confidential at the time
of delivery of such information shall be kept confidential by such Persons,
unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities, (ii) disclosure of such information is required by law
(including any disclosure requirements pursuant to U.S. securities laws in
connection with the filing of the Registration Statement or the use of any
Prospectus), (iii) such information becomes generally available to the
public other than as a result of a disclosure or failure to safeguard such
information by such person or (iv) such information becomes available to
such person from a source other than the Company and its subsidiaries and
such source is not bound by a confidentiality agreement; PROVIDED, FURTHER
that the foregoing investigation shall be coordinated on behalf of the
Selling Holders of Registrable Securities by Merrill Lynch.
(n) Comply with all applicable rules, regulations and policies of the
SEC and make generally available to its securityholders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder no later than 60 days after the end of any 12-month period
(or 135 days after the end of any 12-month period if such period is a
fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to an underwriter or to underwriters in a
firm commitment or reasonable efforts underwritten offering and (ii) if not
sold to an underwriter or to underwriters in such an offering, commencing
on the first day of the first fiscal quarter of the Company after the
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effective date of the relevant Registration Statement, which statements
shall cover such said period, consistent with the requirements of Rule 158
under the Securities Act.
(o) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on each securities exchange, if
any, on which similar securities issued by the Company are then listed.
(p) Cooperate with each seller of Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive legends
and registered in such names as the Selling Holders may reasonably request
at least two business days prior to the closing of any sale of Registrable
Securities.
(q) Cooperate with each seller of Registrable Securities covered by
any Registration Statement and each underwriter, if any, participating in
the disposition of such Registrable Securities and its respective counsel
in connection with any filings required to be made with the National
Association of Securities Dealers, Inc.
The Company may require a Holder of Registrable Securities to be
included in a Registration Statement to furnish to the Company such information
regarding (i) the intended method of distribution of such Registrable
Securities, (ii) such Holder and (iii) the Registrable Securities held by such
Holder as is required by law to be disclosed in such Registration Statement and
the Company may exclude from such Registration Statement the Registrable
Securities of any Holder who fails to furnish such information within a
reasonable time after receiving such request.
If any such Registration Statement refers to any Holder by name or
otherwise as the Holder of any securities of the Company, then such Holder shall
have the right to require (i) the insertion therein of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the holding
by such Holder of such securities is not to be construed as a recommendation by
such Holder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that such Holder will assist in
meeting any future financial requirements of the Company, or (ii) in the event
that such reference to such Holder by name or otherwise is not required by the
Securities Act, the deletion of the reference to such Holder in such amendment
or supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder of Registrable Securities agrees by acquisition of such
Subject Equity that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 4(c)(ii), 4(c)(iv) or
4(c)(v) hereof, such Holder will forthwith discontinue disposition of such
Subject Equity covered by the Registration Statement or Prospectus until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 4(j) hereof, or until it is advised in writing (the
"ADVICE") by the Company that the use of the applicable Prospectus may be
resumed, and in either case has received copies of any additional or
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supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus. If the Company shall give any such notice, the
Effectiveness Period shall be extended by the number of days during such periods
from and including the date of the giving of such notice to and including the
date when each seller of Subject Equity covered by such Registration Statement
shall have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 4(j) hereof or (y) the Advice, and, in either case, has
received copies of any additional or supplemental filings that are incorporated
or deemed to be incorporated by reference in such Prospectus.
Holders of the Subject Equity shall be obligated to keep confidential
the existence of a Suspension Period or any confidential information
communicated by the Company to the Holder with respect thereto.
Section 5. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees
to indemnify and hold harmless each Initial Purchaser, each Holder, each
underwriter, if any, who participates in an offering of Registrable Securities,
their respective affiliates, and their respective directors, officers,
employees, agents and each Person, if any, who controls any of such parties
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
(or any amendment thereto) pursuant to which Registrable Securities were
registered under the Securities Act, including all documents incorporated
therein by reference, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading or arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever, in each case, based upon any such untrue statement or omission,
or any such alleged untrue statement or omission; PROVIDED that (subject to
Section 5(d) below) any such settlement is effected with the written
consent of the Company; and
(iii) against any and all expenses whatsoever, as incurred
(including the reasonable fees and disbursements of one counsel chosen by
Merrill Lynch), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding by any
court or governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged
22
<PAGE>
untrue statement or omission, to the extent that any such expense is not
paid under subparagraph (i) or (ii) of this Section 5(a);
PROVIDED, HOWEVER, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent (i) arising out of an untrue
statement or omission or alleged untrue statement or omission (A) made in or
omitted from a preliminary Prospectus or Registration Statement and corrected or
included in a subsequent Prospectus or Registration Statement or any amendment
or supplement thereto made in reliance upon and in conformity with written
information furnished to the Company by the Selling Holders of Registrable
Securities, any Holder, or any underwriter expressly for use in the Registration
Statement (or any amendment thereto) or the Prospectus (or any amendment or
supplement thereto) or (B) resulting from the use of the Prospectus during a
period when the use of the Prospectus has been suspended or is otherwise
unavailable for sales thereunder in accordance with Sections 2.1(b), 2.1(c),
2.2(c), 2.3, 2.4 or 2.6 hereof, PROVIDED, in each case, that Holders received
prior notice of such suspension or other unavailability.
(b) In the case of any registration of Registrable Securities, each
Holder agrees, severally and not jointly, to indemnify and hold harmless the
Company, each Initial Purchaser, each underwriter, if any, who participates in
an offering of Registrable Securities and the other Selling Holders and each of
their respective directors and officers (including each officer of the Company
who signed the Registration Statement) and each Person, if any, who controls the
Company, any Initial Purchaser, any underwriter or any other Selling Holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any and all loss, liability, claim, damage and expense
described in the indemnity contained in Section 5(a) hereof, as incurred, but
only with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Registration Statement (or any amendment
thereto) or the Prospectus (or any amendment or supplement thereto) in reliance
upon and in conformity with written information furnished to the Company by such
Holder expressly for use in the Registration Statement (or any amendment
thereto), or the Prospectus (or any amendment or supplement thereto); PROVIDED,
HOWEVER, that no such Holder shall be liable for any claims hereunder in excess
of the amount of net proceeds received by such Holder from the sale of
Registrable Securities pursuant to such Registration Statement.
(c) In case any action shall be commenced involving any Person in
respect of which indemnity may be sought pursuant to either paragraph (a) or (b)
above, such Person (the "INDEMNIFIED PARTY") shall give notice as promptly as
reasonably practicable to each Person against whom such indemnity may be sought
(the "INDEMNIFYING PARTY"), but failure to so notify an indemnifying party shall
not relieve such indemnifying party from any liability hereunder to the extent
it is not materially prejudiced as a result thereof and in any event shall not
relieve it from any liability which it may have otherwise than on account of
this indemnity agreement. An indemnifying party may participate at its own
expense in the defense of such action; PROVIDED, HOWEVER, that counsel to the
indemnifying party shall not (except with the consent of the indemnified party)
also be counsel to the indemnified party. In no event shall the indemnifying
party or parties be liable for the fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
23
<PAGE>
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 5 (whether or not the indemnified parties are
actual or potential parties thereof), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 5(a)(ii) hereof effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
(e) If the indemnification provided for in any of the indemnity
provisions set forth in this Section 5 is for any reason unavailable to or
insufficient to hold harmless an indemnified party in respect of any losses,
liabilities, claims, damages or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party, as
incurred, in such proportion as is appropriate to reflect the relative fault of
such indemnifying party or parties on the one hand, and such indemnified party
or parties on the other hand, in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party or parties on the one hand, and such indemnified party or
parties on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by such indemnifying party or parties or such indemnified party or
parties and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, the
Initial Purchasers and the Holders of the Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this Section 5 were
determined by PRO RATA allocation (even if the Selling Holders of Registrable
Securities were treated as one entity, and the Holders were treated as one
entity, for such purpose) or by another method of allocation which does not take
account of the equitable considerations referred to above in Section 5. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 5 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim
24
<PAGE>
whatsoever based upon any such untrue or alleged untrue statement or omission or
alleged omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 5, each Person, if any, who
controls an Initial Purchaser or Holder within the meaning of this Section 15 of
the Securities Act or Section 20 of the Exchange Act shall have the same rights
to contribution as such Initial Purchaser or Holder, and each director of the
Company, each officer of the Company who signed the Registration Statement, and
each Person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act shall have the same
rights to contribution as the Company. Notwithstanding the provisions of this
Section 5(e), no Holder shall be required to contribute any amount in excess of
the amount by which the net proceeds received by such Holder from the sale of
Registrable Securities exceeds the amount of any damages that such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.
Section 6. MISCELLANEOUS.
(a) REMEDIES. In the event of a breach by the Company of any of its
obligations under this Agreement, each Holder and Permitted Holders, in addition
to being entitled to exercise all rights provided herein, in the Purchase
Agreement or granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of any of the provisions of this Agreement.
(b) NO INCONSISTENT AGREEMENTS. The Company and the Permitted
Holders will not enter into any agreement which is inconsistent with the rights
granted to the Holders of Warrants and Registrable Securities in this Agreement
or otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Company's other issued and outstanding
securities, if any, under any such agreements.
(c) NO PIGGY-BACK ON DEMAND REGISTRATIONS. The Company shall not
grant to any of its securityholders (other than the Holders in such capacity)
the right to include any of their securities in any Registration Statement filed
pursuant to a Demand Registration.
(d) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, otherwise than with the prior written consent of the Holders
and Permitted Holders of not less than a majority of the then outstanding
Warrants and each class and series of Registrable Securities; PROVIDED, HOWEVER,
that, for the purposes of this Agreement, Warrants and Registrable Securities
that are owned, directly or indirectly, by the Company, the Permitted Holders or
any of their Affiliates are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions
25
<PAGE>
hereof with respect to a matter that relates exclusively to the rights of one or
more Holders and Permitted Holders and that does not directly or indirectly
affect the rights of other Holders and other Permitted Holders may be given by a
majority of the Holders and Permitted Holders so affected; PROVIDED, HOWEVER,
that the provisions of this sentence may not be amended, modified or
supplemented except in accordance with the provisions of the immediately
preceding sentence. Notwithstanding the foregoing, no amendment, modification,
supplement, waiver or consent with respect to Section 5 shall be made or given
otherwise than the prior written consent of each Person affected thereby.
(e) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telecopier, or any courier guaranteeing overnight delivery (i)
if to a Holder or a Permitted Holder, at the most current address of such Holder
or such Permitted Holder as set forth in the register for the Warrants or the
Registrable Securities, which address initially is, with respect to each Initial
Purchaser, the address set forth with respect to such Initial Purchaser in the
Purchase Agreement; and (ii) if to the Company, initially at the address set
forth in the Purchase Agreement and thereafter at such other address, notice of
which is given in accordance with the provisions of this Section 6(e).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next Business Day, if timely delivered to an air courier guaranteeing
overnight delivery.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. If any transferee of
any Holder shall acquire Registrable Securities, in any manner, whether by
operation of law or otherwise, such Registrable Securities shall be held subject
to all of the terms of this Agreement, and by taking and holding such
Registrable Securities such Person shall be conclusively deemed to have agreed
to be bound by and to perform all of the terms and provisions of this Agreement
and such Person shall be entitled to receive the benefits hereof. The Company
may not assign any of its rights or obligations hereunder without the prior
written consent of each Holder of Registrable Securities. Notwithstanding the
foregoing, no successor or assignee of the Company shall have any rights granted
under the Agreement until such person shall acknowledge its rights and
obligations hereunder by a signed written statement of such person's acceptance
of such rights and obligations.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Agreement.
26
<PAGE>
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(k) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(l) ENTIRE AGREEMENT. This Agreement, together with the Purchase
Agreement and the Warrant Agreement, is intended by the parties as a final
expression of their agreement, and is intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. This Agreement, the Purchase
Agreement and the Warrant Agreement supersede all prior agreements and
understandings between the parties with respect to such subject matter.
(m) SECURITIES HELD BY THE COMPANY OR ITS AFFILIATES. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities or Warrants is required hereunder, Registrable Securities or Warrants
held by the Company or by any of its affiliates (as such term is defined in Rule
405 under the Securities Act) shall not be counted (in either the numerator or
the denominator) in determining whether such consent or approval was given by
the Holders of such required percentage.
[SIGNATURE PAGE FOLLOWS]
27
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
CONVERGENT COMMUNICATIONS, INC.
By: /s/ John R. Evans
----------------------------------------
Name: John R. Evans
Title: Chairman and Chief Executive Officer
IN THEIR CAPACITIES AS PERMITTED HOLDERS, FOR
PURPOSES OF SECTION 3 AND 6 HEREOF ONLY
JOHN R. EVANS
By: /s/ John R. Evans
----------------------------------------
Name: John R. Evans
[Mrs. Evans -- 500,000 shares]
By: /s/ Kathy A.E. Evans
----------------------------------------
Name: Kathy A.E. Evans
[Trusts for the benefit of 4 minor children -
200,000 shares]
By: /s/ Philip G. Allen
----------------------------------------
Name: Philip G. Allen
Title: Trustee
IN THEIR CAPACITIES AS PERMITTED HOLDERS, FOR
PURPOSES OF SECTION 3 AND 6 HEREOF ONLY
KEITH V. BURGE
By: /s/ Keith V. Burge
----------------------------------------
Name: Keith V. Burge
[Mrs. Burge -- 500,000 shares]
By: /s/ Cindi Burge
----------------------------------------
Name: Cindi Burge
[Trusts for the benefit of 3 minor children -
150,000 shares]
By: /s/ James Rollin Miller
----------------------------------------
Name: James Rollin Miller
Title: Trustee
IN THEIR CAPACITIES AS PERMITTED HOLDERS, FOR
PURPOSES OF SECTION 3 AND 6 HEREOF ONLY
PHILIP G. ALLEN
By: /s/ Philip G. Allen
----------------------------------------
Name: Philip G. Allen
[Mrs. Allen -- 500,000 shares]
By: /s/ Nancy Thompson Allen
----------------------------------------
Name: Nancy Thompson Allen
<PAGE>
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BEAR, STEARNS & CO. INC.
BT ALEX. BROWN INCORPORATED
By: MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:/s/ Joesph B. Sheehan
--------------------------------
Name: Joe Sheehan
Title: Director
<PAGE>
COLLATERAL ACCOUNT CONTROL AGREEMENT
This Collateral Account Control Agreement dated as of April 2, 1998
among Convergent Communications, Inc. (the "DEBTOR"), Norwest Bank, N.A., as
Trustee for the benefit of the Holders of the Notes (the "SECURED PARTY") and
Norwest Bank Colorado, N.A., as custodian (the "CUSTODIAN") of the Collateral
Account (as defined below). Capitalized terms used but not defined herein shall
have the meaning assigned in the Custody and Security Agreement dated as of
April 2, 1998 between the Debtor and the Custodian for the benefit of the
Secured Party (the "CUSTODY AND SECURITY AGREEMENT"). All references herein to
the "UCC" shall mean the Uniform Commercial Code as in effect in the State of
New York.
SECTION 1. ESTABLISHMENT OF COLLATERAL ACCOUNT. The Custodian hereby
confirms and agrees that:
(a) The Custodian has established account number 1180808511 in the
name "CONVERGENT COMMUNICATIONS, INC. AS PLEDGOR FOR THE BENEFIT OF NORWEST BANK
COLORADO, N.A., AS TRUSTEE" (such account and any successor account, the
"COLLATERAL ACCOUNT") and the Custodian shall not change the name or account
number of the Collateral Account without the prior written consent of the
Secured Party;
(b) All securities or other property underlying any financial assets
credited to the Collateral Account shall be registered in the name of the
Custodian, indorsed to the Custodian or in blank or credited to another
collateral account maintained in the name of the Custodian and in no case will
any financial asset credited to the Collateral Account be registered in the name
of the Debtor, payable to the order of the Debtor or specially indorsed to the
Debtor except to the extent the foregoing have been specially indorsed to the
Custodian or in blank;
(c) All property delivered to the Custodian pursuant to the Security
Agreement will be promptly credited to the Collateral Account; and
(d) The Collateral Account is an account to which financial assets are
or may be credited, and the Custodian shall, subject to the terms of this
Agreement, treat the Debtor as entitled to exercise the rights that comprise any
financial asset
1
<PAGE>
credited to the account.
SECTION 2. "FINANCIAL ASSETS" ELECTION. The Custodian hereby agrees
that each item of property (whether investment property, financial asset,
security, instrument or cash) credited to the Collateral Account shall be
treated as a "financial asset" within the meaning of Section 8-102(a)(9) of the
UCC.
SECTION 3. ENTITLEMENT ORDERS. If at any time the Custodian shall
receive any order from the Secured Party directing transfer or redemption of any
financial asset relating to the Collateral Account, the Custodian shall comply
with such entitlement order without further consent by the Debtor or any other
person.
SECTION 4. SUBORDINATION OF LIEN; WAIVER OF SET-OFF. In the event
that the Custodian has or subsequently obtains by agreement, by operation of law
or otherwise a security interest in the Collateral Account or any security
entitlement credited thereto, the Custodian hereby agrees that such security
interest shall be subordinate to the security interest of the Secured Party.
The financial assets and other items deposited in the Collateral Account will
not be subject to deduction, set-off, banker's lien, or any other right in favor
of any person other than the Secured Party (except that the Custodian may set
off (i) all amounts due to the Custodian in respect of customary fees and
expenses for the routine maintenance and operation of the Collateral Account,
and (ii) the face amount of any checks which have been credited to the
Collateral Account but are subsequently returned unpaid because of uncollected
or insufficient funds).
SECTION 5. CHOICE OF LAW. Both this Agreement and the Collateral
Account shall be governed by the laws of the State of New York. Regardless of
any provision in any other agreement, for purposes of the UCC, New York shall be
deemed to be the Custodian's jurisdiction and the Collateral Account (as well as
the securities entitlements related thereto) shall be governed by the laws of
the State of New York.
SECTION 6. CONFLICT WITH OTHER AGREEMENTS.
(a) In the event of any conflict between this Agreement (or any
portion thereof) and any other agreement now existing or hereafter entered into,
the terms of this Agreement shall prevail.
(b) No amendment or modification of this Agreement or waiver of any
right hereunder shall be binding on any party
2
<PAGE>
hereto unless it is in writing and is signed by all of the parties hereto.
(c) The Custodian hereby confirms and agrees that:
(i) There are no other agreements entered into between the Custodian
and the Debtor with respect to the Collateral Account except for the
Custody and Security Agreement;
(ii) It has not entered into, and until the termination of this
agreement will not enter into, any agreement with any other
person relating the Collateral Account and/or any financial
assets credited thereto pursuant to which it has agreed to comply
with entitlement orders (as defined in Section 8-102(a)(8) of the
UCC) of such other person; and
(iii) It has not entered into, and until the termination of this
agreement will not enter into, any agreement with the Debtor or
the Secured Party purporting to limit or condition the obligation
of the Custodian to comply with entitlement orders as set forth
in Section 3 hereof.
SECTION 7. ADVERSE CLAIMS. Except for the claims and interest of the
Secured Party and of the Debtor in the Collateral Account, the Custodian does
not know of any claim to, or interest in, the Collateral Account or in any
"financial asset" (as defined in Section 8-102(a) of the UCC) credited thereto.
If any person asserts any lien, encumbrance or adverse claim (including any
writ, garnishment, judgment, warrant of attachment, execution or similar
process) against the Collateral Account or in any financial asset carried
therein, the Custodian will promptly notify the Secured Party and Debtor
thereof.
SECTION 8. MAINTENANCE OF COLLATERAL ACCOUNT. In addition to, and
not in lieu of, the obligation of the Custodian to honor entitlement orders as
agreed in Section 3 hereof, the Custodian agrees to maintain the Collateral
Account as follows:
(a) NOTICE OF SOLE CONTROL. If at any time the Secured Party delivers
to the Custodian a Notice of Sole Control in substantially the form set forth in
Exhibit A hereto, the Custodian agrees that after receipt of such notice, it
will take all instruction with respect to the Collateral Account solely from the
Secured Party.
3
<PAGE>
(b) VOTING RIGHTS. Until such time as the Custodian receives a Notice
of Sole Control pursuant to subsection (a) of this Section 8, the Debtor shall
direct the Custodian with respect to the voting of any financial assets credited
to the Collateral Account.
(c) PERMITTED INVESTMENTS. The Secured Party shall direct the
Custodian with respect to investments to be made in the Collateral Account. The
Secured Party agrees it will invest the funds in the Collateral Account in U.S.
Government Securities; provided such agreement shall not be applicable while any
event of default has occurred hereunder and is continuing; provided, however,
that this provision shall not limit or condition the obligation of the Custodian
to comply with entitlement orders as set forth in Section 3 hereof.
(d) STATEMENTS AND CONFIRMATIONS. The Custodian will promptly send
copies of all statements, confirmations and other correspondence concerning the
Collateral Account and/or any financial assets credited thereto simultaneously
to each of the Debtor and the Secured Party at the address for each set forth in
Section 12 of this Agreement.
(e) TAX REPORTING. All items of income, gain, expense and loss
recognized in the Collateral Account shall be reported to the Internal Revenue
Service and all state and local taxing authorities under the name and taxpayer
identification number of the Debtor.
SECTION 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
CUSTODIAN. The Custodian hereby makes the following representations, warranties
and covenants:
(a) The Collateral Account has been established as set forth in
Section 1 above and the Collateral Account will be maintained in the manner
set forth herein until termination of this Agreement;
(b) This Agreement is the valid and legally binding obligation of
the Custodian; and
(c) The Custodian is a bank that in the ordinary course of its
business maintains securities accounts (within the meaning of Article 8 of
the UCC) for others and will be acting in that capacity with respect to the
Collateral Account.
4
<PAGE>
SECTION 10. INDEMNIFICATION OF CUSTODIAN. The Debtor and the Secured
Party hereby agree that (a) the Custodian is released from any and all
liabilities to the Debtor and the Secured Party arising from the terms of this
agreement and the compliance of the Custodian with the terms hereof, except to
the extent that such liabilities arise from the Custodian's negligence and (b)
the Debtor, its successors and assigns shall at all times indemnify and save
harmless the Custodian from and against any and all claims, actions and suits of
others arising out of the terms of this agreement or the compliance of the
Custodian with the terms hereof, except to the extent that such arises from the
Custodian's negligence, and from and against any and all liabilities, losses,
damages, costs, charges, counsel fees and other expenses of every nature and
character arising by reason of the same, until the termination of this
agreement.
SECTION 11. SUCCESSORS; ASSIGNMENT. The terms of this Agreement
shall be binding upon, and shall inure to the benefit of, the parties hereto and
their respective corporate successors or heirs and personal representatives who
obtain such rights solely by operation of law. The Secured Party may assign its
rights hereunder only with the express written consent of the Custodian and by
sending written notice of such assignment to the Debtor.
SECTION 12. NOTICES. Any notice, request or other communication
required or permitted to be given under this Agreement shall be in writing and
deemed to have been properly given when delivered in person, or when sent by
telecopy or other electronic means and electronic confirmation of error free
receipt is received or two days after being sent by certified or registered
United States mail, return receipt requested, postage prepaid, addressed to the
party at the address set forth below.
Debtor:
Convergent Communications, Inc.
67 Inverness Drive East
Suite 110
Englewood, CO 80112
Attn: Martin E. Freidel, Esq.
Secured Party:
Norwest Bank Colorado, N.A.
1740 Broadway
Denver, CO 80274
Attn: Amy Buck
Custodian:
Norwest Bank Colorado, N.A.
5
<PAGE>
1740 Broadway
Denver, CO 80274
Attn: Amy Buck
Any party may change his address for notices in the manner set forth
above.
SECTION 13. TERMINATION. The obligations of the Custodian to the
Secured Party pursuant to this Agreement shall continue in effect until the
security interests of the Secured Party in the Collateral Account has been
terminated pursuant to the terms of the Custody and Security Agreement and the
Secured Party has notified the Custodian of such termination in writing. The
Secured Party agrees to provide Notice of Termination in substantially the form
of EXHIBIT B hereto to the Custodian upon the request of the Debtor on or after
the termination of the Secured Party's security interest in the Collateral
Account pursuant to the terms of the Custody and Security Agreement. The
termination of this Agreement shall not terminate the Collateral Account or
alter the obligations of the Custodian to the Debtor pursuant to any other
agreement with respect to the Collateral Account.
6
<PAGE>
SECTION 14. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which shall constitute one and the same
instrument, and any party hereto may execute this Agreement by signing and
delivering one or more counterparts.
CONVERGENT COMMUNICATIONS, INC., as Debtor
By: /s/ Keith V. Burge
------------------------------------
Name: Keith V. Burge
Title: President
NORWEST BANK COLORADO, N.A., as Trustee for the
benefit of the Holders of the Notes, the Secured
Party
By: /s/ Amy Buck
------------------------------------
Name: Amy Buck
Title: Vice President
NORWEST BANK COLORADO, N.A., as Custodian
By: /s/ Amy Buck
------------------------------------
Name: Amy Buck
Title: Vice President
7
<PAGE>
EXHIBIT A
[Letterhead of Norwest Bank Colorado, N.A., as Secured Party]
[Date]
Norwest Bank Colorado, N.A.
1740 Broadway
Denver, CO 80274
Attention: Ms. Amy Buck
Re: Notice of Sole Control
----------------------
Ladies and Gentlemen:
As referenced in the Collateral Account Control Agreement, dated April
2, 1998, among Convergent Communications, Inc. (the "COMPANY"), you and the
undersigned (a copy of which is attached) we hereby give you notice of our sole
control over account number 1180808511 (the "COLLATERAL ACCOUNT") and all
financial assets credited thereto. You are hereby instructed not to accept any
direction, instructions or entitlement orders with respect to the Collateral
Account or the financial assets credited thereto from any person other than the
undersigned, unless otherwise ordered by a court of competent jurisdiction.
You are instructed to deliver a copy of this notice by facsimile
transmission to the Company.
Very truly yours,
[Name of Secured Party]
By:
------------------------------------
Name:
Title:
cc: Convergent Communications, Inc.
<PAGE>
EXHIBIT B
[Letterhead of Norwest Bank Colorado, N.A., as Secured Party]
[Date]
Norwest Bank Colorado, N.A.
1740 Broadway
Denver, CO 80274
Attention: Ms. Amy Buck
Re: Termination of Control Agreement
--------------------------------
Ladies and Gentlemen:
You are hereby notified that the Collateral Account Control Agreement
between you, Convergent Communications, Inc. (the "COMPANY") and the undersigned
(a copy of which is attached) is terminated and you have no further obligations
to the undersigned pursuant to such Agreement. Notwithstanding any previous
instructions to you, you are hereby instructed to accept all future directions
with respect to account number 1180808511 from the Company. This notice
terminates any obligations you may have to the undersigned with respect to such
account. Nothing contained in this notice, however, shall alter any obligations
which you may otherwise owe to the Company pursuant to any other agreement.
You are instructed to deliver a copy of this notice by facsimile
transmission to Company.
Very truly yours,
[Name of Secured Party]
By:
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Name:
Title:
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CUSTODY AND SECURITY AGREEMENT
CUSTODY AND SECURITY AGREEMENT, dated as of April 2, 1998 between
Convergent Communications, Inc. (the "PLEDGOR") and Norwest Bank Colorado, N.A.,
as trustee (the "TRUSTEE"), for the benefit of the holders (the "HOLDERS") of
the Notes (as defined herein) of the Pledgor issued under the Indenture (as
defined herein).
WHEREAS, the Pledgor and the Trustee, have entered into that certain
indenture dated as of April 2, 1998 (as amended, restated, supplemented or
otherwise modified from time to time, the "INDENTURE"), pursuant to which the
Pledgor is issuing on the date hereof $160,000,000 in aggregate principal amount
of 13% Senior Notes due 2008 (the "NOTES"). Capitalized terms used herein and
not otherwise defined herein shall have the meanings given to such terms in the
Indenture; and
WHEREAS, the Pledgor agrees, pursuant to the Indenture, to deposit
into an account (together with any successor account, the "COLLATERAL ACCOUNT")
held by Norwest Bank Colorado, N.A., as custodian (the "CUSTODIAN") for the
benefit of Holders of the Notes, an amount of cash or U.S. Government Securities
(as defined in the Indenture) or a combination thereof that, together with the
interest received thereon, will be sufficient to pay when due the first six
scheduled interest payments on the Notes; and
WHEREAS, the Pledgor is the legal and beneficial owner of such cash
and U.S. Government Securities; and
WHEREAS, to secure the due and punctual payment of the interest on the
Notes when and as the same shall be due and payable on an Interest Payment Date
(as defined in the Indenture), at maturity or by acceleration, and interest on
the overdue principal of and interest (to the extent permitted by law), if any,
on the Notes and performances of all other obligations of the Company to the
Holders of Notes or the Trustee under the Indenture and the Notes (the "SECURED
OBLIGATIONS"), the Pledgor has agreed to (i) pledge to the Trustee for its
benefit and the ratable benefit of the Holders of Notes, a perfected first
priority security interest in the Collateral (as defined herein) in the
Collateral Account and (ii) execute and deliver this Custody and Security
Agreement in order to secure the payment and performance by the Pledgor of all
such Secured Obligations.
WITNESSETH:
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NOW THEREFORE, the parties hereto agree as follows:
1. PLEDGE AND GRANT OF SECURITY INTEREST.
The Pledgor hereby pledges to the Trustee for its benefit and for the
ratable benefit of the Holders of Notes, and grants to the Trustee for its
benefit and for the ratable benefit of the Holders of Notes, a continuing first
priority security interest in and to (i) all of Pledgor's right, title and
interest in the U.S. Government Securities and cash held in or credited to the
Collateral Account and any other securities, assets, or property held in or
credited to the Collateral Account, (ii) any certificates or other evidence of
ownership representing any property in the Collateral Account and (iii) all
products and proceeds of any of the foregoing, including, without limitation,
all dividends, interest, principal payments, cash, options, warrants, rights,
instruments, subscriptions and other property or proceeds from time to time
received, receivable or otherwise distributed or distributable in respect of or
in exchange for any or all of the U.S. Government Securities and cash held in or
credited to the Collateral Account and any other property held in or credited
thereto (collectively, the "COLLATERAL").
2. SECURITY FOR SECURED OBLIGATIONS.
The Custody and Security Agreement and the Collateral secure the
prompt and complete payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of all Secured Obligations.
3. DELIVERY OF COLLATERAL; COLLATERAL ACCOUNT;
INTEREST; SUBSTITUTION OF COLLATERAL.
(a) All certificates or instruments, if any, from time to time
representing or evidencing the Collateral shall be delivered to and held by
or on behalf of the Trustee pursuant hereto and shall be in suitable form
for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Trustee.
(b) Concurrently with the execution and delivery hereof, the Trustee
shall establish the Collateral Account, which shall be titled the
"CONVERGENT COMMUNICATIONS, INC., AS PLEDGOR FOR THE BENEFIT OF NORWEST
BANK COLORADO, N.A., AS TRUSTEE", which account shall be maintained at
Norwest Bank Colorado, N.A. and designated as account number 1180808511.
The Collateral Account shall be an account into which U.S. Government
Securities, cash and other Collateral may be deposited or credited.
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Subject to the other terms and conditions of this Custody and Security
Agreement, all funds or other property accepted by the Trustee pursuant to
this Custody and Security Agreement shall be held in the Collateral Account
for the benefit of the Trustee and the ratable benefit of the Holders of
Notes.
(c) All interest earned on any Collateral shall be retained in the
Collateral Account (or reinvested, as the case may be), pending
disbursement pursuant to the terms hereof.
4. DISBURSEMENTS.
(a) Not less than five (5) Business Days (as defined in the Indenture)
prior to the date of any of the first six scheduled interest payments due
on the Notes the Pledgor shall, subject to subsection (b) of this Section
4, in writing, direct the Trustee to transfer from the Collateral Account
to the Trustee in its capacity as Paying Agent funds necessary to provide
for payment in full or any portion of the next scheduled interest payment
on the Notes. Upon receipt of such written request, the Trustee will take
any action reasonably necessary to provide for the payment of such interest
payment on the Notes directly to the Holders of Notes from proceeds of the
Collateral in the Collateral Account.
(b) If at any time the amount of Collateral in the Collateral Account
exceeds 100% of the amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants or a nationally
recognized investment banking firm selected by the Pledgor, to provide for
payment in full of the first six scheduled interest payments due on the
Notes (or, in the event an interest payment or payments have been made, an
amount sufficient to provide for payment in full of any interest payments
then remaining, up to and including the sixth scheduled interest payment),
the Pledgor may direct the Trustee in writing to release any such
overfunding to it, PROVIDED that no Default (as defined in the Indenture)
then exists. Upon receipt of a written request from the Pledgor and any
other documentation reasonably satisfactory to the Trustee to substantiate
such excess, the Trustee will pay over to the Pledgor any such over funded
amount.
(c) Upon payment in full of the first six scheduled interest payments
on the Notes, the security interest in the Collateral evidenced by this
Custody and Security Agreement will terminate and be of no further force
and effect. Furthermore, upon the release of any Collateral from the
Collateral Account in accordance with the terms of this Custody and
Security Agreement, whether upon release of Collateral to Holders as
payment of interest, to the Company or otherwise, the
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security interest evidenced by this Custody and Security Agreement in the
Collateral so released will terminate and be of no further force and
effect.
5. REPRESENTATIONS AND WARRANTIES.
The Pledgor hereby represents and warrants that:
(a) The execution, delivery and performance by the Pledgor of this
Custody and Security Agreement do not contravene, or constitute a default
under, any provision of applicable law or regulation or of the Articles of
Incorporation or similar organizational documents or By-Laws of the Pledgor
or any of its subsidiaries, each as amended or restated, or of any
agreement, judgment, injunction, order, decree or other instrument binding
upon the Pledgor or result in the creation or imposition of any lien on any
assets of the Pledgor, except for the security interests granted under this
Custody and Security Agreement.
(b) No financing statement covering the Collateral is on file in any
public office (other than any financing statements filed pursuant to this
Custody and Security Agreement).
(c) Upon the delivery to the Trustee of the certificates, if any,
representing the U.S. Government Securities and of any other certificates,
instruments and cash constituting Collateral, any filing of financing
statements required by the Uniform Commercial Code as in effect in the
State of New York or any other applicable jurisdiction (the "UCC"), the
establishment of the Collateral Account and the execution of the Collateral
Account Control Agreement, the pledge of the Collateral pursuant to this
Custody and Security Agreement creates a valid and perfected first priority
security interest in and to the Collateral, which valid, perfected, first
priority security interest will continue, in the case of any certificates
and instruments constituting Collateral, so long as the Trustee maintains
possession of such certificates and instruments securing the payment of the
Secured Obligations for the benefit of the Trustee and the ratable benefit
of the Holders of Notes, enforceable as such against all creditors of the
Pledgor and any persons purporting to purchase any of the Collateral from
the Pledgor other than as permitted by the Indenture.
(d) No consent of any person and no consent, authorization, approval,
or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required either (i) for the pledge by the
Pledgor of the Collateral pursuant to this Custody and Security Agreement
or for the execution, delivery or performance of this Custody and Security
Agreement by the Pledgor (except for
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any filings and notations necessary to perfect Liens on the Collateral) or
(ii) for the exercise by the Trustee of rights provided for in this Custody
and Security Agreement or the remedies in respect of the Collateral
pursuant to this Custody and Security Agreement, except for any filings or
notices required by the UCC.
(e) The pledge of the Collateral pursuant to this Custody and Security
Agreement is not prohibited by any applicable law or government regulation,
release, interpretation or opinion of the Board of Governors of the United
States Federal Reserve System or other regulatory agency (including,
without limitation, Regulations G, T, U and X of the Board of Governors of
the Federal Reserve System).
6. FURTHER ASSURANCES.
The Pledgor will from time to time, at the expense of the Pledgor,
promptly execute, deliver, file and record all further instruments, indorsements
and other documents, and take such further action as the Trustee may deem
reasonably desirable in obtaining the full benefits of this Custody and Security
Agreement and of the rights, remedies and powers herein granted, including,
without limitation, the following:
(a) the filing of any financing statements, in form acceptable to the
Trustee under the UCC in effect in any jurisdiction with respect to the
liens and security interests granted hereby. The Pledgor also hereby
authorizes the Trustee to file any such financing statements without the
signature of the Pledgor to the extent permitted by applicable law. A
photocopy or other reproduction of this Custody and Security Agreement
shall be sufficient as a financing statement and may be filed in lieu of
the original to the extent permitted by applicable law. The Pledgor will
pay or reimburse the Trustee for all filing fees and related expenses; and
(b) furnish to the Trustee from time to time statements and schedules
further identifying and describing the Collateral and such other reports in
connection with the Collateral as the Trustee may reasonably request, all
in reasonable detail and in form satisfactory to the Trustee.
7. COVENANTS.
The Pledgor covenants and agrees with the Trustee and the Holders of
Notes from and after the date of this Custody and Security Agreement until the
earlier of payment in full in cash of (A) each of the first six scheduled
interest payments due on the
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Notes under the terms of the Indenture or (B) all Secured Obligations due and
owing under the Indenture and the Notes in the event such Secured Obligations
become due and payable prior to the payment of the first six scheduled interest
payments on the Notes:
(a) The Pledgor agrees that it will not (i) sell or otherwise dispose
of, or grant any option or warrant with respect to, any of the Collateral
or (ii) create or permit to exist any lien upon or with respect to any of
the Collateral (except for the lien created pursuant to this Custody and
Security Agreement) and at all times will be the sole beneficial owner of
the Collateral.
(b) The Pledgor agrees that it will not (i) enter into any agreement
or understanding that purports to or may restrict or inhibit the Trustee's
rights or remedies hereunder, including, without limitation, the Trustee's
right to sell or otherwise dispose of the Collateral or (ii) fail to pay or
discharge any tax, assessment or levy of any nature not later than five (5)
Business Days prior to the date of any proposed sale under any judgment,
writ or warrant of attachment with regard to the Collateral.
8. POWER OF ATTORNEY.
In addition to all of the powers granted to the Trustee pursuant to
Article VI of the Indenture, the Pledgor hereby appoints and constitutes the
Trustee as the Pledgor's attorney-in-fact to exercise to the fullest extent
permitted by law all of the following powers upon and at any time after the
occurrence and during the continuance of an Event of Default: (i) collection of
proceeds of any Collateral; (ii) conveyance of any item of Collateral to any
purchaser thereof; (iii) giving of any notices or recording of any liens under
Section 6 hereof; (iv) making of any payments or taking any acts under Section 9
hereof and (v) paying or discharging taxes or liens levied or placed upon the
Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by the Trustee in its sole discretion, and
such payments made by the Trustee in respect of this clause (v) to become the
Secured Obligations of the Pledgor to the Trustee, due and payable immediately
upon demand. The Trustee's authority hereunder shall include, without
limitation, the authority to endorse and negotiate any checks or instruments
representing proceeds of Collateral in the name of the Pledgor, execute and give
receipt for any certificate of ownership or any document constituting
Collateral, transfer title to any item of 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,
process or perfect the security interest in the 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
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Trustee in this Custody and Security Agreement. This power of attorney is
coupled with an interest and is irrevocable by the Pledgor.
9. TRUSTEE MAY PERFORM.
If the Pledgor fails to perform any agreement contained herein, the
Trustee may itself perform, or cause performance of, such agreement, and the
reasonable expenses of the Trustee incurred in connection therewith shall be
payable by the Pledgor under Section 13 hereof.
10. 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 Trustee's and the Holders' of Notes
first priority security interest in and to the Collateral granted hereby and
shall not be interpreted to, and shall not, impose any duties on the Trustee in
connection therewith other than those imposed under applicable law.
11. INDEMNITY.
The Pledgor shall indemnify, defend and hold harmless the Trustee and
its directors, officers, agents and employees from and against all claims,
actions, obligations, losses, liabilities and expenses, including reasonable
costs, fees and disbursements of counsel (including, without limitation, the
reasonable cost to the Trustee of legal counsel), the costs of investigations,
and claims for damages, arising from the Trustee's performance under this
Custody and Security Agreement, except insofar as the same may have been caused
by the bad faith, gross negligence or wilful misconduct of such indemnified
person.
12. REMEDIES UPON EVENT OF DEFAULT.
If an Event of Default (as defined in the Indenture) shall have
occurred and be continuing:
(a) The Trustee shall have and may exercise with reference to the
Collateral any or all of the rights and remedies of a secured party under
the UCC, and as otherwise granted herein or under any other applicable law
or under any other agreement now or hereafter in effect executed by
Pledgor, including, without limitation, the right and power to sell, at
public or private sale or sales, or otherwise dispose of, or otherwise
utilize the Collateral and any part or parts thereof in any manner
authorized or permitted under said UCC after default by a debtor, and
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to apply the proceeds thereof toward payment of any costs and expenses and
reasonable attorneys' fees and expenses thereby incurred by the Trustee and
toward payment of the Secured Obligations in such order or manner as the
Trustee may elect. Specifically and without limiting the foregoing, the
Trustee shall have the right to take possession of all or any part of the
Collateral or any security therefor and of all books, records, papers and
documents of Pledgor or in Pledgor's possession or control relating to the
Collateral which are not already in the Trustee's possession, and for such
purpose may enter upon any premises upon which any of the Collateral or any
security therefor or any of said books, records, papers and documents are
situated and remove the same therefrom without any liability for trespass
or damages thereby occasioned. To the extent permitted by law, Pledgor
expressly waives any notice of sale or other disposition of the Collateral
and all other rights or remedies of Pledgor or formalities prescribed by
law relative to sale or disposition of the Collateral or exercise of any
other right or remedy of the Trustee existing after default hereunder; and
to the extent any such notice is required and cannot be waived, Pledgor
agrees that if such notice is given in the manner provided in Section 17
hereof at least five (5) Business Days before the time of the sale or
disposition, such notice shall be deemed reasonable and shall fully satisfy
any requirement for giving of such notice. The Trustee shall not be
obligated to make any sale of Collateral regardless of notice of sale
having been given. The Trustee may adjourn any public or private sale.
The Pledgor further agrees to use its reasonable best efforts to do or
cause to be done all such acts as may be reasonably necessary to enable the
Trustee to exercise its rights under this paragraph 12.
(b) All rights to marshalling of assets of the Pledgor, including any
such right with respect to the Collateral, are hereby waived by the
Pledgor.
13. EXPENSES.
The Pledgor will upon demand pay to the Trustee 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) that the Trustee may incur in connection with (i) the administration of
this Custody and Security Agreement, (ii) the custody or preservation of, or the
sale of, collection from, or other realization upon, any of the Collateral,
(iii) the exercise or enforcement of any of the rights of the Trustee and the
Holders of Notes hereunder or (iv) the failure by the Pledgor to perform or
observe any of the provisions hereof.
14. SECURITY INTEREST ABSOLUTE.
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All rights of the Trustee and the Holders of Notes and security
interests hereunder, and all obligations of the Pledgor hereunder, shall be
absolute and unconditional irrespective of:
(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 Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Indenture;
(c) any exchange, surrender, release or nonperfection of any liens on
any other collateral for all or any of the Secured Obligations; or
(d) 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 Secured Obligations or of this Custody and
Security Agreement.
15. CONTINUING SECURITY INTEREST; TERMINATION.
(a) This Custody and Security Agreement shall create a continuing
security interest in and to the Collateral and shall, unless otherwise
provided in the Indenture or in this Custody and Security Agreement, remain
in full force and effect until the earlier of payment in full in case of
(A) each of the first six scheduled interest payments due on the Notes
under the terms of the Indenture or (B) all Secured Obligations due and
owing under the Indenture and the Notes in the event such Secured
Obligations become payable prior to the payment of the first six scheduled
interest payments on the Notes. This Custody and Security Agreement shall
be binding upon the Pledgor, its successors and assigns, and shall inure,
together with the rights and remedies of the Trustee hereunder, to the
benefit of the Trustee, the Holders of Notes and their respective
successors, transferees and assigns.
(b) This Custody and Security Agreement shall terminate upon the
earlier of payment in full in cash of (A) each of the first six scheduled
interest payments due on the Notes under the terms of the Indenture or (B)
all Secured Obligations due and owing under the Indenture and the Notes in
the event such Secured Obligations become payable prior to the payment of
the first six scheduled interest payments on the Notes. At such time, the
Trustee shall, at the written request of
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the Pledgor, reassign and redeliver to Pledgor all of the Collateral
hereunder that has not been sold, disposed of, retained or applied by
the Trustee in accordance with the terms of this Custody and Security
Agreement, the Indenture and relevant provisions of Article 8 of the
UCC. Such reassignment and redelivery shall be without warranty (either
express or implied) by or recourse to the Trustee, except as to the
absence of any prior assignments by the Trustee of its interest in the
Collateral, and shall be at the expense of the Pledgor.
16. AUTHORITY OF THE TRUSTEE.
(a) The Trustee shall have and be entitled to exercise all powers
hereunder that are specifically granted to the Trustee by the terms hereof,
together with such powers as are reasonably incident thereto. The Trustee
may perform any of its duties hereunder or in connection with the
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. Neither the Trustee, any director, officer, employee,
attorney or agent of the Trustee nor the Holders of Notes shall be liable
to the Pledgor for any action taken or omitted to be taken by it or them
hereunder, except for its or their own gross negligence or willful
misconduct, nor shall the Trustee be responsible for the validity,
effectiveness or sufficiency hereof or of any document or security
furnished pursuant hereto. The Trustee and its directors, officers,
employees, attorneys and agents shall be entitled to rely on any
communication, instrument or document reasonably 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 Custody and 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 this Custody and Security
Agreement shall, as between the Trustee and the Holders of Notes, be
governed by the Indenture and by such other agreements with respect thereto
as may exist from 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 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.
17. NOTICES.
Any communication, notice or demand to be given hereunder shall be
duly
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given hereunder if given in the form and manner, and delivered to the address
set forth in the Indenture, or in such other form and manner or to such other
address as shall be designated by any party hereto to each other party hereto in
a written notice delivered in accordance with the terms of the Indenture.
18. NO WAIVER; CUMULATIVE RIGHTS.
No failure on the part of the Trustee to exercise, and no delay in
exercising, any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by the Trustee of any right,
remedy or power hereunder preclude any other or future exercise of any other
right, remedy or power. Each and every right, remedy and power hereby granted
to the Trustee or allowed it by law or other agreement shall be cumulative and
not exclusive of any other, and may be exercised by the Trustee from time to
time.
19. BENEFITS OF CUSTODY AND SECURITY AGREEMENT.
Nothing in this Custody and 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 Custody and Security Agreement.
20. APPLICABLE LAW; CONSENT TO JURISDICTION.
This Agreement and the rights and obligations of the parties hereunder
shall be governed by, and construed in accordance with, the laws of the State of
New York. Pledgor hereby irrevocably submits to the non-exclusive jurisdiction
of any New York State or Federal court located in the State of New York in any
action or proceeding arising out of or relating to this Agreement.
21. APPOINTMENT OF AGENT; WAIVER OF JURY TRIAL.
(a) THE PLEDGOR HAS APPOINTED CT CORPORATION SYSTEM, 1633 BROADWAY, NEW
YORK, NEW YORK 10019, AS ITS AUTHORIZED AGENT (THE "AUTHORIZED AGENT") UPON WHOM
PROCESS MAY BE SERVED IN ANY SUCH ACTION ARISING OUT OF OR BASED ON THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY WHICH MAY BE INSTITUTED IN ANY
NEW YORK COURT BY ANY PURCHASER OR BY ANY PERSON WHO CONTROLS ANY PURCHASER,
EXPRESSLY CONSENTS TO THE JURISDICTION OF ANY SUCH COURT IN RESPECT OF ANY SUCH
ACTION,
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AND WAIVES ANY OTHER REQUIREMENTS OF OR OBJECTIONS TO PERSONAL JURISDICTION
WITH RESPECT THERETO. SUCH APPOINTMENT SHALL BE IRREVOCABLE. THE PLEDGOR
REPRESENTS AND WARRANTS THAT THE AUTHORIZED AGENT HAS AGREED TO ACT AS SUCH
AGENT FOR SERVICE OF PROCESS AND AGREES TO TAKE ANY AND ALL ACTION, INCLUDING
THE FILING OF ANY AND ALL DOCUMENTS AND INSTRUMENTS, THAT MAY BE NECESSARY TO
CONTINUE SUCH APPOINTMENT IN FULL FORCE AND EFFECT AS AFORESAID. SERVICE OF
PROCESS UPON THE AUTHORIZED AGENT AND WRITTEN NOTICE OF SUCH SERVICE TO THE
PLEDGOR SHALL BE DEEMED, IN EVERY RESPECT, EFFECTIVE SERVICE OF PROCESS UPON THE
PLEDGOR.
(b) EACH OF THE PLEDGOR AND THE TRUSTEE HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
WHICH IN ANY MANNER ARISES OUT OF OR IN CONNECTION WITH OR IS IN ANY WAY RELATED
TO THIS PLEDGE AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.
(c) THE PROVISIONS OF THIS SECTION 21 ARE A MATERIAL INDUCEMENT FOR THE
TRUSTEE ENTERING INTO THE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREIN.
PLEDGOR HEREBY ACKNOWLEDGES THAT IT HAS REVIEWED THE PROVISIONS OF THIS SECTION
21 WITH ITS INDEPENDENT COUNSEL.
22. EXECUTION IN COUNTERPARTS.
This Custody and Security Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
CONVERGENT COMMUNICATIONS, INC.,
as Pledgor
By: /s/ Keith V. Burge
-------------------------------------
Name: Keith V. Burge
Title: President
NORWEST BANK COLORADO, N.A.,
as Trustee for the benefit
of the Holders of the Notes
By: /s/ Amy Buck
-------------------------------------
Name: Amy Buck
Title: Vice President
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PROGRAM AGREEMENT
This Program Agreement ("Agreement"), dated as of the 19th day of November,
1997 ("Effective Date"), is by and between Comdisco, Inc. ("Comdisco") a
Delaware corporation, having its executive office at 6111 North River Road,
Rosemont, Illinois 60018 and Convergent Communications, Inc. ("Convergent
Communications"), a Colorado corporation, Convergent Capital Corporation, a
Colorado corporation ("Lessee") and Convergent Communications Services, Inc., a
Colorado corporation, each having their executive offices at 67 Inverness Drive
East, Suite 110, Englewood, Colorado 80112.
RECITAL
WHEREAS, Comdisco is engaged in the business, among other things, of
financing, leasing, remarketing, and arranging leasing programs for various
types of computer telephony, network switching and other communications hardware
and software products.
WHEREAS, Convergent Communications or its subsidiaries (hereinafter
collectively referred to as "Convergent") is in the business of providing
various communications and network services including but not limited to design,
assemble and operate integrated communications systems for local and long
distance service to end-user customers.
WHEREAS, as a part of its services, Convergent will require the use of
various types of computer, communications, network and other equipment for its
own internal purposes as well as providing the same to end-user customers in
fulfilling its service obligations to Convergent end-user customers.
WHEREAS, Comdisco and Convergent desire to enter into a financing program,
whereby Comdisco will, in accordance with the terms of this Agreement, lease
Equipment (as hereinafter defined) to Convergent. The leased Equipment shall be
used for the benefit of Convergent at its business location(s) or shall be made
available for the benefit of Convergent end-user customers (each a "Customer")
at such Customer premises.
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. RELATIONSHIP. At no time will this Agreement be deemed to create a
partnership, joint venture, agency employment or any other relationship other
than that expressly provided for herein. Convergent is not Comdisco's
representative or agent for any purpose except as expressly stated herein.
2. PURCHASE OF EQUIPMENT. Convergent will from time to time enter into
purchase agreements (the "Purchase Agreement") with various third party vendors
for Equipment and may lease such Equipment from Comdisco. In accordance with
the terms set forth below Comdisco may lease such Equipment to Convergent
pursuant to an assignment agreement (the "Assignment Agreement") substantially
in the form attached hereto as Exhibit A whereby Comdisco will acquire title to
such Equipment from the third party vendor.
3. LEASE OF EQUIPMENT. Comdisco as lessor ("Lessor") and Lessee have
entered into a master lease agreement (the "Master Lease") dated the 11th day of
November 1997 attached hereto as Exhibit B. In addition, Lessor and Lessee
shall enter into various equipment schedules (the "Equipment Schedules")
substantially in the form attached hereto as Exhibit C. Pursuant to the terms
of the Master Lease and Equipment Schedule, Lessor shall lease the Equipment to
Lessee.
In addition, Lessee will from time to time enter into Master Equipment
Lease Agreements and Equipment Schedules, substantially in the forms attached as
Exhibit D and E, (hereinafter referred to as "Lease(s)") with other subsidiaries
of Convergent Communications for the purpose of making such equipment available
to Convergent customers pursuant to various services agreements with such
customers. In such event, subject to the terms contained in this Agreement,
Lessee may assign such Lease(s) to Comdisco as
<PAGE>
Lessor and at the time such equipment is accepted for lease, Comdisco shall pay
the vendor the purchase price for such equipment. Any changes to the standard
terms and conditions contained in Exhibits D and E to be incorporated in the
Lease(s) must be approved by Comdisco prior to such lease assignment.
The minimum amount of Equipment to be purchased and leased pursuant to any
Lease(s) at time of acceptance shall, on each calendar month, in the aggregate
equal $250,000.
4. LEASE AMOUNT AND AVAILABILITY. In addition to the terms,
conditions and contingencies contained in the Lease(s) and any other document
entered into in connection with the Lease(s), Comdisco's obligation to lease
Equipment to Convergent shall be contingent upon Convergent's continued
performance of the terms and conditions of this Agreement. In accordance with
the foregoing, the maximum amount of Equipment Convergent may lease shall be as
set forth subject to the contingency identified below for the respective years
December 1, 1997 through June 30, 2000 and subject to the availability
requirements for each year shall not exceed Fifty Million Dollars
($50,000,000.00) from the date hereof through June 30, 2000.
The continued availability of amounts committed for lease is subject to
there being no material adverse change in Convergent's consolidated financial
condition or business prospects.
<TABLE>
<CAPTION>
Amount Committed Contingency to be
Year for Lease Satisfied for Availability
---- --------- --------------------------
<S> <C> <C>
December 1, 1997 $10,000,000 1) Achieving a Recurring Revenue Run Rate
to June 30, 1998 of $3 million per year and an
Aggregate Run Rate of $10 million per
year;
2) 10% Letter of Credit (as Equipment is
leased) calculated as a percentage of
Equipment costs if new or Comdisco's
value if from Comdisco's inventory
July 1, 1998 Additional 1) Funding of at least $20 million of
to June 30, 1999 $20,000,000 common equity, convertible preferred
or similar equity security
2) Achieving a Recurring Revenue Run Rate
of $10 million per year and an
Aggregate Run Rate of $30 million per
year
July 1, 1999 Additional 1) Achieving positive EBITDA on a monthly
to June 30, 2000 $20,000,000 basis
----------- 2) Achieving a Recurring Revenue Run Rate
of $25 million per year and an
Aggregate Run Rate of $70 million per
year
Total $50,000,000
</TABLE>
For purposes of the above, the term "Recurring Revenue Run Rate" means the
annualized monthly revenue of Convergent's reported recurring revenue which
consists of: (a) Enterprise Network Services; (b) Voice Services and (c) Data
Services and the term "Aggregate Run Rate" shall mean the sum of the Recurring
Revenue Run Rate and all other revenue from other transactions or binding
agreements. The term "EBITDA" means earnings before interest, tax, depreciation
and amortization in accordance with generally accepted accounting principles.
Convergent's Vice President - Finance and Administration will, upon request,
certify to Comdisco in writing as to compliance with each respective Contingency
set forth above.
5. EQUIPMENT. Comdisco shall be obligated to lease to Convergent only
the Equipment and configurations identified on the attached Exhibit F (the
"Equipment"), except as Comdisco may agree to from time to time in writing.
Comdisco shall have no obligation to purchase or lease Equipment if Convergent
is not in compliance with the Contingency requirement as set forth above or is
in default under this Agreement, the Lease(s) or any other agreement entered
into in connection with this Program.
2
<PAGE>
6. LEASE QUOTATION. The format of the pricing for the lease of
Equipment shall be in the form of lease rate factors which shall be defined as
the percentage of the purchase price of the Equipment plus interest for each
payment and shall be provided in the context of a table which provides, in
addition to the lease rate factor, Equipment description and various lease
periods. Comdisco will, no later than five (5) business days prior to the first
day of each month, provide Convergent with lease rate factors for Equipment.
The lease rate factor, special terms or lease periods applicable to any
Equipment not listed on such table or which differ from those set forth on the
table, shall be subject to an individual quotation by Comdisco and shall specify
the period for which such quote is valid. The lease rate factors contained in
the monthly table shall be valid for transactions which Comdisco has received
notice of installation and acceptance no later than sixty (60) days from the
first day of the month in which such lease rate factor applies. Any lease
acceptance for Equipment occurring after such sixty (60) day period shall be
subject to adjustment in accordance with the terms of the Equipment Schedule.
Equipment placed on lease from Comdisco's inventory shall be subject to
individual quotation and shall be quoted as a monthly rental rate.
7. SERVICE CONTRACT ASSIGNMENT. At the time Comdisco accepts an
assignment of the Lease(s), Convergent shall identify the Equipment location and
name of its Customer if the Equipment is to be placed in service by or on behalf
of such Convergent Customer. Provided Convergent is not in default under an
existing Lease, Comdisco shall not contact such Customer unless Comdisco has a
pre-existing relationship with such Customer or is engaged or proposes to engage
such Customer in an unrelated business transaction. In addition, at the time of
acceptance, Convergent shall assign to Comdisco, as security for the payment of
rent or other amounts due pursuant to the terms of the Leases(s), all right,
title and interest in and to payment under its service agreement or agreements
("Service Agreement Receivables") in which the use of the Equipment is part of
the services provided by Convergent provided the assignment of payments shall be
limited to such amounts as are sufficient to ensure complete payment of all
amounts due under the Lease(s) applicable to the Equipment made available for
use by Customers pursuant to the assigned service agreements. Convergent agrees
that at the time of the assignment of such Service Agreement Receivables,
Comdisco shall have a first perfected security interest in the Service Agreement
Receivables to the extent necessary to pay all amounts due under the Lease(s)
free of any other liens, claims or encumbrances and any prior or subsequent
financing or assignment of such Service Agreement Receivables shall be subject
and subordinate to Comdisco's perfected security interests.
8. OWNERSHIP. Convergent in its capacity as Lessee shall acquire no
rights of ownership in any of the leased Equipment and shall not at any time
represent to any third party that it has ownership to such property or act as
agent for Comdisco unless it has acquired title from Comdisco to such Equipment
or is requested in writing to act on behalf of Comdisco with respect to such
Equipment.
9. CONVERGENT COMMUNICATIONS GUARANTY. In connection with entering
into this Agreement, Convergent Communications shall execute a Guaranty
Agreement substantially in the form attached hereto as Exhibit G. Such Guaranty
Agreement shall obligate Convergent Communications to perform all obligations
(including but not limited to the payment of rent) of Convergent as Lessee under
the Lease(s).
10. WARRANTS. In conjunction with entering into this Agreement and as
additional consideration for entering into the Lease(s), Comdisco and Convergent
Communications will have entered into a Warrant Agreement (the "Warrant")
substantially in the form attached as Exhibit H, whereby Comdisco shall acquire
rights to acquire Convergent common stock in accordance with the terms and
conditions contained therein. In order to maintain consistency with the
availability of lease commitments set forth in Paragraph 4 above, the parties
shall either amend the Warrant or execute a new warrant agreement at the time of
additional lease availability to reflect the additional warrants applicable to
such committed monies available for Lease(s) in each of the years 1998 and 1999.
The number of shares subject to the new or amended Warrants to be executed
in the respective years 1998 and 1999 shall be an amount equal to ten (10%)
percent of the monies committed for such year
3
<PAGE>
divided by the exercise price per share. The exercise price per share shall be
equal to the price paid by investors in the most recent equity offering, but in
no event shall be less than three ($3.00) dollars per share.
11. GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES OF BOTH PARTIES.
(a) Corporate Capacity; State Licensing. Each party represents and
warrants that it is a corporation validly existing and in good standing under
the laws of the state of its incorporation, with adequate power and capacity to
enter into this Agreement, and is duly qualified in all states required to
conduct all activity contemplated by this Agreement.
(b). Due Authorization. This Agreement, the Lease(s), the Warrant and
other documents executed in connection herewith have been or will be duly
authorized, executed and delivered by it, and will constitute a valid, legal and
binding agreements, enforceable against it in accordance with the terms hereof
and thereof, except to the extent that the enforcement of remedies may be
limited under generally applicable laws relating to specific performance,
bankruptcy and creditors' rights.
(c) Governmental Approvals. No approval, consent or withholding of
objections is or will be required from any federal, state or local governmental
authority or instrumentality with respect to the entry into or performance of
this Agreement, the Lease(s), the Warrant and other documents executed in
connection herewith, except such as have already been obtained.
(d) No Violation. The entry into and performance of this Agreement,
the Lease(s), the Warrant and other documents executed in connection herewith,
will not: (i) violate any judgment, order, law or regulation applicable to it or
any provision of its Articles of Incorporation or By-Laws; or (ii) result in any
breach of, or constitute a default under or result in the creation of any lien,
charge, security interest or other encumbrance upon any Lease(s) or any
Equipment pursuant to any indenture, mortgage, deed of trust, bank loan or
credit agreement or other instrument (other than the related Lease(s)) to which
it is a party.
(e) No Legal Proceedings. There are no suits or proceedings pending
or threatened in any court or before any regulatory commission, board or other
administrative or governmental agency, which if adversely decided would have a
material adverse effect on its ability to fulfill its obligations under this
Agreement, the Lease(s), the Warrant and other documents executed in connection
herewith.
(f) Information. All information provided by one party to the other
under this Agreement, the Lease(s), the Warrant and other documents executed in
connection herewith is or will be true and correct in all material respects to
the best of its knowledge and belief.
(g) Books and Records. To fulfill the intent and purposes of this
Agreement, each party will afford the other with reasonable access to its files
and records pertaining to this Agreement.
12. FINANCIAL STATEMENTS. Convergent will promptly furnish Comdisco
with copies of its quarterly and annual financial statements and reports and
other filings with the Securities and Exchange Commission ("SEC"), if any. Such
financial statements shall include balance sheets, income statements and annual
statements of source and application of funds.
13. LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE LIABLE FOR
ANY INDIRECT, PUNITIVE, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGE IN
CONNECTION WITH OR RELATED TO THIS AGREEMENT (INCLUDING LOSS OF PROFITS, USE,
DATA, OR OTHER ECONOMIC ADVANTAGE), HOWSOEVER ARISING, WHETHER FOR BREACH OF
THIS AGREEMENT, INCLUDING BREACH OF WARRANTY OR IN TORT, EVEN IF THAT PARTY HAS
BEEN PREVIOUSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
4
<PAGE>
14. TERM AND TERMINATION. This Agreement shall be effective as of the
date first indicated above. The term of this Agreement shall continue from such
date to June 30, 2000 unless otherwise extended or terminated.
15. ADDITIONAL DOCUMENTS AND MUTUAL COOPERATION. Comdisco and Convergent
shall cooperate by furnishing such records and supporting material relating to
the Lease(s) as may be reasonably requested, in the preparation of forms and in
the execution of such other documents as may be necessary to fulfill the intent
and effectuate the purpose of this Agreement.
16. ASSIGNMENT OF AGREEMENT. Convergent shall not assign any of its
rights or interests or obligations under this agreement without Comdisco's prior
written consent. Comdisco shall provide notification to Convergent in the event
it assigns its rights, interests or obligations to any third party.
17. NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to Comdisco, Inc. at 6111
North River Road, Rosemont, Illinois 60018, attention: Chief Financial Officer,
cc: Legal Department, attn: General Counsel, (and/or, if by facsimile,
(847)518-5854 and (847)518-5088) and (ii) to Convergent at 67 Inverness Drive
East, Suite 110, Englewood, Colorado 80112, attention: Legal Department (and/or
if by facsimile, (303)749-3113), or at such other address as any such party may
subsequently designate by written notice to the other party.
18. MISCELLANEOUS: Paragraph and Section headings appearing in this
Agreement are for convenience of reference only and shall not modify, define,
expand or limit any of the terms or provisions of this Agreement. References to
the singular include references to the plural and vice versa. THE PARTIES AGREE
THAT THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED IN, AND SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO. If at any time any
provision of this Agreement shall be held by any court of competent jurisdiction
to be illegal, void or unenforceable, such provision shall be of no force and
effect, but the illegality or unenforceability of any other provision shall have
no effect upon and shall not impair the enforceability of any other provision of
this Agreement.
19. ENTIRE AGREEMENT. This Agreement in conjunction with the other
agreements referenced herein and attached as Exhibits hereto constitute the
entire agreement between the parties concerning the subject matter hereof. The
terms of this Agreement may not be amended or modified orally, but only by an
instrument duly authorized by each of the parties. This Agreement and any
amendments shall be binding on and inure to the benefit of the parties and their
respective permitted successors and assigns. Two or more duplicate originals of
this Agreement may be signed by the parties, each of which shall be original,
but all of which together shall constitute one and the same agreement.
20. SURVIVAL OF OBLIGATIONS. All agreements, representations and
warranties contained in this Agreement or in any related document shall survive
the execution, delivery expiration or other termination of this Agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.
COMDISCO, INC. CONVERGENT COMMUNICATIONS, INC.
/s/ Nick Pontikes /s/ John R. Evans
- ----------------------------- -----------------------------
By: Nick Pontikes By: John R. Evans
-------------------------- --------------------------
Title: COO Title: CEO
----------------------- -----------------------
CONVERGENT COMMUNICATIONS CONVERGENT CAPITAL CORPORATION
SERVICES, INC.
/s/ John R. Evans /s/ John R. Evans
- ----------------------------- -----------------------------
By: John R. Evans By: John R. Evans
-------------------------- --------------------------
Title: CEO Title: CEO
----------------------- -----------------------
6
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is entered into effective this
31st day of October, 1996 by and between CONVERGENT COMMUNICATIONS, INC., a
Colorado corporation ("Convergent") whose address is 2696 South Colorado
Boulevard, Suite 585-5, Denver, Colorado 80202, SERVICES-ORIENTED OPEN NETWORK
TECHNOLOGIES, INC., a Virginia corporation ("SONeTech") whose address is 109
Kale Avenue, Sterling, Virginia 20164, and W. FRED SEIGNEUR, an individual whose
address is 109 Kale Avenue, Sterling, Virginia 20164 ("Seigneur") (hereinafter
collectively referred to as "the parties").
RECITALS
Seigneur is the President of SONeTech and owns or controls a majority of
the issued and outstanding shares of SONeTech;
Convergent wishes to acquire an interest in SONeTech, initially up to
forty-five percent (45%), of the total authorized shares of SONeTech;
Convergent wishes to engage SONeTech as its research and development
consultant to work with Convergent's wholly owned subsidiary, namely, Integrated
Communication Networks, Inc., a Colorado corporation ("ICN") and other companies
Convergent may acquire.
THEREFORE, IT IS AGREED AS FOLLOWS:
1. STOCK PURCHASE. SONeTech shall transfer, assign and deliver to
Convergent a total of One Hundred Thousand (100,000) shares of the common stock,
$0.02 par value ("SONeTech Stock"), which represents ten percent (10%) of the
issued and outstanding shares of SONeTech's stock ("Common Stock"), and
Convergent shall pay the sum of One Hundred Thousand Dollars ($100,000) and the
issuance of Three Hundred Seventy-Five Thousand (375,000) shares of the no par
value common stock of Convergent ("Convergent Stock"), subject to adjustment as
described herein (the cash consideration paid by Convergent together with the
Convergent
1
<PAGE>
Stock are collectively referred to herein as the "Purchase Price") as follows:
1.1 PAYMENT OF PURCHASE PRICE.
1.1.1 Application of the earnest money deposit in the amount of
Twenty Thousand Dollars ($20,000), which the parties acknowledge had been
previously paid by Convergent to SONeTech on or about August 28, 1996.
1.1.2 Eighty Thousand Dollars ($80,000) payable on April 1,
1997. Convergent shall have the right to pay the full balance due for the
SONeTech Stock at any time.
1.1.3 On the Closing Date, as defined herein, Convergent shall
issue the Convergent Stock to SONeTech, subject to the following terms and
conditions:
(i) The Certificates representing the Convergent Stock
will contain a restrictive legend as follows:
ATHE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED IN ANY WAY
UNTIL NOVEMBER 1, 2001."
(ii) The foregoing restriction shall not apply as to
Seventy-Five Thousand (75,000) shares beginning on the first anniversary
following the date of this Agreement and thereafter as to Seventy-Five Thousand
(75,000) shares on each of the 2nd, 3rd, 4th and 5th anniversary dates of this
Agreement, subject to any other restrictions on the sale, transfer or assignment
of the Convergent Stock as may be imposed by law. Following the expiration of
such period of time, SONeTech may forward its certificate(s) representing the
appropriate number of shares of Convergent Stock to Convergent's transfer agent
for removal of the restrictive legend described in 1.1.3(i) above.
(iii) During the five (5) year period following the date
of this Agreement and in the event that the Consulting Agreement, as defined
herein, is terminated by SONeTech or Seigneur without cause, or in the event
that Seigneur
2
<PAGE>
is unable to perform under the terms of the Consulting Agreement because of
death or disability, Convergent shall have the right to repurchase a percentage
of the Convergent Stock owned by SONeTech at a rate equal to six cents ($0.06)
per share. The number of shares of Convergent Stock that Convergent shall be
entitled to repurchase shall be calculated as follows: the number of years,
including any fraction thereof, remaining in the five (5) year period, that
SONeTech and Seigneur fail to perform under the Consulting Agreement divided by
5 and the quotient is then multiplied by 375,000.
(iv) In the event that Convergent elects to repurchase
Convergent Stock, Convergent shall notify SONeTech of its election within thirty
(30) days of the termination of the Consulting Agreement. Payment for the
Convergent Stock purchased must be made to SONeTech thirty (30) days after the
date of notice.
1.2 SONETECH STOCK ISSUANCE. Upon payment of the Purchase Price by
Convergent, SONeTech shall issue a stock certificate to Convergent in the amount
of One Hundred Thousand (100,000) shares of the Common Stock, which represents
ten percent (10%) of the total authorized shares of SONeTech's Common Stock.
1.3 SONETECH FUNDING COMMITMENT.
1.3.1 Convergent may, at Convergent's sole discretion, use
commercially reasonable efforts to develop a business plan for SONeTech and to
secure, on or before March 31, 1998, a commitment for private placement equity
financing for the capitalization of SONeTech's business plan in the amount of
One Million Dollars ($1,000,000)("SONeTech Funding Commitment"). In exchange
for the SONeTech Funding Commitment from a third party, SONeTech shall issue to
Convergent a certificate in the amount of One Hundred Fifty Thousand (150,000)
shares of SONeTech's Common Stock, which represents an additional fifteen
percent (15%) of the total authorized shares of Common Stock. Such issuance
shall be made within five (5) business days of receipt of the first installment
of funds pursuant to the SONeTech Funding Commitment by SONeTech.
1.3.2 In the event that Convergent elects to obtain the SONeTech
Funding Commitment, the shares of Common
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<PAGE>
Stock to be issued to Convergent by SONeTech in exchange for the SONeTech
Funding Commitment shall be in addition to any other shares of Common Stock to
be issued pursuant to this Agreement.
1.3.3 In the event that Convergent obtains the SONeTech Funding
Commitment for an amount less than One Million Dollars ($1,000,000), the number
of shares of Common Stock to be issued to Convergent in exchange for the
SONeTech Funding Commitment shall be reduced proportionately.
1.3.4 SONeTech agrees to cooperate and not interfere with and
take all steps necessary to facilitate Convergent's efforts to obtain the
SONeTech Funding Commitment, including, without limitation, any steps required
by the investors or underwriters or their counsel.
1.4 FINANCING BY CONVERGENT.
1.4.1 Convergent shall have the right to provide the SONeTech
Funding Commitment from Convergent's own funds.
1.4.2 In the event that Convergent provides the SONeTech Funding
Commitment, SONeTech shall issue to Convergent a certificate in the amount of
Two Hundred Thousand (200,000) shares of SONeTech's Common Stock, which
represents an additional twenty percent (20%) of the total authorized shares of
Common Stock. Such issuance shall be made within five (5) business days of
receipt of the first installment of funds from Convergent.
1.5 BOARD OF DIRECTORS AND VOTING AGREEMENT.
1.5.1 Upon the execution of this Agreement, SONeTech and
Seigneur shall take all steps necessary to appoint a person designated by
Convergent to the three (3) member Board of Directors of SONeTech to serve until
the next regularly scheduled shareholders' meeting, or until his successor is
duly elected and qualified.
1.5.2 In the event that Convergent obtains or provides the
SONeTech Funding Commitment, SONeTech and Seigneur shall take all steps
necessary to expand the Board of Directors of SONeTech to four (4) persons, and
shall appoint a second
4
<PAGE>
person designated by Convergent to the four (4) member Board of Directors to
serve until the next regularly scheduled shareholders' meeting, or until his
successor is duly elected and qualified.
1.5.3 Seigneur and Convergent shall execute a voting agreement,
in substantially the same form as EXHIBIT 1.5.3 attached hereto ("SONeTech
Voting Agreement"), whereby Seigneur and Convergent will vote their shares of
Common Stock now owned or hereafter acquired: (i) to elect one person designated
by Convergent as a member of the Board of Directors of SONeTech until the
SONeTech Funding Commitment is obtained or provided; (ii) to elect two persons
designated by Convergent as members of the Board of Directors of SONeTech after
the SONeTech Funding Commitment has been obtained or provided; (iii) to elect
two persons designated by Seigneur as members of the Board of Directors of
SONeTech; and (iv) to elect Seigneur as President of SONeTech. The SONeTech
Voting Agreement shall continue in full force and effect until (i) the parties
mutually agree in writing to terminate the SONeTech Voting Agreement; or (ii)
Convergent owns more than fifty percent (50%) of the issued and outstanding
shares of Common Stock.
1.6 CONSULTING AGREEMENT. On the Closing Date, Convergent and
SONeTech shall enter into an exclusive consulting services agreement ("SONeTech
Consulting Agreement"), in substantially the same form as EXHIBIT 1.6 attached
hereto.
1.7 TECHNOLOGY LICENSE AGREEMENT.
1.7.1 SONeTech and Convergent shall enter into a technology
license agreement ("SONeTech License Agreement"), in substantially the same form
as EXHIBIT 1.7.1 attached hereto.
1.7.2 SONeTech shall use its best efforts to patent and/or
copyright the ROADS technology, at SONeTech's sole expense. Convergent shall
have the right to direct the efforts of SONeTech under this subsection if it so
desires, including, but not limited to, the right to select and/or supervise
patent or copyright counsel. All patents and/or copyrights obtained for the
ROADS technology shall be the property of SONeTech.
1.8 RIGHT TO PURCHASE ADDITIONAL SONETECH SHARES.
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<PAGE>
1.8.1 In the event SONeTech offers additional shares of its
Common Stock for sale to third parties, Convergent shall have the right to
purchase additional shares of SONeTech Common Stock at the price offered to
third parties and in an amount sufficient to maintain Convergent's percentage
ownership interest in SONeTech ("Convergent's Preemptive Rights"). Convergent
shall exercise its right to purchase the additional shares by giving SONeTech
written notice of its intent to do so accompanied by payment for the additional
shares of Common Stock within thirty (30) days from the date SONeTech notifies
Convergent of the completion of the Common Share offering.
1.8.2 SONeTech shall amend its articles of incorporation and/or
by-laws, if necessary, to provide for Convergent's Preemptive Rights as outlined
in subsection 1.8.1.
1.9 PIGGYBACK REGISTRATION. SONeTech shall have the right, subject
to the approval of Convergent's underwriters, if any, to include all or part of
the Convergent Stock in any registration by Convergent of any of its equity
securities under the Securities Act of 1933, as amended (the "Securities Act"),
in a manner that would permit the registration of the Convergent Stock for
resale.
2 CLOSING.
2.1 CLOSING DATE. The Closing Date shall be that date which is three
(3) days after any and all required approvals, including any required approval
of any regulatory agency, have become final and the transactions contemplated
under this Agreement are no longer subject to administrative or judicial review,
or such other date as shall be agreed upon by the parties.
2.2 CLOSING EVENTS. The following shall occur on the Closing Date
and at the Closing, each such requirement being considered as occurring
simultaneously:
2.2.1 SONeTech shall deliver to Convergent a stock certificate
representing the appropriate amount of the SONeTech Stock, free and clear of all
liens, encumbrances, equities and claims;
2.2.2 SONeTech shall deliver to Convergent a
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<PAGE>
copy of the resolutions adopted by its Board of Directors approving the
transactions contemplated hereby, which shall be certified by SONeTech's
Secretary to be a true and correct copy of the original and that the original
thereof was duly, validly and regularly obtained;
2.2.3 SONeTech shall deliver to Convergent the officers'
certificate, in the form appended hereto as EXHIBIT 2.2.3 dated as of the
Closing Date, that the officers are not aware of any violation or breach of this
Agreement which exists or existed on or as of the date of this Agreement, the
Closing Date, or at any time between the date of this Agreement and the Closing
Date;
2.2.4 Convergent shall deliver to SONeTech the Purchase Price
(less the Earnest Money previously advanced to SONeTech by Convergent) as
provided in Section 1.1 hereof;
2.2.5 Convergent and SONeTech shall execute and deliver the
SONeTech Consulting Agreement.
2.2.6 Convergent and SONeTech shall execute and deliver the
SONeTech License Agreement.
2.2.7 Convergent and Seigneur shall execute and deliver the
SONeTech Voting Agreement.
2.3 CONTINUATION OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties of Seigneur and SONeTech given pursuant to this
Agreement shall be made on each such date as any additional shares of SONeTech
Stock may be delivered to Convergent, and shall be true and correct in all
material respects. Each such date that any additional shares of SONeTech Stock
may be delivered to Convergent shall be a AClosing Date" as such term may be
used, from time to time, in this Agreement.
2.4 ADDITIONAL REPRESENTATIONS AND WARRANTIES. Each of SONeTech and
Seigneur, as the case may be, agrees to provide additional representations and
warranties, as reasonably requested by Convergent and as is customary in
acquisition transactions, as and when Convergent acquires additional shares of
SONeTech Stock, including, without limitation, representations and warranties
with regard to the operations and financial condition of SONeTech. All such
additional representations and
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warranties shall be appended to this Agreement as an amendment and shall be
executed by all of the parties hereto.
3 CONDITIONS PRECEDENT TO OBLIGATIONS.
3.1 CONDITIONS PRECEDENT TO CONVERGENT'S OBLIGATIONS. The
obligations of Convergent to be performed under this Agreement at Closing are
subject to each and all of the following conditions, any one or more of which
may, however, be waived in whole or in part by Convergent, in which event the
waived condition(s) shall be treated as conditions subsequent to Convergent's
obligations pursuant to Section 6.1 hereof:
3.1.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of SONeTech and Seigneur herein contained shall be true on and as of
the date hereof and as of the Closing Date in all material respects with the
same force and effect as though made on and as of said date.
3.1.2 PERFORMANCE OF OBLIGATIONS. Seigneur and SONeTech shall
have performed in all material respects all of Seigneur's and SONeTech's
obligations and agreements under this Agreement and complied with all of the
material covenants and conditions contained in this Agreement to be performed by
SONeTech and Seigneur.
3.1.3 PERFORMANCE AT CLOSING. Seigneur and SONeTech shall have
performed each of the acts they are required to perform and delivered each of
the certificates and other documents they are required to deliver, or appeared
at Closing ready, willing and able to perform each of the acts they are required
to perform and deliver each of the certificates and other documents they are
required to deliver.
3.1.4 ABSENCE OF RESTRAINING ACTION. No suit, action or other
proceeding shall be pending, or threatened, before any court or governmental
agency in which it will be, or it is, sought to restrain or prohibit or to
obtain damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereunder, or threatened against
or affecting SONeTech or Seigneur which, if adversely determined, would have a
material adverse effect on the value of the business, assets, or properties of
SONeTech, or the value of the SONeTech Stock.
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3.1.5 NO ATTACHMENT. None of SONeTech's assets or properties
shall have been attached or levied upon or passed into the hands of a receiver
or assignee for the benefit of creditors. No petition or similar instrument
shall have been filed with respect to SONeTech under any bankruptcy or
insolvency law, and no injunction or restraining order shall have been
instituted against Seigneur or SONeTech that would have a material adverse
effect on SONeTech.
3.1.6 CONSENTS. All consents from third parties, including
without limitation any governmental or regulatory bodies, necessary for the
consummation of the transactions contemplated hereby shall have been obtained.
3.1.7 AUTHORIZED STOCK. The authorized capital stock of
SONeTech shall have been increased to One Million (1,000,000) shares of Common
Stock.
3.2 CONDITIONS PRECEDENT TO SONETECH'S AND SEIGNEUR'S OBLIGATIONS. The
obligations of SONeTech and Seigneur to be performed under this Agreement at
Closing are subject to each and all of the following conditions, any one or more
of which may, however, be waived in whole or in part by SONeTech and/or
Seigneur, as the case may be:
3.2.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Convergent set forth in this Agreement shall be true and correct
in all material respects on and as of the date hereof and as of the Closing Date
with the same effect as if made on and as of the said date.
3.2.2 PERFORMANCE OF OBLIGATIONS. Convergent shall have performed
all of Convergent's obligations and agreements herein to be performed on or
before Closing and complied with all of the covenants and conditions
contained in this Agreement to be performed by Convergent.
3.2.3 PERFORMANCE AT CLOSING. Convergent shall have performed
each of the acts it is required to perform and delivered each of the
certificates and other documents it is required to deliver, or appeared at
Closing ready, willing and able to perform each of the acts it is required to
perform and deliver each of the certificates and other documents it is
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required to deliver.
4 REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF SONETECH AND SEIGNEUR.
SONeTech and Seigneur (for purposes hereof the term "Company" shall include
SONeTech's subsidiaries, if any, whether or not specific reference is made to
the subsidiaries in the representations and warranties set forth below), jointly
and severally, represent and warrant to Convergent as of the date hereof and as
of the Closing Date, as follows:
4.1.1 GOOD STANDING. SONeTech is a corporation duly organized,
validly existing and in good standing under the laws of the State of its
incorporation, with full corporate power and authority to own, operate and lease
its properties and to carry on its business as now being conducted. Each of
SONeTech's subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the state where each such subsidiary was
incorporated, with full corporate power and authority to own, operate and lease
its properties and to carry on its business as now being conducted. SONeTech and
each of its subsidiaries are qualified to do business and in good standing in
all jurisdictions where their properties, assets and/or activities and
operations so require.
4.1.2 BINDING AGREEMENT. This Agreement, executed by Seigneur
and SONeTech, constitutes the valid and binding obligation of Seigneur and
SONeTech enforceable in accordance with its terms, and will not conflict with,
breach, violate or be in contravention of or result in a default under
SONeTech's Articles of Incorporation or any other organizational or governing
instrument of SONeTech, or of any contract, lease, indenture, promissory note,
agreement, mortgage or other instrument to which SONeTech and/or Seigneur is a
party or by which any of SONeTech's assets or property is bound or affected or,
to the best of SONeTech's and Seigneur's knowledge, any law, rule, license,
regulation, judgment, decree or order of any court, agency or other authority to
which jurisdiction SONeTech is subject. All corporate action necessary for the
approval and/or ratification of this Agreement has been taken.
4.1.3 AUTHORIZED STOCK. The only authorized capital stock of
SONeTech is currently One Hundred Thousand
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(100,000) shares of its $0.02 par value Common Stock, all of which are issued
and outstanding, as of the date hereof. SONeTech shall amend its Articles of
Incorporation to increase its authorized capital stock to One Million
(1,000,000) shares of Common Stock. Such amendment shall be effective on or
prior to the Closing.
4.1.4 MARKETABLE TITLE. Convergent will obtain good and
marketable title to the shares of the SONeTech Stock to be transferred pursuant
to the terms hereof and such shares at the Closing will be presented to
Convergent, free and clear of all liens, encumbrances, equities and claims.
4.1.5 NO AGREEMENTS. There are no agreements with any person
with respect to (i) the sale, lease, exchange or other disposition of any of
SONeTech's properties or assets, except in the ordinary course of its business;
or (ii) the sale, hypothecation, transfer, assignment or other disposition of
the ownership, direct or indirect, of any of the shares of the SONeTech Stock,
the operation of which may in the future result in a change in control of
SONeTech.
4.1.6 FINANCIAL REPRESENTATIONS. Attached hereto as EXHIBIT
4.1.6 are a Balance Sheet, Statement of Income (Loss and Deficit) and Statement
of Changes in Financial Position (including notes to such financial statements)
at October 31, 1996 and for the fiscal year then ended (the "Financial
Statements"). The Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis, except
as disclosed therein, and present fairly the financial position of SONeTech as
of October 31, 1996, ("Financial Statement Date") and the results of operations
for the year then ended.
4.1.7 NO LITIGATION. To the best of SONeTech's and Seigneur's
knowledge there are no pending or threatened suits, actions, claims, or
litigation, administrative, arbitration or other proceedings or governmental
investigations or inquiries to which Seigneur or SONeTech is a party or to which
any of the properties or assets thereof is subject.
4.1.8 NO VIOLATION OF LAWS OR REGULATIONS. To the best of
SONeTech's and Seigneur's knowledge, SONeTech has materially complied with, and
is not in any material respect in
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default under or in violation of, any laws, ordinances, requirements,
regulations or orders applicable to its businesses or properties, including
without limitation the rules and regulations of the Federal Communications
Commission ("FCC"), nor is SONeTech or Seigneur in violation of or in default of
any order, writ, injunction, judgment or decree of any court, arbitrator, or
federal, state or local department, official, commission, authority, board,
bureau, agency or other instrumentality issued or pending against SONeTech which
might adversely affect Seigneur's or SONeTech's ability to execute, deliver and
perform their obligations under this Agreement or to consummate the transactions
contemplated hereby or which challenges or seeks to prevent, enjoin, alter or
materially delay any such transactions. Neither SONeTech nor Seigneur have
received notice, or otherwise have any reason to know, of any claimed default or
violation with respect to any of the foregoing. There have been no illegal
payments, kickbacks, bribes or political contributions made by Seigneur or
SONeTech to any person, entity or governmental or regulatory body in the United
States or any foreign country or political subdivision.
4.1.9 APPROVALS. All consents necessary or required for the
consummation of the transactions contemplated hereby will have been obtained, on
or before Closing. Neither the execution, delivery or performance of this
Agreement nor the conclusion of any transaction contemplated by this Agreement
will result in any violation of, be in conflict with or constitute a default
under any term or provision of the Articles of Incorporation or the Bylaws of
SONeTech or any such agreement, indenture or other instrument or the rules and
regulations of any regulatory body. SONeTech has furnished to Convergent
accurate and complete copies of the Articles of Incorporation and Bylaws of
SONeTech, each as in effect as of the date hereof.
4.1.10 COMPLIANCE WITH LAWS. The entering into and consummation
of the transactions contemplated hereunder will not result in any default under
or violation of any of the terms and provisions of any contract, lease or other
agreement to which SONeTech or Seigneur are a party or by which SONeTech or
Seigneur is bound or, to the knowledge of SONeTech and/or Seigneur, any law,
rule, license, regulation, judgment, order or decree governing or affecting
SONeTech and/or Seigneur.
4.1.11 STOCK REPRESENTATIONS. SONeTech (i)
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intends to acquire the shares of Convergent Stock pursuant to Section 1 hereof
solely for the purpose of investment and not for the resale and distribution
thereof, and has no present intention to offer, sell, pledge, hypothecate,
assign or otherwise dispose of the same; (ii) understands and acknowledges that
the sale of such shares of Convergent Stock will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), the Convergent Stock
being acquired pursuant to this Agreement constitutes Arestricted securities" as
that term is defined under Rule 144 promulgated under the Securities Act and may
not be sold except pursuant to a registration statement under the Securities Act
or pursuant to an exemption available under federal and applicable state
Securities laws, and such shares may be required to be held indefinitely unless
the shares are subsequently registered under the Securities Act or an exemption
from such registration is available, (iii) agrees that it will not offer, sell,
pledge, hypothecate, transfer, assign or otherwise dispose of any such shares of
Convergent Stock unless such shares and such offer, pledge, hypothecation,
transfer, assignment or other disposition shall be registered or exempt from
registration under the Securities Act and shall comply with all applicable
federal and state securities laws, and (iv) agrees and acknowledges that the
stock certificates representing the shares of Convergent Stock which will be
acquired by SONeTech under this Agreement will contain a legend restricting the
transferability of the shares as provided herein and that stop order
instructions may be imposed by Convergent's transfer agent restricting the
transferability of the Convergent Stock.
4.1.12 FULL DISCLOSURE. None of the written information
provided by Seigneur and SONeTech to Convergent in connection with the
negotiation of this Agreement contains any untrue or misleading statement of a
material fact. There is no fact which Seigneur or SONeTech has not disclosed to
Convergent in writing which materially affects or which will materially affect
adversely SONeTech's business, sales, income, properties, assets, liabilities,
activities, customers, or the ability of SONeTech and Seigneur to perform under
this Agreement.
4.2 REPRESENTATIONS AND WARRANTIES OF CONVERGENT. Convergent
represents to SONeTech and Seigneur as follows:
4.2.1 GOOD STANDING. Convergent is a corporation duly
organized, validly existing and in good standing
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under the laws of the state of Colorado, with full corporate power and authority
to own, operate and lease its properties and to carry on its business as now
being conducted. Convergent is qualified to do business and in good standing in
all jurisdictions where its properties, assets and operations so require.
Convergent has all requisite power and authority to enter into this Agreement
and perform its obligations under this Agreement.
4.2.2 BINDING AGREEMENT. This Agreement, as executed by
Convergent, constitutes the valid and binding obligation of Convergent
enforceable in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, moratorium or similar laws
affecting the rights of creditors generally. This Agreement and the performance
of this Agreement by Convergent will not conflict with, breach, violate or be in
contravention of or result in a default under Convergent's Articles of
Incorporation or any other organizational or governing instrument of Convergent,
or of any agreement, mortgage or other instrument to which Convergent is a party
or by which any of its assets or property is bound or affected or, to the best
of Convergent's knowledge, any law, rule, license, regulation, judgment, decree
or order of any court, agency or other authority which has jurisdiction over the
business, properties, assets and activities of Convergent. All corporate action
necessary for the approval and/or ratification of this Agreement has been taken.
4.2.3 STOCK ACQUIRED FOR INVESTMENT. Convergent (i) intends to
acquire the SONeTech Stock solely for the purpose of investment and not for the
resale and distribution thereof and has no present intention to offer, sell,
pledge, hypothecate, assign or otherwise dispose of the same, (ii) understands
and acknowledges that the sale of the SONeTech stock will not be registered
under the Securities Act, and such shares may be required to be held
indefinitely unless the share are subsequently registered under the Securities
Act or an exemption from such registration is available, and (iii) agrees that
it will not offer, sell, pledge, hypothecate, transfer, assign or otherwise
dispose of any such shares unless such shares and such offer, pledge,
hypothecation, transfer, assignment or other disposition shall be registered or
exempt from registration under the Securities Act and shall comply with all
applicable federal and state securities laws.
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4.2.4 LITIGATION; COMPLIANCE WITH LAWS. There are no pending or
threatened suits, actions, claims, arbitrations, administrative or legal or
other proceedings or governmental investigations or inquires pending or to which
Convergent is a party or to which any of its properties or assets thereof is
subject, nor in any material respect any failure to comply with, nor any default
under, any law, ordinance, requirement, regulation or order applicable to
Convergent and its businesses and properties nor any violation of or default
with respect to any order, writ, injunction, judgment or decree of any court,
arbitrator, or federal, state or local department, official, commission,
authority, board, bureau, agency or other instrumentality, issued or pending
against Convergent which might adversely affect Convergent's ability to execute,
deliver and perform its obligations under this Agreement or to consummate the
transactions contemplated hereby or which challenges or seeks to prevent,
enjoin, alter or materially delay any such transaction.
5. CONFIDENTIALITY. Convergent shall retain in confidence all
information obtained by it pursuant to any investigations made by Convergent
pursuant to this Agreement (the "Confidential Information"). Seigneur.
SONeTech, its officers, directors and employees and SONeTech's Representatives
shall retain in confidence, all information obtained by them in connection with
any investigation undertaken by such persons as a result of Convergent providing
such persons such access to information of Convergent as provided in this
Agreement. The parties agree that Confidential Information shall not include
information which (i) was or becomes generally available to the public other
than as a result of a disclosure by Convergent, SONeTech, Seigneur or any of
their officers, directors or employees, agents or representatives, (ii) was or
becomes available to Convergent, SONeTech, Seigneur, any of their officers,
directors or employees or their agents or representatives on a non-confidential
basis from a source other than Convergent, SONeTech or Seigneur, provided that
such source is not bound by a confidentiality agreement or (iii) was, or in the
future is, developed independently by Convergent or by SONeTech or Seigneur
without reference to the information furnished by Convergent, SONeTech or
Seigneur, as the case may be. The parties understand and agree that all of the
Confidential Information supplied to Convergent or to SONeTech or Seigneur is
provided on the understanding that such Confidential Information remains the
property of Convergent
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or SONeTech, as the case may be, and that all copies and originals will be
returned to any such party promptly upon its request after termination of this
Agreement pursuant to Section 6 hereof.
6. TERMINATION
6.1 EVENTS OF TERMINATION. Anything contained elsewhere in this
Agreement to the contrary notwithstanding, prior to the Closing Date, this
Agreement may be terminated by written notice of termination as follows:
6.1.1 MUTUAL CONSENT. Anytime by mutual consent of SONeTech and
Convergent;
6.1.2 PRIOR TO CLOSING DATE. By SONeTech or Convergent if the
other party shall have (i) misstated any representation or been in breach of any
warranty contained herein, (ii) been in breach of any covenant, undertaking or
restriction contained herein and such misstatement or breach has not been cured
by the earlier of (a) thirty (30) days after the giving of notice by the
non-breaching party of such misstatement or breach or (b) the Closing Date; or
(iii) the failure to consummate the transactions contemplated herein through the
fault of the other party;
6.2 CONSEQUENCES OF TERMINATION. In the event of a termination and
abandonment hereof pursuant to the provisions of this Section 6, this Agreement
shall become void and have no effect, without any liability on any of the
parties or their directors or officers or stockholders in respect of this
Agreement. Notwithstanding anything contained in the foregoing to the contrary,
if this Agreement is terminated be Convergent due to a failure of SONeTech or
Seigneur to perform the conditions precedent to the Closing hereunder, the
Earnest Money shall be refunded to Convergent in full by Seigneur and SONeTech.
If this Agreement is terminated by SONeTech as a result of a failure of
Convergent to perform the conditions precedent to the Closing hereunder, the
Earnest Money deposited by Convergent shall be retained by SONeTech.
7. MISCELLANEOUS
7.1 NOTICES. Any notices under this Agreement shall
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be in writing, signed by the party giving the same and transmitted by registered
or certified United States Mail or by a generally accepted national courier
service providing confirmation of delivery, and addressed to the party to
receive the notice at the address set forth below or such other address as any
party may specify by notice to the other party, and shall be deemed properly
given and received when actually given and received:
If to Convergent: Convergent Communications, Inc.
2696 South Colorado Blvd, Suite 585-5
Denver, Colorado 80202
Attn.: Chief Executive Officer
if to SONeTech: Services-oriented Open Network
Technologies, Inc.
109 Kale Avenue
Sterling, Virginia 20164
Attn.: President
7.2 SUCCESSORS AND ASSIGNS. This Agreement is personal to the
parties hereto and may not be assigned, transferred, delegated or nullified
without the prior written consent of all of the parties hereto. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and permitted assigns.
7.3 ARBITRATION. Notwithstanding anything to the contrary herein,
any dispute arising pursuant to or in any way related to this Agreement or the
transactions contemplated hereby shall be settled by arbitration; provided,
however, that nothing in this Section shall restrict the right of either party
to apply to a court of competent jurisdiction for emergency relief pending final
determination of a claim by arbitration in accordance with this Section. All
arbitration shall be conducted in accordance with the rules and regulations of
the American Arbitration Association, in force at the time of any such dispute,
by a panel of three (3) arbitrators. In the event that SONeTech elects to file
a claim, the arbitration shall take place in Denver, Colorado. In the event that
Convergent elects to file a claim, the arbitration shall take place in the
Washington, DC area. Each party shall pay its own expenses associated with such
arbitration, provided that the prevailing party in any
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arbitration shall be entitled to reimbursement of reasonable attorneys' fees and
expenses (including, without limitation, arbitration expenses) relating to such
arbitration. The decision of the arbitrators, based upon written findings of
fact and conclusions of law, shall be binding upon the parties; and judgment in
accordance with that decision may be entered in any court having jurisdiction
thereof. In no event shall the arbitrators be authorized to grant any punitive,
incidental or consequential damages of any nature or kind whatsoever.
7.4 NO ORAL MODIFICATIONS. No amendments or modifications to this
Agreement shall be made or deemed to have been made unless in writing and
executed and delivered by the party to be bound thereby. Any provision of this
Agreement may be waived, amended, supplemented or modified only by agreement in
writing of the parties hereto.
7.5 WAIVER. The failure of any party to this Agreement to insist
upon strict performance of any of the terms of this Agreement will not
constitute a waiver of any of its rights under this Agreement or its right
subsequently to assert, rely upon, or enforce any provision of this Agreement.
7.6 GOVERNING LAW. This Agreement shall be interpreted, governed by
and enforced according to the laws of the State of Colorado.
7.7 SEVERABILITY. If any provision of this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement will not in any way be affected or
impaired thereby.
7.8 HEADINGS AND CAPTIONS FOR CONVENIENCE. The headings and
captions contained in this Agreement are for convenience only and shall not be
considered in interpreting the provisions hereof.
7.9 COUNTERPARTS. This agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, all of
which together shall constitute one and the same instrument.
7.10 REPRESENTATIONS, WARRANTIES AND COVENANTS. Notwithstanding any
investigation made by or on behalf of
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SONeTech or Convergent prior to or after the Closing Date, all representations,
warranties and covenants of the parties hereto contained herein shall survive
and remain in full force and effect for a period of three (3) years after the
Closing Date.
7.11 SONETECH'S INDEMNIFICATION. Notwithstanding the Closing and
regardless of any investigation at any time made by or on behalf of Convergent
or of any information Convergent may have in respect thereof, SONeTech will
indemnify, defend and save and hold Convergent harmless from and against any
costs, expenses, damages, liabilities, losses or deficiencies, including,
without limitation, reasonable attorneys' fees and other costs and expenses
incident to any suit, action or proceeding (collectively ALosses") suffered or
incurred by Convergent arising out of or resulting from, and will pay Convergent
on demand the full amount of any such amounts which Convergent may pay or may
become obligated to pay in respect of:
(a) any material inaccuracy in any representation or document
delivered under or pursuant to this Agreement or the material breach of any
warranty made by SONeTech or Seigneur in or pursuant to this Agreement;
(b) any misrepresentations in or omission from any Exhibit,
Schedule or other attachment to this Agreement;
(c) any failure by SONeTech or Seigneur duly to perform or
observe any term, provision, covenant, or agreement in this Agreement to be
performed or observed on the part of SONeTech or Seigneur; or
(d) any action, suit, investigation, proceeding, demand,
assessment, audit, judgment and claim, including any employment-related claim
arising out of the foregoing (collectively "Convergent's Claims") against
Convergent or any of its subsidiaries, even though such Claims may not be filed
or come to light until after the Closing Date.
7.12 CONVERGENT'S INDEMNIFICATION. Convergent agrees that
notwithstanding the Closing and regardless of any investigation at any time made
by or on behalf of SONeTech or any information SONeTech may have in respect
thereof, Convergent will indemnify and save and hold SONeTech harmless from and
against any Losses suffered or incurred by SONeTech arising out of or
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resulting from, and will pay SONeTech or demand the full amount of any such
amounts which SONeTech may pay or may become obligated to pay in respect of:
(a) any material inaccuracy in any representation or the breach
of any warranty made by Convergent in or pursuant to this Agreement;
(b) any failure by Convergent duly to perform or observe any
item, provision, covenant or agreement in this Agreement to be performed or
observed on the part of Convergent; or
(c) any action, suit, investigation, proceeding, demand,
assessment, audit, judgment and claim, including any employment-related claim
arising out of the foregoing (collectively "SONeTech's Claims") against
SONeTech, even though such Claims may not be filed or come to light until after
the Closing Date.
7.13 NO BENEFIT TO OTHERS. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and their respective heirs, successors, assigns, and such
representations, warranties, covenants and agreements shall not be construed as
conferring, and are not intended to confer, any rights on any other persons.
8. ENTIRE AGREEMENT. This Agreement, together with the Exhibits,
Schedules and Attachments hereto, represents the entire agreement between the
parties hereto with respect to the subject matter hereof and all prior
agreements, understandings or negotiations shall be deemed merged herein. No
representations, warranties, promises or agreements, express or implied, shall
exist between the parties, except as stated herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives the day and year first above written.
CONVERGENT COMMUNICATIONS, INC.,
a Colorado corporation
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By: /s/ John R. Evans
------------------------------------
Its: Chief Executive Office
------------------------------------
W. FRED SEIGNEUR
/s/ W. FRED SEIGNEUR
-----------------------------------------
SERVICES-ORIENTED OPEN NETWORK
TECHNOLOGIES, INC.,
a Virginia corporation
By: /s/ W. FRED SEIGNEUR
-------------------------------------
Its: President
------------------------------------
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is entered into effective this
1st day of March, 1997 by and between CONVERGENT COMMUNICATIONS, INC., a
Colorado corporation ("CCI") whose address is 67 Inverness Drive East,
Englewood, Colorado 80112, INTEGRATED COMMUNICATION NETWORKS, INC., a Colorado
corporation ("ICN") whose address is 67 Inverness Drive East, Englewood,
Colorado 80112, COMMUNICATIONS SERVICES OF IOWA, INC., an Iowa corporation
("CSI)" whose address is 1854 Fuller Road, Suite 1, West Des Moines, Iowa 50265,
and JOHN SCHLEPPHORST, an individual whose address is 7004 Townsend, Urbandale,
Iowa 50322 ("Schlepphorst") (hereinafter collectively referred to as "the
parties").
RECITALS
A. Schlepphorst is the President of CSI and owns or controls all of the issued
and outstanding shares of CSI;
B. ICN is a wholly owned subsidiary of CCI;
C. ICN wishes to acquire all of the issued and outstanding shares of CSI from
Schlepphorst.
THEREFORE, IT IS AGREED AS FOLLOWS:
1. STOCK PURCHASE. Schlepphorst shall transfer, assign and deliver to
ICN Three Thousand (3,000) shares of the common stock, $1.00 par value ("CSI
Stock"), which represents one hundred percent (100%) of the issued and
outstanding shares of CSI's stock ("Common Stock"), and ICN shall pay the sum of
Two Hundred Thousand Dollars ($200,000) and the issuance of Fifty Thousand
(50,000) shares of the $0.01 par value common stock of CCI ("CCI Stock") (the
cash consideration paid by ICN together with the CCI Stock are collectively
referred to herein as the "Purchase Price") as follows:
1.1 PAYMENT OF PURCHASE PRICE.
1.1.1 Application of the earnest money deposit in the
amount of Five Thousand Dollars ($5,000), which the parties acknowledge had be
previously paid by ICN to CSI on February 18, 1997 ("Earnest Money").
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1.1.2 Ninety-Five Thousand Dollars ($95,000) payable to
Schlepphorst on the Closing Date, as herein defined.
1.1.3 A promissory note ("Note") from ICN, guaranteed by
CCI, to Schlepphorst delivered on the Closing Date in the amount of One Hundred
Thousand Dollars ($100,000) bearing simple interest at the rate of eight percent
(8%) per annum and payable one (1) year after the Closing Date, in substantially
the same form attached hereto as EXHIBIT 1.1.3.
1.1.4 The issuance of the CCI Stock to Schlepphorst on the
Closing Date.
1.2 EMPLOYMENT AGREEMENT. On the Closing Date, ICN and Schlepphorst
shall enter into an employment agreement ("Employment Agreement"), in
substantially the same form as EXHIBIT 1.2 attached hereto, which will include,
but not be limited to, the following terms and conditions: (i) a base annual
salary of $65,000 to be paid bi-monthly; (ii) a bonus of up to 25% annually
based upon certain performance criteria established by ICN; (iii) a monthly car
allowance of $500.00; (iv) 50,000 CCI stock options at an exercise price of
$2.00 per share vested over a five (5) year period; (v) all other benefits,
including 401(k), medical insurance and vacation, as available to other ICN
employees; (vi) a term of three (3) years, renewable at the option of ICN; (vii)
a termination provision whereby ICN would be entitled to terminate the
Employment Agreement without cause, subject to the payment to Schlepphorst of
the remaining balance of the base annual salary due under the then existing term
of the Employment Agreement; (viii) a non-compete covenant whereby, during the
two (2) year period following the termination of the Employment Agreement,
Schlepphorst would not, directly or indirectly, whether acting alone or in
concert with any other person, carry on or be engaged in or concerned with or
interested in, any business, enterprise or undertaking which is directly
competitive with the business of ICN, or any of its affiliates at the time of
termination; and (ix) a confidentiality covenant.
2 CLOSING.
2.1 CLOSING DATE. The Closing Date shall be that date which is three
(3) days after any and all required approvals, including any required approval
of any regulatory agency, have
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become final and the transactions contemplated under this Agreement are no
longer subject to administrative or judicial review, or such other date as shall
be agreed upon by the parties.
2.2 CLOSING EVENTS. The following shall occur on the Closing Date
and at the Closing, each such requirement being considered as occurring
simultaneously:
2.2.1 Schlepphorst shall deliver to ICN a stock
certificate, or certificates, together with duly executed stock powers executed
in blank, representing all of the issued and outstanding shares of the CSI
Stock, free and clear of all liens, encumbrances, equities and claims;
2.2.2 CSI shall deliver to ICN a copy of resolutions
adopted by its Board of Directors approving the transactions contemplated
hereby, which shall be certified by CSI's Secretary to be a true and correct
copy of the original and that the original thereof was duly, validly and
regularly obtained;
2.2.3 CSI shall deliver to ICN the opinion of CSI's counsel
substantially in the form appended hereto as EXHIBIT 2.2.3 which opinion shall
include among other opinions, counsel's opinion that any and all corporate
action necessary for the approval and ratification of this Agreement by CSI have
been taken, and all required director and shareholder approvals and
ratifications have been duly and regularly obtained.
2.2.4 CSI and Schlepphorst shall deliver to ICN the
certificate, in the form appended hereto as EXHIBIT 2.2.4 dated as of the
Closing Date, that Schlepphorst and the officers of CSI are not aware of any
violation or breach of this Agreement which exists or existed on or as of the
date of this Agreement, the Closing Date, or at any time between the date of
this Agreement and the Closing Date;
2.2.5 ICN and CCI shall deliver to Schlepphorst the
Purchase Price, including the Note and the CCI Stock;
2.2.6 ICN and Schlepphorst shall execute and deliver the
Employment Agreement.
2.2.7 CSI shall deliver the resignations of each
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of its officers and directors, along with the corporate books and seals of CSI.
2.2.8 CCI shall deliver the guarantee of the Note, in
substantially the form appended hereto as EXHIBIT 2.2.8 ("Note Guarantee").
3 CONDITIONS PRECEDENT TO OBLIGATIONS.
3.1 CONDITIONS PRECEDENT TO ICN'S AND CCI'S OBLIGATIONS. The
obligations of ICN and CCI to be performed under this Agreement at Closing are
subject to each and all of the following conditions, any one or more of which
may, however, be waived in whole or in part by ICN and/or CCI, as applicable, in
which event the waived condition(s) shall be treated as conditions subsequent to
ICN's and CCI's obligations pursuant to Section 6.1 hereof:
3.1.1 REPRESENTATIONS AND WARRANTIES. The representations
and warranties of CSI and Schlepphorst herein contained shall be true on and as
of the date hereof and as of the Closing Date in all material respects with the
same force and effect as though made on and as of said date.
3.1.2 PERFORMANCE OF OBLIGATIONS. Schlepphorst and CSI
shall have performed in all material respects all of Schlepphorst's and CSI's
obligations and agreements under this Agreement and complied with all of the
material covenants and conditions contained in this Agreement to be performed by
CSI and Schlepphorst.
3.1.3 PERFORMANCE AT CLOSING. Schlepphorst and CSI shall
have performed each of the acts they are required to perform and delivered each
of the certificates and other documents they are required to deliver, or
appeared at Closing ready, willing and able to perform each of the acts they are
required to perform and deliver each of the certificates and other documents
they are required to deliver.
3.1.4 ABSENCE OF RESTRAINING ACTION. No suit, action or
other proceeding shall be pending, or threatened, before any court or
governmental agency in which it will be, or it is, sought to restrain or
prohibit or to obtain damages or other relief in connection with this Agreement
or the consummation of the
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transactions contemplated hereunder.
3.1.5 ABSENCE OF LITIGATION. No suit, action or other
proceeding shall be pending before any court or governmental agency, or
threatened against or affecting CSI or Schlepphorst which, if adversely
determined, would have a material adverse effect on the value of the business,
assets, or properties of CSI, or the value of the CSI Stock.
3.1.6 NO ATTACHMENT. None of CSI's assets or properties
shall have been attached or levied upon or passed into the hands of a receiver
or assignee for the benefit of creditors. No petition or similar instrument
shall have been filed with respect to Schlepphorst or CSI under any bankruptcy
or insolvency law, and no injunction or restraining order shall have been
instituted against Schlepphorst or CSI that would have a material adverse effect
on CSI.
3.1.7 NO LIENS, INDEBTEDNESS. CSI shall not be subject to
indebtedness nor its properties and or assets subject to liens or encumbrances
of any kind, other than (i) indebtedness and liens for current taxes, wages and
operating expenses in the normal course of business, payment of which at the
time of Closing shall not yet be due; and (ii) indebtedness identified in CSI's
Financial Statements as set forth in EXHIBIT 3.1.7 attached hereto.
3.1.8 CONSENTS. All consents from third parties, including
without limitation any governmental or regulatory bodies, necessary for the
consummation of the transactions contemplated hereby shall have been obtained.
3.2 CONDITIONS PRECEDENT TO CSI'S AND SCHLEPPHORST'S OBLIGATIONS. The
obligations of CSI and Schlepphorst to be performed under this Agreement at
Closing are subject to each and all of the following conditions, any one or more
of which may, however, be waived in whole or in part by CSI or Schlepphorst, as
applicable:
3.2.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of ICN and CCI set forth in this Agreement shall be true and correct
in all material respects on and as of the date hereof and as of the Closing Date
with the same effect as if made on and as of the said date.
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3.2.2 PERFORMANCE OF OBLIGATIONS. ICN and CCI shall have
performed all of ICN's and CCI's obligations and agreements herein to be
performed, as applicable, on or before Closing and complied with all of the
covenants and conditions contained in this Agreement to be performed by ICN and
CCI, as applicable.
3.2.3 PERFORMANCE AT CLOSING. ICN and CCI shall have performed
each of the acts they are required to perform and delivered each of the
certificates and other documents they are required to deliver, or appeared at
Closing ready, willing and able to perform each of the acts they are required to
perform and deliver each of the certificates and other documents they are
required to deliver.
4 REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF SCHLEPPHORST AND CSI. CSI and
Schlepphorst (for purposes hereof the term "Company" shall include CSI's
subsidiaries, if any, whether or not specific reference is made to the
subsidiaries in the representations and warranties set forth below), jointly and
severally, represent and warrant to ICN and CCI as of the date hereof and as of
the Closing Date, as follows:
4.1.1 GOOD STANDING. CSI is a corporation duly organized,
validly existing and in good standing under the laws of the State of its
incorporation, with full corporate power and authority to own, operate and lease
its properties and to carry on its business as now being conducted. Each of
CSI's subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the state where each such subsidiary was incorporated
as set forth in EXHIBIT 4.1.1 attached hereto, with full corporate power and
authority to own, operate and lease its properties and to carry on its business
as now being conducted. CSI and each of its subsidiaries are qualified to do
business and in good standing in all jurisdictions where their properties,
assets and/or activities and operations so require, which states are listed in
EXHIBIT 4.1.1 attached hereto. A true and correct copy of CSI's and of each
subsidiary's Articles of Incorporation or Charter and all amendments thereto and
restatements thereof, certified by the secretary of state or other appropriate
state office in the state of CSI's or such subsidiary's incorporation and CSI's
and each subsidiary's By-Laws and all amendments thereof and
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restatements thereto, certified as true, complete and accurate by the Secretary
of CSI are set forth in EXHIBIT 4.1.1 attached hereto. Certificates of Good
Standing for each jurisdiction where CSI and each of its subsidiaries are duly
qualified to transact business as foreign corporations will be included in
EXHIBIT 4.1.1.
4.1.2 BINDING AGREEMENT. This Agreement, executed by
Schlepphorst and CSI, constitutes the valid and binding obligation of
Schlepphorst and CSI enforceable in accordance with its terms, and will not
conflict with, breach, violate or be in contravention of or result in a default
under CSI's Articles of Incorporation or any other organizational or governing
instrument of CSI, or of any contract, lease, indenture, promissory notes,
agreement, mortgage or other instrument to which CSI and/or Schlepphorst is a
party or by which any of CSI's assets or property is bound or affected or, to
the best of CSI's knowledge, any law, rule, license, regulation, judgment,
decree or order of any court, agency or other authority to which jurisdiction
CSI is subject. All corporate action necessary for the approval and/or
ratification of this Agreement has been taken.
4.1.3 AUTHORIZED STOCK. The only authorized capital stock
of CSI is Three Thousand (3,000) shares of its $1.00 par value Common Stock, of
which, as of the date hereof, Three Thousand (3,000) shares of CSI Common Stock
are issued and outstanding. Schlepphorst owns all of the issued and outstanding
shares of CSI Common Stock. No other person has any legal ownership interest in
and to any shares of the CSI Common Stock, and there are no outstanding or
authorized options, warrants, purchase rights, subscription rights or other
contract rights or commitments or appreciation, phantom stock, profit
participation or similar rights, with respect to the CSI Common Stock nor any
outstanding or authorized stock.
4.1.4 STOCK FULLY PAID. All issued and outstanding shares
of the CSI Common Stock have been duly authorized and validly issued and are
fully paid and non-assessable. As of the Closing Date, there will not be any
(i) options, warrants or other rights to purchase any shares of the CSI Common
Stock or any debt or securities convertible into such shares or (ii) obligations
of CSI or Schlepphorst, contractual or contingent, to issue any such options,
warrants, rights or shares.
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4.1.5 OWNERSHIP OF SECURITIES. As of the date hereof,
record ownership of the CSI Common Stock is held 100% by Schlepphorst. CSI and
Schlepphorst represent and warrant that the CSI Stock is free and clear of all
pledges, liens, security interests, encumbrances or other restrictions
(excluding restrictions imposed on the transfer of the CSI Stock under the
Securities Act) and of all voting trusts, voting agreements, proxies and other
voting restrictions.
4.1.6 MARKETABLE TITLE. ICN will obtain good and
marketable title to the shares of the CSI Stock to be transferred pursuant to
the terms hereof and such shares at the Closing will be presented to ICN, free
and clear of all liens, encumbrances, equities and claims.
4.1.7 NO AGREEMENTS. There are no agreements with any
person with respect to (i) the sale, lease, exchange or other disposition of any
of CSI's properties or assets, except in the ordinary course of its business; or
(ii) the sale, hypothecation, transfer, assignment or other disposition of the
ownership, direct or indirect, of any of the shares of the CSI Stock, the
operation of which may in the future result in a change in control of CSI.
4.1.8 FINANCIAL REPRESENTATIONS. Attached hereto as
EXHIBIT 4.1.8 are a Balance Sheet, Statement of Income (Loss and Deficit) and
Statement of Changes in Financial Position (including notes to such financial
statements) at December 31, 1996 and for the fiscal year then ended (the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis, except as disclosed therein, and present fairly the financial position of
CSI as of February 28, 1997, ("Financial Statement Date") and the results of
operations for the year then ended.
4.1.9 NO LIABILITIES. As of the Financial Statement Date
CSI had no liabilities or obligations of any nature (whether accrued, absolute,
contingent, and due or to become due) except as disclosed or reflected in the
Financial Statements, and as set forth in EXHIBIT 4.1.9 attached hereto.
4.1.10 NO CHANGE IN FINANCIAL CONDITION. Except
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as set forth in EXHIBIT 4.1.10 attached hereto, since the Financial Statement
Date, there has not been, and neither CSI nor Schlepphorst know of (i) any
event, condition or state of facts that has resulted or may reasonably be
expected to result in any material adverse change in the financial condition,
business, sales, income, properties, assets or liabilities of CSI from that
shown on the Financial Statements; or (ii) any material adverse change with
respect to any contracts to which Schlepphorst is a party or any event,
circumstance fact or other occurrence which may result in any material adverse
change to the financial conditions, business, sales, income, properties or
assets of CSI; or (iii) any material damage, destruction or loss to the
properties, assets or business of CSI, whether or not covered by insurance, as
the result of any fire, explosion, accident, casualty, labor disturbance or
interruption, requisition or taking of property by any governmental body or
agency, flood, embargo, or act of God or the public enemy, or cessation,
interruption or diminution of operations, whether or not covered by insurance,
which has materially and adversely affected or impaired or which may be
reasonably expected to materially or adversely affect or impair the conduct of
CSI's operations or business; or (iv) any labor trouble other than routine
grievances (including without limitation any negotiation, or request for
negotiation, for any representation or any labor contract) or to CSI's and
Schlepphorst's knowledge any event or condition of any character which has
materially and adversely affected or which may be reasonably expected to
materially and adversely affect or impair the conduct of CSI's operations or
business; or (v) any declaration, setting aside or payment of any dividend, or
any distribution, in respect of the CSI Stock; or (vi) any redemption, purchase
or other acquisition by CSI of any shares of the CSI Stock; or (vii) any
significant loss of customers of CSI.
4.1.11 CERTAIN TAX MATTERS. CSI has prepared and duly filed
(and to the best of its knowledge has done so accurately and correctly) all
federal, state, county and local income, franchise, use, real property and
personal property tax returns and reports required to be filed as of the date
hereof with respect to CSI and has duly paid, withheld or reserved for all
taxes, penalties and other governmental charges required to be paid as of the
date hereof that have been assessed or levied against or upon it or its
properties, assets, income, franchises, licenses or sales, including, without
limitation, income, gross receipt
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property taxes, or to the extent that they relate to periods on or prior to the
Financial Statement Date are reflected as a liability on the Financial
Statements, or if not paid, is contesting such amounts in good faith by the
appropriate proceedings. In the event CSI is contesting such amounts in good
faith, CSI has established a reserve account sufficient to satisfy the
assessment or levy being contested. CSI does not know or have any reason to
know of any proposal by any taxing authority for additional taxes or assessments
against or upon CSI. To the best of CSI's and Schlepphorst's knowledge and
belief, all monies required to be withheld by CSI from employees for income
taxes, social security and unemployment insurance taxes have, as of the date
hereof, been collected or withheld, and either paid to the respective
governmental agencies or set aside in cash for such purpose. CSI has not
entered into any agreement for the extension of time or the assessment of any
tax or tax delinquency, nor has CSI received any outstanding or unresolved
notices from the Internal Revenue Service or any taxing body of any proposed
examination or of any proposed deficiency or assessment or of any tax returns or
tax liabilities due and payable. At least thirty (30) days prior to the Closing
Date, CSI will deliver to ICN an accurate, correct and complete copy of each
return or statement filed by, on behalf of or including CSI for federal income
tax purposes or state and local income or franchise tax purposes for the last
three (3) tax years of CSI. All material elections with respect to the taxes
affecting CSI as of the date hereof are set forth in EXHIBIT 4.1.11. After the
date hereof, no written election will be made by CSI without ICN's express
written consent.
4.1.12 FINANCIAL DISCLOSURE. CSI and Schlepphorst have made
available to ICN and/or CCI, all information known to CSI or Schlepphorst with
respect to (i) accounts, borrowing resolutions and deposit boxes maintained by
CSI at any bank or other financial institution and the account numbers and the
names and addresses of all of the persons authorized to effect transactions in
such accounts and pursuant to such resolutions and with access to such boxes;
and (ii) the names of all persons, firms, associations, corporations or business
organizations holding general or special powers of attorney from Schlepphorst or
CSI and a summary of the terms thereof.
4.1.13 CONDITION OF TANGIBLE ASSETS. To the best of CSI's
and Schlepphorst's knowledge, all material tangible
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portions of the assets, and properties owned by CSI, including all real
properties or leasehold interests in real property and structures thereon, are
in good condition and repair, subject only to ordinary wear and tear in light of
their respective ages and the respective uses for which they are currently used,
and that the use of such tangible properties and assets conform and comply in
all material respects with all rules, regulations and standards applicable to
CSI or its assets or property, imposed by applicable federal, state or local
laws or regulations.
4.1.14 ALL ASSETS. The properties and assets of CSI as of
the date hereof include (i) all properties and assets reflected on the balance
sheet included in the Financial Statements, and (ii) assets acquired by CSI
after such date and on or before the date hereof, other than such properties and
assets as shall have been transferred or otherwise disposed of by CSI in the
ordinary course of business, any such disposition being set forth at EXHIBIT
4.1.14 attached hereto.
4.1.15 STOCK TRANSFER RECORDS AND MINUTE BOOKS. The stock
transfer records and corporate minutes books of CSI and its subsidiaries will be
made available to ICN for inspection at least ten (10) days prior to the Closing
Date and will be complete and correct in all respects. The minutes books will
accurately reflect all meetings, comments and other actions of the shareholders
and Board of Directors of CSI and its subsidiaries since their incorporation.
4.1.16 MARKETABLE TITLE. Except for Permitted Encumbrances
(as defined herein), CSI has good and marketable title to all of its assets and
properties, including fee interests in real property and title to all its other
properties and assets owned as of the date hereof, free and clear of all
mortgages, liens, pledges, charges, claims (real or asserted) or encumbrances of
any nature whatsoever.
4.1.17 PERMITTED ENCUMBRANCES. The following liens, charges
and other encumbrances of a similar nature are collectively referred to herein
as the "Permitted Encumbrances" with respect to the properties and assets of
CSI:
(i) liens for current state or local property
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taxes not yet due and payable or subject to penalties;
(ii) zoning ordinances, building laws, restrictions and
regulations imposed by governmental, authorities, if any, none of which is
materially violated by existing buildings and uses by CSI;
(iii) any assessment for local benefits levied by any
governmental authority and not now a lien upon all or any portion of such real
property; provided, however, neither CSI nor Schlepphorst know or have reason to
know of any such assessment;
(iv) liens of carriers, warehousemen, mechanics and
materialmen, and other like liens, in existence less than 120 days from the date
of creation thereof, all of which shall be satisfied and released on or prior to
the Closing Date;
(v) any mortgage, deeds of trust or other encumbrances on
leasehold properties which CSI is leasing from a third party which is the owner
of the property being leased by CSI subject to any such encumbrance; and
(vi) such imperfections of title, liens, easements or
encumbrances, if any, as are not material in character, amount or extent and do
not, severally or in the aggregate, materially detract from the value or
materially and adversely interfere with the present use of the property subject
thereto or affected thereby or otherwise materially impair the business and
operations of CSI.
4.1.18 LEASES AND LICENSES. EXHIBIT 4.1.18 attached hereto
sets forth, as of the date hereof and as of the Closing Date, an accurate and
complete list of all leases and purchases of real property, license agreements
and leases and purchases of personal property (covering property with a purchase
price as of the date hereof greater than $1,000) to which CSI is a party
(whether as purchaser, lessor, lessee, licensor or licensee) (collectively, the
"Leases and Licenses"). CSI, as purchaser, lessee or licensee, has entered into
all such Leases and Licenses which CSI reasonably believes may be necessary for
the conduct of the business and operation as now conducted. CSI has furnished
to ICN accurate and complete copies of all such Leases and Licenses.
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CSI has title to each of the leasehold and other interests created by the Leases
and Licenses, free and clear of all security interests, claims, liens and
encumbrances of any nature, other than Permitted Encumbrances. To the best of
the knowledge of CSI and Schlepphorst each such Lease and License is in full
force and effect. Each such Lease and License constitutes the legal, valid and
binding obligation of CSI and, to the best of CSI's and Schlepphorst's knowledge
the other party thereto, enforceable against CSI in accordance with its
respective terms except as may be limited by bankruptcy, insolvency,
reorganization, readjustment of debt, moratorium or other law of general
application related to or affecting the enforcement of creditor's rights
generally. Neither Schlepphorst nor CSI has received notice or have any reason
to know, of any claimed default under any such Lease and License.
4.1.19 INSURANCE. EXHIBIT 4.1.19 attached hereto sets
forth, as of the date hereof, an accurate and complete list and brief
description of the terms of all policies of insurance carried by CSI and
designating CSI as the insured thereunder. The description of each policy
consists of a description of the subject property, the insurance coverage, the
deductibles and the additional insureds. CSI has furnished to ICN an accurate
and complete copy of all such insurance policies. No insurance carrier has
refused any application for insurance by CSI or any other person on behalf of
CSI on any of its properties or assets.
4.1.20 INTELLECTUAL PROPERTY RIGHTS. EXHIBIT 4.1.20
attached hereto sets forth, as of the date hereof, an accurate and complete list
of all letters patent, patent applications, trademarks, service marks, trade
names, brands, logos, copyrights and licenses both domestic and foreign, and
rights with respect to the foregoing, whether or not registered or registrable
with any governmental authority, now owned or used by CSI. Neither CSI nor
Schlepphorst have received notice, or otherwise have any reason to know, of any
claimed or threatened infringement of the rights of others with respect to any
patents, trademarks, service marks, trade names, brands, logos, copyrights and
licenses used or owned by CSI, the loss of which would have a material adverse
effect upon the business, operations, assets or financial condition of CSI.
4.1.21 NO LITIGATION. To the best of CSI's and
Schlepphorst's knowledge, except as set forth in EXHIBIT 4.1.21
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there are no pending or threatened suits, actions, claims, or litigation,
administrative, arbitration or other proceedings or governmental investigations
or inquiries to which Schlepphorst or CSI is a party or to which any of the
properties or assets thereof is subject.
4.1.22 NO VIOLATION OF LAWS OR REGULATIONS. To the best of
CSI's and Schlepphorst's knowledge, CSI has materially complied with, and is not
in any material respect in default under or in violation of, any laws,
ordinances, requirements, regulations or orders applicable to its businesses and
properties, including without limitation the rules and regulations of the
Federal Communications Commission ("FCC"), nor is CSI in violation of or in
default of any order, writ, injunction, judgment or decree of any court,
arbitrator, or federal, state or local department official, commission,
authority, board, bureau, agency or other instrumentality issued or pending
against CSI which might adversely affect Schlepphorst's or CSI's ability to
execute, deliver and perform their obligations under this Agreement or to
consummate the transactions contemplated hereby or which challenges or seeks to
prevent, enjoin, alter or materially delay any such transactions. Neither CSI
nor Schlepphorst have received notice, or otherwise have any reason to know, of
any claimed default or violation with respect to any of the foregoing. There
have been no illegal payments, kickbacks, bribes or political contributions made
by Schlepphorst or CSI to any person, entity or governmental or regulatory body
in the United States or any foreign country or political subdivision.
4.1.23 APPROVALS. All consents necessary or required for
the consummation of the transactions contemplated hereby are set forth in
EXHIBIT 4.1.23. CSI and Schlepphorst will have obtained, on or before Closing,
all such consents, approvals and authorizations of all designations,
declarations and notices on the part of CSI and Schlepphorst required to be
obtained or given, as the case may be, pursuant to the Articles of Incorporation
or the Bylaws of CSI or, to the best of CSI's knowledge, any Lease, contract,
License, Permit, agreement, indenture or other instrument to which either of
them is a party or by which any of them or any of their properties or assets is
bound in connection with the execution, delivery and performance of this
Agreement and the consummation of each transaction referred to in this
Agreement. Subject to obtaining the approvals set forth in EXHIBIT 4.1.23,
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neither the execution, delivery or performance of this Agreement nor the
conclusion of any transaction contemplated by this Agreement will result in any
violation of, be in conflict with or constitute a default under any term or
provision of the Articles of Incorporation or the Bylaws of CSI or any such
agreement, indenture or other instrument or the rules and regulations of any
regulatory body. CSI has furnished to ICN accurate and complete copies of the
Articles of Incorporation and Bylaws of CSI, each as in effect as of the date
hereof.
4.1.24 COMPLIANCE WITH LAWS. The entering into and
consummation of the transactions contemplated hereunder will not result in any
default under or violation of any of the terms and provisions of any contract,
lease or other agreement to which CSI or Schlepphorst are a party or by which
CSI or Schlepphorst is bound or, to the knowledge of CSI and/or Schlepphorst,
any law, rule, license, regulation, judgment, order or decree governing or
affecting CSI and/or Schlepphorst. Except as provided in EXHIBIT 4.1.23, no
consent, approval or authorization by any person is required in connection with
CSI's execution, delivery or performance of this Agreement.
4.1.25 LABOR AGREEMENTS. To the best of CSI's and
Schlepphorst's knowledge, there are no collective bargaining agreements between
CSI and any labor union or other representative of employees, including local
agreements, amendments, supplements, letters and memoranda of understanding of
all kinds and all employment or consulting contracts not terminable at will
without penalty to which CSI is a party.
4.1.26 CONTRACTS. EXHIBIT 4.1.26 attached hereto sets
forth, as of the date hereof and as of the Closing Date, accurate and complete
lists of the following:
(i) except for the Leases and Licenses, all agreements,
contracts, arrangements, commitments, understandings or obligations, oral or
written, of CSI which are to be performed in whole or in part on or after the
date hereof and which require or may require the payment by CSI in an amount, or
under which CSI is required or may be required to provide goods or services of a
value, greater than one thousand dollars ($1,000) during any period of twelve
(12) consecutive months;
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(ii) any agreement to which CSI is a party or by which its
properties or assets are bound that limits the freedom of such corporation to
compete in any line of business or with any person; and
(iii) all other agreements, contracts, arrangements,
commitments, understandings or obligations, oral or written (other than oral
contracts of employment), between CSI on the one part and Schlepphorst or any
other officer or director of CSI on the other part, or in which any of such
persons or entities has any financial interest, direct or indirect (including
without limitation any agreements affecting CSI's properties or assets and
agreements to make loans). CSI has furnished ICN a copy of each agreement,
contract, arrangement, commitment or obligation set forth on EXHIBIT 4.1.26.
Collectively the contracts, agreements, arrangements, commitments or obligations
set forth in this Section and listed in EXHIBIT 4.1.26 are referred to herein as
the "Contracts." Each such Contract is in full force and effect and to the best
of Schlepphorst's and CSI's knowledge CSI has performed in all material respects
all of the obligations under each Contract required to be performed by it as of
the date hereof and as of the Closing Date and no such Contract is in default,
nor has any event occurred which with the passage of time or giving of notice or
both will result in the occurrence of a default under any such Contract.
4.1.27 EMPLOYEES. CSI is not a party to any agreement,
contract, arrangement, plan, commitment or understanding which has resulted or
would result, upon the consummation of the transactions contemplated under this
Agreement or otherwise, separately or in the aggregate, in the payment of any
"excess parachute payment" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended ("Code") nor is CSI obligated to pay any
severance arrangements with any current or former employees of CSI or any of its
subsidiaries. Attached hereto as EXHIBIT 4.1.27 is a true and complete list of
all employees of CSI compensated by CSI. There are no employees of CSI who have
employment contracts or employee benefit rights which cannot be terminated upon
reasonable notice. Schlepphorst and CSI acknowledge that neither ICN nor CCI is
obligated to retain any other employees of CSI and that ICN will have the right
to review each current employee and to make a determination of whether or not to
offer such employee continued employment, in ICN's sole discretion. Any
liability or termination fees for any employees
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not retained by ICN will be Schlepphorst's responsibility.
4.1.28 ENVIRONMENTAL MATTERS. To the best knowledge of
Schlepphorst and CSI, CSI has duly complied with, and the operation of its
business, equipment and other assets in the facilities owned or leased by CSI
and its subsidiaries are in compliance with the provisions of all applicable
federal, state and local environmental, health and safety laws, statutes,
ordinance, rules and regulations of any governmental or quasi governmental
authority relating to (i) error omissions, (ii) discharges to surface water or
ground water, (iii) solid or liquid waste disposal, (iv) the use, storage,
generation, handling, transport, discharge, release or disposal of toxic or
hazardous substances or waste, (v) the emission of non-ionizing electromagnetic
radiation, or (vi) other environmental, health or safety matters, including,
without limitation, the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and Authorization
Act of 1986; the Occupational Safety and Health Act; the Resource Conservation
and Recovery Act of 1976, as amended; the Federal Water Pollution Control Act of
1970; the Safe Drinking Water Act of 1974; the Toxic Substances Control Act of
1976; the Emergency Planning and Community Right to Know Act of 1986, as
amended; and the Clean Air Act, as amended (collectively "Environmental and
Health Laws") or the Federal Communications Act, as amended ("FCC Laws"). To
the best knowledge of Schlepphorst and CSI, there are no investigations,
administrative proceedings, judicial actions, orders, claims or notices which
are pending, anticipated or threatened against CSI, relating to violations of
the Environmental and Health Laws and the FCC Laws. CSI has not received a
notice of, and does not know or have any reason to suspect, any facts which
might constitute a violation of any Environmental or Health Laws which relate to
the use, ownership or occupancy of any property or facilities used by CSI in
connection with the operation of its business or any activity of CSI's business
which would result in a violation or threaten violation of any Environmental or
Health Laws and the FCC Laws.
4.1.29 STOCK REPRESENTATIONS. Schlepphorst (i) intends to
acquire the shares of CCI Stock pursuant to Section 1 hereof solely for the
purpose of investment and not for the resale and distribution thereof, and has
no present intention to offer, sell, pledge, hypothecate, assign or otherwise
dispose of the same; (ii) understands and acknowledges that the sale of such
shares of
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CCI Stock will not be registered under the Securities Act of 1933, as amended
(the "Securities Act"), the CCI Stock being acquired pursuant to this Agreement
constitute "restricted securities" as that term is defined under Rule 144
promulgated under the Securities Act and may not be sold except pursuant to a
registration statement under the Securities Act or pursuant to an exemption
available under federal and applicable Securities laws, and such shares may be
required to be held indefinitely unless the shares are subsequently registered
under the Securities Act or an exemption from such registration is available,
(iii) agrees that he will not offer, sell, pledge, hypothecate, transfer, assign
or otherwise dispose of any such shares of CCI Stock unless such shares and such
offer, pledge, hypothecation, transfer, assignment or other disposition shall be
registered or exempt from registration under the Securities Act and shall comply
with all applicable federal and state securities laws, and (iv) agrees and
acknowledges that the stock certificates representing the shares of CCI Stock
which will be acquired by Schlepphorst under this Agreement will contain a
legend restricting the transferability of the shares as provided herein and that
stop order instructions may be imposed by CCI's transfer agent restricting the
transferability of each shares.
4.1.30 LICENSES, FACILITIES.
(i) All licenses and authorizations material to the
operation of CSI's facilities, such facilities being identified at EXHIBIT
4.1.30, and/or to the conduct of CSI's business are listed at EXHIBIT 4.1.30
attached hereto. CSI is operating the facilities identified in full compliance
with the authorizations identified; neither CSI nor Schlepphorst have any
knowledge of any matters which might result in the suspension or revocation of
such authorizations, or the issuance of any citation or forfeiture to CSI.
There are no unsatisfied citations or notices of apparent liability issued or
investigations ongoing, by the FCC or any other agency of the federal or any
state government with respect to the facilities or their operation.
(ii) CSI owns all of the equipment necessary or useful in
the operation of the facilities in accordance with their licenses and with CSI
obligations under any agreements now in effect (the "Equipment"). All of the
Equipment is in good repair and operable condition and have been, and will be
operated in
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accordance with the authorizations for the facilities and the Rules and
Regulations of the FCC or any other regulatory agency.
(iii) ICN, CSI and Schlepphorst will cooperate in seeking
consent to the transfer of control of the authorizations, if any, and will each
pay one-half (1/2) of the applicable filing fees incurred in requesting such
consent. CSI and Schlepphorst, jointly and severally, and ICN shall cooperate
fully in responding promptly to any inquiries or objections related to such
applications.
4.1.31 ACCOUNTS RECEIVABLE. All of the accounts receivable
of CSI constitute valid receivables, have been incurred in the ordinary course
of business consistent with past practices and, except to the extent of the
reserve for bad debts shown on the balance sheet of CSI as of the date of such
Financial Statement, and to Schlepphorst's and CSI's knowledge are fully
collectable in the ordinary course of CSI's business and are not subject to any
set-off or counterclaim. To the best of CSI's knowledge, no part of such
accounts receivable is contingent upon the performance by CSI of any obligation,
and no agreements for deduction or discounts have been made with respect to any
part of such receivables.
4.1.32 PAYABLES. The list of itemized accounts payable of
CSI as shown on EXHIBIT 4.1.32 attached hereto represent a complete list of all
of CSI's accounts payable to its creditors, are true and correct and are not
currently in default as of the date hereof and as of the Closing Date. CSI
shall not incur any additional accounts payable between the date hereof and the
Closing Date other than in the ordinary course of business without ICN's express
written consent.
4.1.33 PERMITS. To the best knowledge of Schlepphorst and
CSI, CSI has obtained all permits, licenses, zoning variances, approval, rights
of way, easements and other authorizations (collectively "Permits") necessary
for the operation of its business as presently operated. All such Permits are
listed in EXHIBIT 4.1.33. All such Permits are presently valid and in full
force and effect and no renovation, cancellation, or withdrawal thereof has been
effective or to the best of the knowledge of Schlepphorst and CSI, threatened.
Except as disclosed herein, the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby, will
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not result in the termination of, or change in, any such Permits.
4.1.34 EMPLOYEE BENEFIT MATTERS.
(i) EMPLOYEE BENEFITS. EXHIBIT 4.1.34 attached hereto
constitutes a true and complete list of all plans, programs and arrangements
providing profit sharing, retirement, pension, savings, thrift, deferred
compensation, stock options, stock purchases, group insurance, accident,
sickness, medical, dental and disability benefits, and all vacation pay,
severance pay, incentive compensation, consulting agreements, bonus and other
employee benefits or fringe benefits maintained currently or at any time in past
three (3) years by CSI or with respect to which contributions are made or have
been made at any time in the past six (6) years by CSI (including health
insurance, life insurance and other benefit plans maintained for retirees)
whether or not such plans, programs and arrangements constitute "employee
benefit plans" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not such plans,
programs and arrangements are in the nature of formal or informal
understandings, and whether or not such plans, programs and arrangements are
pursuant to any collective bargaining arrangements. Such plans, programs and
arrangements are collectively referred to herein as "Benefit Plans."
(ii) COMPLIANCE WITH ERISA. To the best knowledge of
Schlepphorst and CSI, each Benefit Plan of CSI or any of its subsidiaries, which
is covered by ERISA complies in all material respects and has been administered
in all material respects in accordance with the applicable provisions of ERISA
and the Code, including, without limitation, the satisfaction of all applicable
recording, disclosure, fiduciary and tax qualification requirements under ERISA
and the Code. CSI has filed or caused to be filed with the Internal Revenue
Service annual reports on a Form 5500 or 5500C or 5500R, as applicable, for each
Benefit Plan for all years and periods for which such reports were required. To
the best knowledge of Schlepphorst and CSI, all statements and disclosures made
on the documents or forms filed or distributed pursuant to the applicable
reporting and disclosure requirements under ERISA and the Code have been true
and complete in all material respects and have been filed or distributed timely.
No Benefit Plan has incurred any excise tax liability.
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(iii) FUNDING. CSI has made all payments and contributions
to all Benefit Plans on a timely basis as required by the terms of each such
plan, ERISA and the Code. All such payments and contributions have been
deducted fully by CSI for federal income tax purposes. Such deductions have not
been challenged or disallowed by any governmental authority and CSI has no
reason to believe that such deductions are not properly allowable. CSI has
funded or will fund each Benefit Plan in accordance with the terms of each
Benefit Plan and, with respect to the current plan year for benefits accrued
through the Closing Date, including the payment of applicable premiums on any
insurance contract funding a Benefit Plan for coverage provided through the date
hereof.
(iv) PROHIBITED TRANSACTIONS. To the best knowledge of
Schlepphorst and CSI, no "prohibited transaction," as defined in Section 406 of
ERISA or Section 4975 of the Code, has occurred with respect to any Benefit
Plan. To the best knowledge of Schlepphorst and CSI, no fiduciary violations,
as defined in Section 404 of ERISA, have occurred with respect to which CSI
could have any present or future liability or obligations. To the best
knowledge of Schlepphorst and CSI, each Benefit Plan is, and has been, operated
and administered in accordance with the appropriate written plan documents.
(v) DETERMINATION LETTERS. The Internal Revenue Service
has issued to CSI letters determining that any Benefit Plan operated by CSI is a
qualified plan under Section 401(a), 401(k) and related Sections of the Code to
the extent applicable, and the related trusts of such Benefit Plans operated as
qualified plans are exempt from federal income tax under Section 501(a) of the
Code. To the best knowledge of Schlepphorst and CSI, there have been no
occurrences since the date of any such determination letter which have adversely
effected or which could adversely effect such qualification.
(vi) MEDICAL PLANS. To the best knowledge of Schlepphorst
and CSI, each Benefit Plan which provides medical and related benefits has been
operated in compliance with all requirements of Section 601 through 608 of ERISA
and either (i) Section 162(1) and any other applicable provisions of the Code,
relating to the continuation of coverage under certain circumstances in which
coverage would otherwise cease. EXHIBIT
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4.1.34 contains a true and complete list of all former employees of CSI and its
subsidiaries and their respective beneficiaries who, as of the date hereof and
as of the Closing Date, will be receiving or will be eligible to elect to
receive benefits pursuant to such Benefit Plans and the continued coverage
provisions of ERISA and the Code. No Benefit Plan maintained by CSI or any of
its subsidiaries provides post-retirement medical benefits, post-retirement
death benefits or other post-retirement welfare benefits, except to the extent
of the continuation coverage rules as provided under the applicable provisions
of ERISA and the Code.
4.1.35 DIRECTORS AND OFFICERS. EXHIBIT 4.1.35 attached
hereto is a correct and complete list as of the date hereof showing the names of
each of the Officers and Directors, each of whom has been duly elected or
appointed, and the names of each of the Officers and Directors of each of CSI's
subsidiaries, each of whom has been duly elected or appointed by each such
subsidiary. Each such officer and director shall deliver his or her resignation
from CSI and each of CSI's subsidiaries on the Closing Date.
4.1.36 FULL DISCLOSURE. None of the written information
provided by Schlepphorst and CSI to ICN in connection with the negotiation of
this Agreement contains any untrue or misleading statement of a material fact.
There is no fact which Schlepphorst or CSI has not disclosed to ICN in writing
which materially affects or which will materially affect adversely CSI's
business, sales, income, properties, assets, liabilities, activities, customers,
or the ability of CSI and Schlepphorst to perform under this Agreement.
4.2 REPRESENTATIONS AND WARRANTIES OF CCI AND ICN. CCI and ICN
represent to CSI as follows:
4.2.1 GOOD STANDING. ICN and CCI are each corporations
duly organized, validly existing and in good standing under the laws of the
state of Colorado, with full corporate power and authority to own, operate and
lease their properties and to carry on their business as now being conducted.
Each of CCI and ICN is qualified to do business and in good standing in all
jurisdictions where its properties, assets and operations so require. Each of
CCI and ICN has all requisite power and authority to enter into this Agreement
and perform its obligations under this
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Agreement.
4.2.2 BINDING AGREEMENT. This Agreement, as executed by
CCI and ICN, constitutes the valid and binding obligation of each of CCI and ICN
enforceable in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, moratorium or similar laws
affecting the rights of creditors generally. This Agreement and the performance
of this Agreement by each of CCI and ICN will not conflict with, breach, violate
or be in contravention of or result in a default under either of CCI's or ICN's
Articles of Incorporation or any other organizational or governing instrument of
CCI or ICN, or of any agreement, mortgage or other instrument to which either of
CCI or ICN is a party or by which any of its assets or property is bound or
affected or, to the best of CCI's and ICN's knowledge, any law, rule, license,
regulation, judgment, decree or order of any court, agency or other authority
which has jurisdiction over the business, properties, assets and activities of
either of CCI or ICN, as applicable. All corporate action necessary for the
approval and/or ratification of this Agreement has been, or will be, prior to
Closing, taken.
4.2.3 STOCK ACQUIRED FOR INVESTMENT. ICN (i) intends to
acquire the CSI Stock solely for the purpose of investment and not for the
resale and distribution thereof and has no present intention to offer, sell,
pledge, hypothecate, assign or otherwise dispose of the same, (ii) understands
and acknowledges that the sale of the CSI stock will not be registered under the
Securities Act, and such shares may be required to be held indefinitely unless
the share are subsequently registered under the Securities Act or an exemption
from such registration is available, and (iii) agrees that it will not offer,
sell, pledge, hypothecate, transfer, assign or otherwise dispose of any such
shares unless such shares and such offer, pledge, hypothecation, transfer,
assignment or other disposition shall be registered or exempt from registration
under the Securities Act and shall comply with all applicable federal and state
securities laws.
4.2.4 LITIGATION; COMPLIANCE WITH LAWS. There are no
pending or threatened suits, actions, claims, arbitrations, administrative or
legal or other proceedings or governmental investigations or inquires pending or
to which CCI or ICN is a party or to which any of its properties or assets
thereof is
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subject, nor in any material respect any failure to comply with, nor any default
under, any law, ordinance, requirement, regulation or order applicable to either
of CCI or ICN and their businesses and properties nor any violation of or
default with respect to any order, writ, injunction, judgment or decree of any
court, arbitrator, or federal, state or local department, official, commission,
authority, board, bureau, agency or other instrumentality, issued or pending
against either of CCI or ICN which might adversely affect CCI's or ICN's ability
to execute, deliver and perform its obligations under this Agreement or to
consummate the transactions contemplated hereby or which challenges or seeks to
prevent, enjoin, alter or materially delay any such transaction.
5. ACTIVITIES PRIOR TO THE CLOSING DATE
5.1 OPERATION OF CSI'S BUSINESS. CSI and Schlepphorst (for purposes
of this Section 5, all references to the "Company" shall include each of CSI's
subsidiaries) hereby agree that from and after the date hereof to the Closing
Date, except as otherwise contemplated by this Agreement, CSI, shall and
Schlepphorst shall cause CSI to, conduct its business solely in the ordinary
course consistent with past practices, and CSI shall, and Schlepphorst shall
cause CSI to:
5.1.1 ORGANIZATIONAL DOCUMENTS. Not amend its Articles of
Incorporation or Charter or Bylaws, except as may be necessary to carry out this
Agreement or as required by law;
5.1.2 CORPORATE NAME. Not change its corporate name or
permit the use thereof by any other corporation, person or entity;
5.1.3 COMPENSATION. Not pay or agree to pay any employee,
officer, or director, without the consent of ICN, compensation which is in
excess of the current compensation level of each employee, officer or director,
except for standard periodic increases to non-management employees consistent
with past practices in terms of timing and amount;
5.1.4 MANAGEMENT. Not make any changes in management
without the prior written consent of ICN;
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5.1.5 REORGANIZATIONS OR OTHER RELATED TRANSACTIONS. Not
merge or consolidate with any other corporation, or acquire, agree to acquire or
be acquired by any corporation, association, partnership, joint venture or other
entity without the prior written consent of ICN;
5.1.6 DISPOSITION OF ASSETS. Not sell, transfer or
otherwise dispose of any of its properties or assets without the prior written
consent of ICN, except in the ordinary course of business;
5.1.7 INDEBTEDNESS. Not create, incur, assume or guarantee
any indebtedness for money borrowed except for trade indebtedness incurred in
the ordinary course of business;
5.1.8 ENCUMBRANCES. Not create or suffer to exist any
Encumbrance on any of its properties or assets, except those in existence on the
date hereof;
5.1.9 INCREASE OF INDEBTEDNESS. Not increase the amount of
any indebtedness outstanding under any loan agreement, mortgage or borrowing
arrangement in existence on the date hereof, except for additional borrowings
required to fund the working capital needs of CSI in the ordinary course of
business under any line of credit loan identified in CSI's Financial Statements
to the extent permitted thereunder by the documentation relating thereto in
effect as of the date hereof and then only to the extent that CSI has first
notified ICN of any such borrowings under the line of credit subsequent to the
date hereof and ICN approves such borrowings;
5.1.10 PAYABLES. Pay when due in accordance with past
practices all of its accounts payables and trade obligations;
5.1.11 MAINTENANCE OF ASSETS. Maintain its facilities,
assets and properties in good operating repair, order and condition, reasonable
wear and tear excepted, and notify ICN promptly upon any loss of, damage to or
destruction of any of its facilities, properties or assets;
5.1.12 INSURANCE. Maintain in full force and effect all
insurance coverage of the types and in the amounts set forth in the Exhibits
attached hereto and apply the proceeds
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received under any insurance policy or as a result of any loss of, damage to, or
destruction of any of its facilities, properties or assets to the repair or
replacement of such facilities, properties or assets;
5.1.13 CONTRACTS AND PERMITS. Maintain in full force and
effect all Contracts and Permits for or related to the operation of its business
in all respects and in all places as its business is now conducted;
5.1.14 GOODWILL. Use its best efforts to preserve its
business organization in tact, to keep available the services of its present
employees and to preserve the goodwill of its customers and others having
business relations with it;
5.1.15 ISSUANCE OF SECURITIES. Not issue any additional
capital stock, options, warrants, or other rights to purchase capital stock or
securities convertible into or exchangeable for capital stock of CSI; not
declare, set aside or pay any dividend or make any other distributions in
respect of any of CSI's shares of capital stock;
5.1.16 REPURCHASE OF SECURITIES AND REPAYMENT OF
INDEBTEDNESS. Except as approved by ICN after first being notified of any such
event, not make any direct or indirect redemption, purchase or other acquisition
of shares of CSI's capital stock or make any direct or indirect repurchase,
repayment or retirement of any principal of, or interest on, any indebtedness
other than regularly scheduled payments of principal and interest as provided in
the promissory note evidencing any of CSI's indebtedness;
5.1.17 LITIGATION. Promptly advised ICN in writing of the
commencement of, and of any known threat to commence, any suit, claim, action,
arbitration, legal or administrative proceedings, governmental investigation or
tax audit against CSI;
5.1.18 MONTHLY FINANCIAL STATEMENTS. Deliver to ICN as soon
as available monthly financial statements ("Monthly Financial Statements") of
CSI commencing with the month of February, 1997, and for each calendar month
thereafter prior to the Closing Date; and
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5.1.19 MISCELLANEOUS. Not enter into any agreement or
otherwise agree to take any action in violation of the negative covenants set
forth in this Section 5 or take, agree to take or omit to take any action that
would make any representation or warranty inaccurate.
5.2 ACCESS TO INFORMATION. CSI will cooperate fully with ICN, and
CSI shall provide, and Schlepphorst shall cause CSI to provide, to ICN and its
Accountants, counsel and other representatives (collectively "Advisors") during
normal business hours, (i) full access to the books, records, equipment, real
estate and contracts other assets of CSI and all work papers relating to CSI of
CSI's independent accountants and (ii) full opportunity to discuss CSI's
business affairs and assets with its officers, employees, agents and independent
accounts ("CSI's Representatives") and furnish to ICN and its Advisors copies of
such documents, records and information with respect to the affairs of CSI as
ICN or its Advisors may reasonably request.
5.3 CONFIDENTIALITY. ICN and CCI shall retain in confidence and
shall cause its Advisors to retain in confidence, all information obtained by
them pursuant to the investigations made by each of ICN and CCI or their
advisors pursuant to this Section (the "Confidential Information").
Schlepphorst, CSI, its officers, directors and employees and CSI's Advisor shall
retain in confidence, all information obtained by them in connection with any
investigation undertaken by such persons as a result of CCI and/or ICN providing
such persons such access to information of CCI and/or ICN as provided in this
Agreement. The parties agree that Confidential Information shall not include
information which (i) was or becomes generally available to the public other
than as a result of a disclosure by CCI, ICN, CSI, Schlepphorst or any of their
officers, directors or employees or any of their Advisors, (ii) was or becomes
available to CCI, ICN, CSI, Schlepphorst, any of their officers, directors or
employees or their Advisors on a non-confidential basis from a source other than
CCI, ICN, CSI, Schlepphorst or CSI's Representatives, provided that such source
is not bound by a confidential agreement or (iii) was, or in the future is,
developed independently by CCI, ICN or their Advisors or by CSI, Schlepphorst or
their Advisors without reference to the information furnished by CCI, ICN, CSI,
Schlepphorst or CSI's Representatives, as the case may be. The parties
understand and agree that all of the Confidential Information supplied to CCI,
ICN
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or their Representative or to CSI, Schlepphorst or CSI's Representatives is
provided on the understanding that such Confidential Information remains the
property of CCI, ICN or CSI, as the case may be, and that all copies and
originals will be returned to any such party promptly upon its request after
termination of this Agreement pursuant to Section 7 hereof.
5.4 BENEFIT PLANS. Between the date hereof and the Closing Date, CSI
shall maintain, and Schlepphorst shall cause CSI to maintain, in full force and
effect the Benefit Plans as they pertain to CSI's employees or former employees
and in connection therewith;
5.4.1 PLAN CHANGES. Except as may be required by law or as
may be necessary to continue the qualified status under Section 401 of the Code,
CSI shall not adopt, terminate, amend, extend, or otherwise change any Benefit
Plan without the prior written consent of ICN, and Schlepphorst and CSI shall
give ICN prior written notice of CSI's intention to take any such action
required by law or necessary to continue the qualified status of any Benefit
Plans as they pertain to CSI's employees or its former employees; and
5.4.2 CONTRIBUTIONS AND PAYMENTS. CSI shall not make,
cause to be made, or agree to make any contribution, award or payment under any
Benefit Plans as they pertain to CSI's employees or former employees, except at
the time and to the extent required by the written terms thereof, without the
prior written consent of ICN.
5.5 BEST EFFORTS AND STANDSTILL. Subject to the other provisions of
this Agreement, each of CSI and Schlepphorst will use their commercially
reasonable efforts to cause the conditions listed in Section 3.1 hereof to be
satisfied on or before the Closing Date. Subject to the other conditions of
this Agreement, each of ICN and CCI will use their commercially reasonable
efforts to cause the conditions listed in Section 3.2 hereof to be satisfied on
or before the Closing Date. Each of CSI and Schlepphorst further agrees that
they will not enter into, request, solicit or engage in any discussions,
negotiations, understandings or agreements with any person or entity other than
CCI and ICN relating to the sale of the CSI Stock or the properties and assets
of CSI (other than in the ordinary course of business) unless this
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Agreement is terminated pursuant to Section 7 hereof.
6. POST-CLOSING COVENANTS. CSI, Schlepphorst, CCI and ICN agree as
follows with respect to the period following the Closing.
6.1 PERFORMANCE OF WAIVED CONDITIONS. To the extent that any
conditions under Section 3.1 hereof are waived by CCI or ICN, as the case may
be, as a condition precedent to CCI's and ICN's obligation to close the
transactions contemplated hereby, such waived condition to the extent required
by CCI or ICN, as the case may be, shall be performed by Schlepphorst within the
time period agreed upon by the parties hereto, but in any event no later than
sixty (60) days following the Closing Date, unless CCI or ICN, as the case may
be, agrees to a extended period of time in which such performance can be
completed.
6.2 CONFIDENTIAL INFORMATION. CSI and its former officers and
directors will treat and hold as such all of the Confidential Information,
refrain from using any of the Confidential Information except in connection with
this Agreement, and deliver promptly to CCI and/or ICN or destroy, at the
request and option of CCI and ICN, all tangible correspondence, documents,
instruments, memorandums and all other writings (and all copies thereof) which
embody the Confidential Information which are in such persons' possession. If
CSI or its former officers or directors are requested or required (by oral
question or request for information or document in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, CSI and its former officers or directors
will notify CCI and ICN promptly of any such request or requirement to enable
CCI and ICN to seek an appropriate injunction or waive compliance with the
provisions of this Section. The foregoing provision shall not apply to any
Confidential Information which is generally available to the public immediately
prior to the time of disclosure.
6.3 SCHLEPPHORST'S COOPERATION AFTER CLOSING. In case at any time
after the Closing Date any further action is necessary or desirable to carry out
and accomplish the purposes of this Agreement and the transactions contemplated
hereunder, Schlepphorst will take such further action as ICN and/or CCI, as the
case may be, may request, including executing and delivering such further
instruments and documents as shall be necessary or appropriate to
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accomplish and effectuate such transaction.
7. TERMINATION
7.1 EVENTS OF TERMINATION. Anything contained elsewhere in this
Agreement to the contrary notwithstanding, prior to the Closing Date, this
Agreement may be terminated by written notice of termination as follows:
7.1.1 MUTUAL CONSENT. Anytime by mutual consent of CSI,
Schlepphorst, CCI and ICN;
7.1.2 PRIOR TO CLOSING DATE. By CSI and Schlepphorst or
CCI and ICN if the other party shall have (i) misstated any representation or
been in breach of any warranty contained herein, (ii) been in breach of any
covenant, undertaking or restriction contained herein and such misstatement or
breach is not been cured by the earlier of (a) thirty (30) days after the giving
of notice of such party of such misstatement or breach or (b) the Closing Date;
or (iii) the failure to consummate the transactions contemplated herein through
the fault of the other party;
7.2 CONSEQUENCES OF TERMINATION. In the event of a termination and
abandonment hereof pursuant to the provisions of this Section 7, this Agreement
shall become void and have no effect, without any liability on any of the
parties or their directors or officers or stockholder in respect of this
Agreement. Notwithstanding anything contained in the foregoing to the contrary,
if this Agreement is terminated be CCI and ICN due to a failure of CSI or
Schlepphorst to perform the conditions precedent to the Closing hereunder, the
Earnest Money shall be refunded to ICN in full by Schlepphorst and CSI. If this
Agreement is terminated by CSI as a result of a failure of CCI or ICN to perform
the conditions precedent to the Closing hereunder, the Earnest Money deposited
by ICN shall be retained by CSI.
8. MISCELLANEOUS
8.1 NOTICES. Any notices under this Agreement shall be in writing,
signed by the party giving the same and transmitted by registered or certified
United States Mail or by a generally accepted national courier service providing
confirmation of
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delivery, and addressed to the party to receive the notice at the address set
forth below or such other address as any party may specify by notice to the
other party, and shall be deemed properly given and received when actually given
and received:
If to ICN: Convergent Communications, Inc.
or CCI 67 Inverness Drive East
Englewood, Colorado 80112
Attn.: Chief Executive Officer
with a copy to: Martin E. Freidel, Esq.
Miller & Welch, L.L.C.
730 Seventeenth Street, Suite 925
Denver, Colorado 80202
if to CSI: Communications Services of Iowa, Inc.
or Schlepphorst 1854 Fuller Road, Suite 1
West Des Moines, Iowa 50265
Attn.: President
8.2 BROKERAGE COMMISSIONS.
8.2.1 CSI and Schlepphorst hereby represent and warrant to ICN
that neither CSI nor Schlepphorst has engaged or utilized the services of any
broker or finder in connection with this transaction and that no commissions are
payable with respect to this transaction. CSI and Schlepphorst hereby agree to
indemnify and hold CCI and ICN harmless from and against any liability for any
claims of any broker or finder claiming by, through or under CSI or
Schlepphorst.
8.2.2 CCI and ICN hereby represent and warrant to CSI and
Schlepphorst that neither CCI nor ICN has engaged or utilized the services of
any broker or finder in connection with this transaction and that no commissions
are payable with respect to this transaction. ICN and CCI hereby agree to
indemnify and hold CSI and Schlepphorst harmless from and against any liability
for any claims of any other broker or finder claiming by, through or under CCI
or ICN.
8.3 SUCCESSORS AND ASSIGNS. This Agreement is personal to the
parties hereto and may not be assigned, transferred, delegated or nullified
without the prior written consent of all of
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the parties hereto. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns.
8.4 ARBITRATION. Notwithstanding anything to the contrary herein,
any dispute arising pursuant to or in any way related to this Agreement or the
transactions contemplated hereby shall be settled by arbitration at a mutually
agreed upon location in Denver, Colorado; provided, however, that nothing in
this Section shall restrict the right of any party to apply to a court of
competent jurisdiction for emergency relief pending final determination of a
claim by arbitration in accordance with this Section. All arbitration shall be
conducted in accordance with the rules and regulations of the American
Arbitration Association, in force at the time of any such dispute, by a panel of
three (3) arbitrators, one (1) selected by Schlepphorst, one (1) selected by
ICN, and the third (3rd) selected by the other two (2) arbitrators. Each party
shall pay its own expenses associated with such arbitration, including the
expenses of any arbitrator selected by such party and 50% of the expenses of the
third arbitrator, provided that the prevailing party in any arbitration shall be
entitled to reimbursement of reasonable attorneys' fees and expenses (including,
without limitation, arbitration expenses) relating to such arbitration. The
decision of the arbitrators, based upon written findings of fact and conclusions
of law, shall be binding upon the parties; and judgment in accordance with that
decision may be entered in any court having jurisdiction thereof. In no event
shall the arbitrators be authorized to grant any punitive, incidental or
consequential damages of any nature or kind whatsoever.
8.5 NO ORAL MODIFICATIONS. No amendments or modifications to this
Agreement shall be made or deemed to have been made unless in writing executed
and delivered by the party to be bound thereby. Any provision of this Agreement
may be waived, amended, supplemented or modified only by agreement in writing of
the parties hereto.
8.6 WAIVER. The failure of any party to this Agreement to insist
upon strict performance of any of the terms of this Agreement will not
constitute a waiver of any of its rights under this Agreement or its right
subsequently to assert, rely upon, or enforce any provision of this Agreement.
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8.7 GOVERNING LAW. This Agreement shall be interpreted, governed by
and enforced according to the laws of the State of Colorado.
8.8 SEVERABILITY. If any provision of this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement will not in any way be affected or
impaired thereby.
8.9 HEADINGS AND CAPTIONS FOR CONVENIENCE. The headings and
captions contained in this Agreement are for convenience only and shall not be
considered in interpreting the provisions hereof.
8.10 COUNTERPARTS. This agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, all of
which together shall constitute one and the same instrument.
8.11 REPRESENTATIONS, WARRANTIES AND COVENANTS. Notwithstanding any
investigation made by or on behalf of Schlepphorst, CSI, CCI or ICN prior to or
after the Closing Date, all representations, warranties and covenants of the
parties hereto contained herein shall survive and remain in full force and
effect for a period of three (3) years after the Closing Date.
8.12 SCHLEPPHORST'S INDEMNIFICATION. Notwithstanding the Closing and
regardless of any investigation at any time made by or on behalf of CCI or ICN
or of any information CCI or ICN may have in respect thereof, Schlepphorst will
indemnify, defend and save and hold CCI and ICN harmless from and against any
costs, expenses, damages, liabilities, losses or deficiencies, including,
without limitation, reasonable attorneys' fees and other costs and expenses
incident to any suit, action or proceeding (collectively "Losses") suffered or
incurred by CCI and/or ICN arising out of or resulting from, and will pay CCI
and/or ICN on demand the full amount of any such amounts which CCI and/or ICN
may pay or may become obligated to pay in respect of:
(a) any material inaccuracy in any representation or document
delivered under or pursuant to this Agreement or the material breach of any
warranty made by CSI or Schlepphorst in or pursuant to this Agreement;
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(b) any misrepresentations in or omission from any Exhibit,
Schedule, or other attachment to this Agreement;
(c) any failure by CSI or Schlepphorst duly to perform or
observe any term, provision, covenant, or agreement in this Agreement to be
performed or observed on the part of CSI or Schlepphorst; or
(d) any action, suit, investigation, proceeding, demand,
assessment, audit, judgment and claim, including any employment-related claim
arising out of the foregoing (collectively "Claims") against CSI or any of its
subsidiaries, even though such Claims may not be filed or come to light until
after the Closing Date.
Each of ICN and CCI hereby covenants and agrees to immediately provide to
Schlepphorst any and all notifications or other correspondence it receives
related to matters which may affect this indemnity and hereby agrees to allow
Schlepphorst to defend any and all actions affecting this indemnity and shall
not settle any action or dispute affecting this indemnity without obtaining the
prior written consent of Schlepphorst. However, failure to provide any such
notifications or other correspondence in a timely manner will not relieve
Schlepphorst of his obligation to indemnify ICN under this Section 4.15. If CCI
and/or ICN becomes unsatisfied with the conduct of the defense of the Claims,
CCI and/or ICN may defend against, and consent to the entry of any judgment or
enter into any settlement with respect to such Claims in any manner it may deem
to be appropriate and Schlepphorst shall reimburse CCI and/or ICN promptly for
the acts of defending against such Claims and will otherwise remain responsible
for any Loss which CCI and/or ICN may suffer from, arising out of, relating to
or caused by such Claims to the full extent provided in this Section.
All statements of fact contained in any written statement (including the
Financial Statements), deed, certificate, schedule or other document delivered
to CCI and/or ICN by or on behalf of CSI or Schlepphorst pursuant to this
Agreement shall be deemed representations and warranties by CSI and Schlepphorst
hereunder.
8.13 ICN'S INDEMNIFICATION. ICN agrees that notwithstanding the
Closing and regardless of any investigation of any time made by or on behalf of
Schlepphorst or CSI or any
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information Schlepphorst or CSI may have in respect thereof, ICN will indemnify
and save and hold Schlepphorst and CSI harmless from and against any Losses
suffered or incurred by Schlepphorst or CSI arising out of or resulting from,
and will pay Schlepphorst or CSI on demand the full amount of any such amounts
which Schlepphorst or CSI may pay or may become obligated to pay in respect of:
(a) any material inaccuracy in any representation or the breach
of any warranty made by CCI and/or ICN in or pursuant to this Agreement; or
(b) any failure by CCI and/or ICN duly to perform or observe any
item, provision, covenant or agreement in this Agreement to be performed or
observed on the part of CCI or ICN, as applicable.
8.14 NO BENEFIT TO OTHERS. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and their respective heirs, successors, assigns, and such
representations, warranties, covenants and agreements shall not be construed as
conferring, and are not intended to confer, any rights on any other persons.
8.15 PUBLICITY. Prior to the Closing Date, all notices to third
parties and all other publicity relating to the transactions contemplated by
this Agreement shall be jointly planned, coordinated and approved by
Schlepphorst, on behalf of CSI and himself, and ICN and CCI; provided, however,
that such approval shall not be unreasonably withheld.
8.16 ENTIRE AGREEMENT. This Agreement, together with Exhibits,
Schedules and Attachments hereto, represents the entire agreement between the
parties hereto with respect to the subject matter hereof and all prior
agreements, understandings or negotiations shall be deemed merged herein. No
representations, warranties, promises or agreements, express or implied, shall
exist between the parties, except as stated herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
INTEGRATED COMMUNICATION NETWORKS, INC.,
a Colorado corporation
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By: /s/ John R. Evans
------------------------------------
Its: Chief Executive Office
------------------------------------
CONVERGENT COMMUNICATIONS, INC.,
a Colorado corporation
By: /s/ John R. Evans
------------------------------------
Its: Chief Executive Office
------------------------------------
JOHN SCHLEPPHORST
/s/ JOHN SCHLEPPHORST
------------------------------------
COMMUNICATIONS SERVICES OF IOWA, INC.,
an Iowa corporation
By: /s/ JOHN SCHLEPPHORST
--------------------------------
Its: President
-------------------------------
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made this 29th day of
August 1997, by and among CONVERGENT COMMUNICATIONS, INC., a Colorado
corporation ("Purchaser"), CONVERGENT COMMUNICATIONS SERVICES, INC., a Colorado
corporation ("Merger Sub"), and A.T.T.EX CORPORATION, an Iowa corporation
("Company").
RECITALS
A. Company provides various telecommunications services, including sales,
service and installation of telephone key and PBX systems, as well as voice and
data fiber optic cable installation;
B. Purchaser owns 100% of the issued and outstanding capital stock of
Merger Sub; and
C. Purchaser desires to acquire the business of the Company by merging
the Company with and into Merger Sub in accordance with the terms and conditions
of this Agreement, and as a result of the Merger of the Company with and into
Merger Sub, as the Surviving Corporation, the assets and certain liabilities of
the Company will be merged with and into the Merger Sub.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1. CERTAIN DEFINITIONS. As used herein, the following terms shall have
the following meanings unless the context otherwise requires:
1.1 "AGREEMENT" shall mean this Agreement and Plan of Merger.
1.2 "BANK DEBT" shall mean that portion of the Funded Debt identified
as Bank Debt on SCHEDULE 2.6(a) attached hereto.
1.3 "CASH CONSIDERATION" shall mean a total amount of $450,000 cash
less (i) the Earnest Money, (ii) Transactional Costs, (iii) Escrowed Funds, (iv)
any amount of Funded Debt in excess of zero dollars ("Funded Debt Threshold") as
of the Closing Date and (v) any amount by which the trades payable as of the
Closing Date listed in SCHEDULE 2.6(d)-2 exceeds the accounts receivable of the
Company as listed on Schedule 4.1(z) as of the Closing Date.
1.4 "CLOSING" shall mean the consummation of the transactions
contemplated by this Agreement.
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1.5 "CLOSING DATE" shall mean the date on which the Closing occurs
pursuant to Section 2.3(a).
1.6 "COMMON STOCK" shall mean the Common Stock, $1.00 par value per
share, of the Company.
1.7 "DEEMED EQUIVALENT" of a share of Purchaser Stock shall mean an
amount equal to $3.00 per share.
1.8 "DISCLOSURE SCHEDULE" shall mean the Schedule attached to this
Agreement at execution as contemplated in Section 4.1 hereof and which shall not
be modified or changed in any respect after the date hereof without the prior
written consent of Purchaser.
1.9 "DISSENTING SHARE" shall have the same meaning as defined in
Section 2.5(d)(i) hereof.
1.10 "EARNEST MONEY" shall mean the $25,000 cash previously advanced
by the Purchaser to the Company pursuant to that certain letter of intent
between Purchaser and Company dated June 19, 1997.
1.11 "EARNOUT SHARES" shall have the meaning as defined in Section
2.8.
1.12 "EFFECTIVE TIME" shall mean the time when the Merger of the
Company with and into Merger Sub becomes effective under applicable law.
1.13 "ESCROW FUND" shall mean the portion of the total Cash
Consideration set aside to pay the full amount of the appraised value of any
Dissenting Shares in accordance with Section 2.5(e) hereof.
1.14 "FAIR MARKET VALUE" shall mean for purposes of this
Agreement, $3.00 per share of Purchaser Stock.
1.15 "FUNDED DEBT" shall mean the indebtedness and other obligations
of the Company, including principal, accrued interest and other amounts payable
in connection therewith, identified on SCHEDULE 2.6(a), and all other
indebtedness for borrowed money incurred by the Company after the date hereof
and prior to the Closing Date subject to Section 5.1(a)(xviii) hereof. Such term
shall not include the trade payables incurred by the Company in the ordinary
course of business, except as specifically identified on SCHEDULE 2.6(a).
1.16 "MERGER" shall have the same meaning as set forth in Section
2.1(a) hereof.
1.17 "MERGER CONSIDERATION" shall mean the Cash Consideration and the
Stock Consideration but shall not include any cash paid by Purchaser to pay the
portion of the Funded Debt as provided in Sections 2.6(a) hereof.
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1.18 "PERMITTED ENCUMBRANCES" shall mean the following liens, charges
and other encumbrances of a similar nature with respect to the properties and
assets of the Company;
(i) liens for current state or local property taxes not yet
due and payable or subject to penalties;
(ii) zoning ordinances, building laws, restrictions and
regulations imposed by governmental authorities, if any, none of which is
materially violated by existing buildings and uses by the Company;
(iii) any assessment for local benefits levied by any
governmental authority and not now a lien upon all or any portion of any real
property; provided, however, neither the Company knows or has any reason to know
of any such assessment;
(iv) liens of carriers, warehousemen, mechanics and material
men, and other like liens in existence less than 120 days from the date of
creation thereof, all of which shall be satisfied and released on or prior to
the Closing Date;
(v) any mortgage, deeds of trust or other encumbrances on
leasehold properties which the Company is leasing from the third party which is
the owner of the property and leased by the Company subject to any such
encumbrance; and
(vi) such imperfections of title, liens, easements or
encumbrances, if any, which are not material in character, amount or extent and
do not, severely or in the aggregate, materially detract from the value or
materially or adversely interfere with the present use of the property subject
thereto or affected thereby or otherwise materially impair the business and
operations of the Company.
1.19 "PERSON" shall mean an individual, partnership, corporation,
limited liability company, trust, unincorporated organization, association, or
joint venture or a government, agency, political subdivision, or instrumentality
thereof.
1.20 "PURCHASER STOCK" shall mean the common stock, no par value, of
Purchaser.
1.21 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
1.22 "STOCK" shall mean the Common Stock together with all other
equity securities of the Company.
1.23 "STOCK CONSIDERATION" shall mean 75,000 shares of Purchaser
Stock.
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1.24 "STOCKHOLDER INVESTMENT LETTER" means the letter agreement to be
executed by each stockholder of the Company receiving Purchaser Stock pursuant
to the terms of this Agreement. A form of Stockholder Investment Letter is
attached to this Agreement as EXHIBIT 1.24.
1.25 "SURVIVING CORPORATION" shall mean Merger Sub as the Surviving
Corporation after the Merger as provided in Section 2.1(a) hereof.
1.26 "TRANSACTIONAL COSTS" shall mean those costs and expenses which
relate, directly and indirectly, to the negotiation, revision, amendment,
execution, implementation and Closing of this Agreement (and the transactions
contemplated hereunder) by or on behalf of the Company which shall be borne by
the Company as provided in Section 6.17 hereof. The costs and expenses included
as Transactional Costs shall consist of attorneys', accountants' and other
advisors' fees and disbursements incurred by the Company in connection with the
Merger.
ARTICLE II
2.1 THE MERGER AND RELATED MATTERS.
(a) MERGER. At the Effective Time and subject to and upon the terms
and conditions of this Agreement and Colorado and Iowa law, the Company shall
merge (the "Merger") with and into the Merger Sub, the separate corporate
existence of the Company shall cease and Merger Sub shall continue as the
Surviving Corporation. The Merger will have the effect set forth in the
Colorado Business Corporation Act and the Iowa Business Corporation Act. The
Surviving Corporation may, at any time after the Effective Time, take any
action, including executing and delivering any certificates, instruments and
documents as shall be reasonably determined by the Board of Directors of the
Surviving Corporation to be necessary and appropriate, in the name and on behalf
of either the Company or Merger Sub in order to carry out and effectuate the
transactions contemplated by this Agreement.
(b) SURVIVING CORPORATION. The Company shall be merged with and into
Merger Sub, with Merger Sub as the Surviving Corporation, and the separate
existence of the Company shall cease. As a result of the Merger the
stockholders of the Company immediately prior to the Effective Time shall cease
to hold any Stock but will instead have the rights specified in Section 2.5
hereof and all rights, privileges, powers, franchises and interest of the
Company and all of its properties, whether real, personal or mixed, all debts
due on whatever account and every other interest of the Company, whether
tangible or intangible shall be deemed to vest in the Surviving Corporation
without further act or deed, and all claims, demands, property and every other
interest shall be as of the Effective Time the property of the Surviving
Corporation to the same extent as previously owned or held by the Company.
(c) ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The Articles
of Incorporation of the Merger Sub in effect at and as of the Effective Time
shall remain the Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided by law.
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(d) BYLAWS OF SURVIVING CORPORATION. The Bylaws of Merger Sub as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by law.
(e) DIRECTORS AND OFFICERS. The number of directors of the Surviving
Corporation and the persons serving as Directors of the Surviving Corporation
shall be the same number of directors and the same persons serving on the Board
of Directors of Merger Sub immediately prior to the Effective Time and they
shall continue to hold office until their successors have been duly nominated,
elected or appointed as provided under the Surviving Corporation's Bylaws as may
subsequently be amended in accordance with the provisions thereof. The officers
of Merger Sub as constituted immediately prior to the Effective Time shall hold
the same offices in the Surviving Corporation following the Effective Time,
until such time as their successors have been duly appointed and qualified.
(f) EFFECT OF MERGER. The Merger, from and after the Effective Time,
shall have all the effects provided for a merger under Iowa and Colorado law,
provided that Colorado law shall govern the Surviving Corporation.
2.2 APPROVAL BY COMPANY STOCKHOLDERS. The Company, acting through its
Board of Directors, shall duly call, give notice of, convene and hold a special
meeting of the stockholders of the Company (the "Special Meeting") to consider
and vote upon the approval and adoption of this Agreement and the Merger
contemplated hereby, or shall seek the requisite written consent of its
stockholders, all in accordance with Iowa law and its Articles of Incorporation
and Bylaws. The Company shall hold the Special Meeting or obtain such written
consent as soon as practicable after the date hereof. Subject to its fiduciary
obligations, the Board of Directors of the Company will recommend that the
stockholders of the Company vote to adopt this Agreement and approve the Merger
at the Special Meeting and will use its best efforts to solicit from the
stockholders of the Company proxies in favor of the Merger and will take all
other action necessary or, in the opinion of Purchaser, advisable to secure the
vote or consent of the stockholders of the Company required by the Iowa Business
Corporation Act to effect the Merger. If this Agreement and the Merger are
approved and adopted by written consent of less than all of the stockholders of
the Company, the Company shall give prompt notice of such approval and adoption
in accordance with Iowa law to those stockholders who did not consent.
2.3 CLOSING
(a) CLOSING DATE AND LOCATION. The Closing shall take place at 10:00
a.m. (Denver time) at the offices of Merger Sub, 67 Inverness Drive East, Suite
110, Englewood, Colorado, on the second business day immediately following the
later to occur of (i) the Special Meeting approving the Merger if such a meeting
is held, (ii) the period required by Iowa law after the giving of notice to the
stockholders of the Company who did not consent, if the Merger is approved by
written consent of less than all stockholders of the Company, or (iii) the date
on which all notice periods have run or consents have been received for notices
to be given or consents to be received under Sections 3.1(g) and 3.2 (g) hereof,
or at such other time or place as is mutually agreed by the parties hereto. The
Closing shall be effective as of the Effective Time.
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(b) OBLIGATIONS OF THE COMPANY. At the Closing, the Company shall
deliver, or use its best efforts to cause to be delivered, to Purchaser the
following documents:
(i) stock certificates representing the shares of Common
Stock representing all of the issued and outstanding Stock of the Company as the
Closing Date, which stock certificates will be accompanied by stock powers duly
completed and executed in blank by the holders thereof;
(ii) a certificate of good standing from the State of Iowa
for the Company certified by the appropriate official of each such state, dated
as of the date not more than five (5) days prior to the Closing Date certifying
that the Company is duly qualified and in good standing and has filed all
franchise tax returns due up to the date of such certificate, that all taxes
shown on such return to be due have been paid in full, and that there are no
outstanding franchise tax claims or assessments against the Company as of the
date of such certificate;
(iii) the Certificate of the Secretary of the Company
pursuant to Section 3.1(d) hereof;
(iv) the Certificate of the President or Vice President
of the Company pursuant to Section 3.1(e) hereof;
(v) the opinion of James D. Birkenholz as counsel for
the Company pursuant to Section 3.1(f) hereof;
(vi) the consents and waivers, if any, pursuant to
Section 3.1(g) hereof;
(vii) the executed Employment Agreements pursuant to Section
2.7 hereof;
(viii) the resignation letters from the officers and
directors of the Company pursuant to Section 3.1(k) hereof;
(ix) the books and records referred to in Section 3.1(m)
hereof;
(x) Articles of Merger in the form of EXHIBIT 2.3(b)(x),
attached hereto;
(xi) documentation (including, without limitation, duly
executed UCC-3 termination statements) satisfactory in form and substance to
Purchaser and Merger Sub as requested by Purchaser and Merger Sub to release all
encumbrances securing all Funded Debt to be paid on the Closing Date, including
Bank Debt (to the extent available as of the Closing Date and otherwise by no
later than ten (10) days after the Closing Date).
(xii) a Schedule identifying all Stockholders of the Company
owning all of the issued and outstanding shares of the Company's Stock, which
Schedule shall set forth the
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name, address and social security number or employer identification number (to
the extent available to the Company) of each stockholder of the Company and the
number of shares of each class and series of stock owned by each such
stockholder;
(xiii) Stockholder Investment Letters from each stockholder
receiving Purchaser Stock pursuant to this Agreement;
(xiv) such other documents or instruments of further
assurance as shall be necessary and appropriate by Purchaser and Merger Sub.
(c) OBLIGATIONS OF PURCHASER AND MERGER SUB. Purchaser and Merger
Sub shall deliver to the Company and the stockholders of the Company the
following documents on the Closing Date:
(i) the Certificate of the Secretary or other officer of
Purchaser pursuant to Section 3.2(d) hereof;
(ii) the Certificate of the President or Vice President of
Purchaser pursuant to Section 3.2(e) hereof;
(iii) the opinion of Miller & Welch, LLC as counsel for
Purchaser and Merger Sub pursuant to Section 3.2(f) hereof;
(iv) the consents and waivers, if any, pursuant to Section
3.2(g); and
(v) the Employment Agreements pursuant to Section 2.7;
(vi) the Merger Consideration as provided in Section 2.5
payable directly by Purchaser to those stockholders of the Company who have
delivered their stock certificates for surrender and cancellation as provided in
Section 2.3(b)(i) hereof.
(d) EXHIBITS AND SCHEDULES. In the event that the parties execute
this Agreement prior to completion of all of the Exhibits and Schedules to be
attached to this Agreement, the parties shall use their reasonable efforts to
complete all such Exhibits and Schedules and attach them to this Agreement
within fifteen (15) days of the date of this Agreement, but in no event later
than the Closing Date; provided, that, no party shall be obligated to consummate
the transactions contemplated by this Agreement until such time as the Exhibits
and Schedules are completed and attached to each parties satisfaction.
2.4 CONSUMMATION OF THE TRANSACTIONS. At the Closing, Purchaser, Merger
Sub and the Company will each carry out the procedures specified under the
applicable provisions of Iowa and Colorado law, to the end that the Merger shall
become effective. The Merger shall be consummated by filing Articles of Merger
with the Secretaries of State of Iowa and Colorado in each case in such form as
required by, and executed in accordance with the relevant provisions of the
applicable state law.
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2.5 COMPANY'S CAPITAL STOCK
(a) CONVERSION OF THE STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of Purchaser, Merger Sub, the Company
or the holders of any of their securities, the outstanding Common Stock of the
Company shall be converted into the right to receive (a) $212.50, less zero
(which are adjustments pursuant to Section 1.3(ii) through (v)) in cash per
share of Common Stock held by such stockholder from the Cash Consideration; and
(b) 37 1/2 shares of Purchaser Stock per share of Common Stock held by such
stockholder from the Stock Consideration. Each holder of a certificate
representing any Common Stock (except for Dissenting Shares) shall, after the
Effective Time, cease to have any rights with respect to such Common Stock,
except the right to receive the Merger Consideration for such Common Stock upon
the surrender of such certificate in accordance with Section 2.6(c) hereof.
(b) NO SUBSEQUENT TRANSFERS; LOST, STOLEN OR DESTROYED CERTIFICATES.
After the Effective Time, there shall be no transfers on the stock transfer
books of the Company of shares of Common Stock or Dissenting Shares that were
registered as outstanding immediately prior to the Effective Time. If any
registered certificate for Common Stock shall have been lost, stolen or
destroyed, the Surviving Corporation, upon the making of an affidavit of that
fact by the Person claiming such certificate to be lost, stolen or destroyed and
subject to the following sentence, shall pay the appropriate Merger
Consideration for the shares of Common Stock represented by such certificate in
accordance with this Section 2.5 and Section 2.6 hereof to the persons legally
entitled thereto. The Surviving Corporation, in its sole discretion and as a
condition precedent to the delivery of the Merger Consideration in exchange for
the shares of Common Stock represented by such certificate, may require the
owner of such lost, stolen or destroyed certificate to provide a bond or other
security in such sum as it reasonably may direct as indemnity against any claim
that may be made against the Surviving Corporation with respect to the
certificate alleged to have been so lost, stolen or destroyed.
(c) CONVERSION, RETENTION AND TRANSFER OF STOCK. Each stock
certificate representing the Common Stock and Dissenting Shares shall, after the
Effective Time, cease to have any rights except the right to receive the Merger
Consideration as provided in Section 2.5(a) hereof (or in the case of Dissenting
Shares, the right to receive amounts under Section 2.5(d)) upon the surrender of
such certificates accompanied by stock powers duly completed and executed in
blank and any other documents required to be delivered in connection therewith.
Until surrendered as contemplated by the preceding sentences each such
certificate shall be deemed for all purposes to represent only the right to
receive upon such surrender the Merger Consideration payable in respect thereof
as contemplated by this Agreement. As a consequence of the Merger and without
any action on the part of the parties to this Agreement, each of the issued and
outstanding shares of the Company's Common Stock shall be cancelled and retired
in exchange for the Merger Consideration (or in the case of Dissenting Shares,
the right to receive amounts under Section 2.5(d)). Each share of common stock,
no par value, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall remain outstanding. Each such share of Merger Sub shall
continue as one share of the capital stock of the Surviving Corporation,
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and each certificate evidencing ownership of any such shares shall continue to
evidence the same number of shares of the Surviving Corporation.
(d) DISSENTING SHARES.
(i) Notwithstanding any provision of this Agreement to the
contrary, any shares of Common Stock held by a holder who has demanded and
perfected his right for appraisal of such shares in accordance with Iowa law and
who, as of the Effective Time, has not effectively withdrawn or lost such right
to appraisal ("Dissenting Shares"), shall not be converted into or represent the
right to receive the Merger Consideration pursuant to Section 2.5(a), but the
holder thereof shall be entitled only to such rights as are granted by Iowa law.
(ii) Notwithstanding Section 2.5(d)(i), if any holder of
shares of Common Stock who demands an appraisal of such shares under Iowa law
shall effectively withdraw or lose (through failure to perfect or otherwise) his
right to appraisal, then, as of the later of the Effective Time or the
occurrence of such event, such holder's shares shall no longer be Dissenting
Shares and shall automatically be converted into and represent only the right to
receive the Merger Consideration applicable to such shares as provided in this
Section 2.5, without interest, upon surrender of the certificate or certificates
representing such shares, in accordance with Section 2.5(a) hereof.
(iii) The Company shall give Purchaser notice of any written
demand for appraisal of any shares of Common Stock received prior to the
Effective Time and any withdrawal of such demands. Amounts payable by the
Surviving Corporation to holders of Dissenting Shares shall be paid from the
Escrow Fund.
(e) ESCROW FUND. In the event that there are any Dissenting Shares
then a portion of the Cash Consideration shall be held in a non-interest bearing
escrow fund ("Escrow Fund"). Payment to the holders of the Dissenting Shares
shall be made solely from the Escrow Fund. The Cash Consideration available to
holders of non-Dissenting Shares shall be reduced by the total amount paid, or
payable, to the holders of Dissenting Shares.
2.6 OTHER PAYMENTS MADE IN CONNECTION WITH THE MERGER.
(a) REPAYMENT OF DEBT. At the Closing, Purchaser will repay the
principal amount of the Bank Debt, including accrued and unpaid interest
thereon. The Funded Debt, including the Bank Debt, is more particularly
described in SCHEDULE 2.6(a) attached hereto. If the actual amount of the
Funded Debt, is less than the Funded Debt Threshold, the extent of
Purchaser's obligations to repay such Funded Debt shall be limited to the
actual amount of payment required to satisfy any such obligations, including
the benefit of any settlement or compromise of any such indebtedness. In
addition, SCHEDULE 2.6(a) shall be amended to list all of the Company's debt
as of the Closing Date comprising the total amount of the Funded Debt,
including any amounts in excess of the Funded Debt Threshold. SCHEDULE
2.6(a) shall include in addition to a detailed description of the
indebtedness comprising the Funded Debt and all accrued and unpaid interest
thereon and all other amounts then owed under the loan agreements, notes
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and other documents pursuant to which such funds were borrowed and sets forth
the names and addresses of the obligees of such debt, the maturity date and the
terms of repayment of such debt. Funded Debt other than the Bank Debt shall be
paid when due or on such earlier date as Purchaser may elect.
(b) REPAYMENT OF BALANCE OF FUNDED DEBT. The remaining balance of
the Funded Debt to the extent it exceeds the Funded Debt Threshold will be paid
from the Cash Consideration and to the extent of any such payment will reduce
the total amount of Cash Consideration available for distribution as part of the
Merger Consideration payable to the holders of the Common Stock as provided in
Section 2.5(a) hereof.
(c) MERGER CONSIDERATION. Purchaser shall pay to each stockholder of
Company the Merger Consideration upon surrender by such stockholder to Purchaser
of the certificates representing such stockholder's shares.
(d) REDUCTION OF CASH CONSIDERATION FOR TRADE PAYABLES. Effective as
of the Closing Date and in connection with the Merger, Purchaser will become
obligated for the trade payables of the Company that are listed on SCHEDULE
2.6(d)-1 attached hereto or that are incurred in the ordinary course of business
of each such corporation. A new SCHEDULE 2.6(d)-2, shall be delivered at
Closing, which shall include (i) all trade payables of the Company as of the
Closing Date, and (ii) all Transactional Costs. As contemplated by Section 1.3,
the total amount of cash available for distribution as part of the Merger
Consideration will be reduced by the amount of the Transactional Costs and the
amount, if any, by which the trade payables as of the Closing Date listed on
SCHEDULE 2.6(d)-2 exceed the accounts receivable of the Company as of the
Closing Date listed on SCHEDULE 4.1.
2.7 EMPLOYMENT AGREEMENTS . Barry Howard ("Howard") and Ken Nieland
("Nieland") will receive employment agreements with Merger Sub, in the forms of
EXHIBITS 2.7(1) and 2.7(2) ("Employment Agreements").
2.8 EARNOUT SHARES. In addition to the Merger Consideration and Howard's
Employment Agreement, Howard will be paid Five Thousand (5,000) shares of
Purchaser Stock on each anniversary date of Howard's Employment Agreement, up to
a maximum of Twenty-Five Thousand (25,000) shares.
ARTICLE III
CONDITIONS PRECEDENT
3.1 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. The obligations of
Purchaser and Merger Sub to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction, on or before the Closing Date,
of each of the following conditions, all or any of which may be waived, in whole
or part, by Purchaser:
(a) REPRESENTATIONS TRUE AT CLOSING. The representations and
warranties made by the Company in this Agreement or the attachments hereto shall
be true and correct in all
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material respects on the Closing Date with the same force and effect as though
such representations and warranties had been made on and as of such time, except
for changes previously disclosed to Purchaser or contemplated by this Agreement.
(b) COVENANTS. The Company shall have duly performed in all material
respects all of the covenants, acts, obligations, conditions, agreements and
undertakings to be performed by it on or prior to the Closing Date pursuant to
the terms of this Agreement.
(c) ABSENCE OF ADVERSE CHANGES. The Company shall not have suffered
any material adverse change in its financial condition, business, property or
assets since the Financial Statement Date (as herein defined).
(d) SECRETARY'S CERTIFICATES. Purchaser shall have received a
certificate of good standing from the Secretary of State of each of the states
in which the Company is operating, or in which it is necessary or desirable to
be qualified to do business, stating that the Company is qualified to do
business and is in good standing and a certificate of the Secretary or Assistant
Secretary of the Company certifying: (i) the Company's Articles of Incorporation
and Bylaws; (ii) the incumbency of all officers of the Company having authority
to execute and deliver this Agreement and the agreements and documents
contemplated hereby; and (iii) resolutions of the Company's Board of Directors
and stockholders approving the execution, delivery and performance of this
Agreement.
(e) OFFICER'S CERTIFICATE. Purchaser shall have received a
certificate from the President or a Vice President of the Company as to the
matters set forth in Sections 3.1(a), 3.1(b) and 3.1(c).
(f) OPINION OF COMPANY COUNSEL. An opinion of counsel for the
Company shall have been delivered to Purchaser and Merger Sub dated as of the
Closing Date, substantially in the form and substance of the opinion attached as
EXHIBIT 3.1(f), which shall include matters related to FCC and state utility
commission compliance of the Company.
(g) CONSENTS AND WAIVERS. The Company shall have obtained and
Purchaser shall have received a true and correct copy of the consents and
waivers described SCHEDULE 3.1(g) hereof, or otherwise required for the
execution of this Agreement and the consummation of the transactions
contemplated hereby.
(h) APPROVALS. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby shall have been approved by
all regulatory authorities, if any, whose approvals are required by contractual
requirements or by law.
(i) NO LITIGATION OR OTHER PROCEEDINGS. No action, proceeding,
investigation, regulation or legislation shall have been instituted, threatened
or proposed before any court, governmental agency or legislative body to enjoin,
restrain, prohibit or obtain substantial damages in respect of, or which is
related to, or arises out of, this Agreement or the consummation of the
transactions contemplated hereby. No suit, action or other proceeding shall
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be pending before any court or governmental agency, or threatened against or
affecting the Company which, if adversely determined, would have a material
adverse effect on the value of the business, assets or property of the Company.
(j) EMPLOYMENT AGREEMENTS. The Employment Agreements shall have been
executed and delivered.
(k) RESIGNATIONS OF OFFICERS AND DIRECTORS. Purchaser shall have
received the resignation of each officer and director of the Company.
(l) STOCKHOLDER APPROVAL; DISSENTERS RIGHTS. The stockholders of the
Company shall have approved the Merger and other transactions contemplated by
this Agreement in accordance with the Iowa Business Corporation Act and the
Company's Articles of Incorporation, and the total amount of the Merger
Consideration that would have been payable to the holders of shares that are
Dissenting Shares at the Closing (had they not sought appraisal for their
shares) shall not exceed $5,000.
(m) CORPORATE RECORDS. Purchaser shall have received the Stock
Books, Minute Books and Corporate Seal (if any) of the Company and any other
subsidiary in which the Company may have an interest.
(n) NO LIEN, INDEBTEDNESS. Except as set forth in SCHEDULE 2.6(a)
attached hereto, the Company shall not be subject to any indebtedness nor shall
any of their properties or assets be subject to liens or encumbrances of any
kind, other than (i) indebtedness and liens for current taxes, wages and
operating expenses in the normal course of business, payment of which at the
time of Closing shall not yet be due; (ii) indebtedness reflected in the
Financial Statements or any loans advanced to the Company subsequent to the
Financial Statement Date that are approved by Purchaser; (iii) accounts payable
incurred in the ordinary course of business subsequent to the Financial
Statement Date; and (iv) Permitted Encumbrances.
(o) NO ATTACHMENT. None of the assets or properties of the Company
shall have been attached or levied upon or placed in the hands of a receiver or
assignee for the benefit of creditors. No petition or similar instrument shall
have been filed with respect to the Company under any bankruptcy or insolvency
law, and no injunction or restraining orders shall have been instituted against
the Company that would have a material adverse effect on the Company.
(p) INDEMNIFICATION AGREEMENTS; POWERS OF ATTORNEY. The stockholders
of the Company listed in Schedule 6.11 shall have executed and delivered to
Purchaser an Indemnification Agreement in the form of EXHIBIT 3.1(p).
(q) STOCKHOLDER INVESTMENT LETTERS. The stockholders of the Company
receiving Purchaser Stock pursuant to the terms of this Agreement shall have
executed the Stockholder Investment Letters.
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3.2 CONDITIONS PRECEDENT TO COMPANY'S OBLIGATIONS. The obligations of
the Company to consummate the transactions contemplated by this Agreement
shall be subject to the satisfaction, on or before the Closing Date, of each
of the following conditions, all or any of which may be waived, in whole or
part, by the Company:
(a) REPRESENTATIONS TRUE AT CLOSING. The representations and
warranties made by Purchaser and Merger Sub in this Agreement or the attachments
hereto shall be true and correct in all material respects on the Closing Date
with the same force and effect as though such representations and warranties had
been made on and as of such time, except for changes contemplated by this
Agreement.
(b) COVENANTS. Purchaser and Merger Sub shall have duly performed in
all material respects all of the covenants, acts and undertakings to be
performed by them on or prior to the Closing Date pursuant to the terms of this
Agreement.
(c) ABSENCE OF ADVERSE CHANGE. Purchaser shall not have suffered any
material adverse change in its financial condition, business, property or assets
since the date of this Agreement.
(d) SECRETARY'S CERTIFICATE. The Company shall have received a
certificate of the Secretary, Assistant Secretary or other officer of Purchaser
certifying (i) Purchaser's articles of incorporation and bylaws; (ii) the
incumbency of all officers of Purchaser having authority to execute and deliver
this Agreement and the agreements and documents contemplated hereby; and (iii)
resolutions of Purchaser's board of directors approving the execution, delivery
and performance of this Agreement.
(e) OFFICER'S CERTIFICATE. The Company shall have received a
certificate from the President or a Vice President of Purchaser as to the
matters set forth in Sections 3.2(a), 3.2(b) and 3.2(c).
(f) OPINION OF PURCHASER COUNSEL. An opinion of counsel for
Purchaser and Merger Sub shall have been delivered to the Company dated as of
the Closing Date, substantially in the form and substance of the opinion
attached as EXHIBIT 3.2(f).
(g) CONSENTS AND WAIVERS. Purchaser shall have obtained and the
Company shall have received a true and correct copy of the consents and waivers
described in SCHEDULE 3.2(g) hereof or otherwise required for the execution of
this Agreement and the consummation of the transactions contemplated hereby.
(h) APPROVALS. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby shall have been approved by
all regulatory authorities, if any, whose approvals are required by law.
(i) NO LITIGATION OR OTHER PROCEEDINGS. No action, proceeding,
investigation, regulation or legislation shall have been instituted, threatened
or proposed before
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any court, governmental agency or legislative body to enjoin, restrain, prohibit
or obtain substantial damages in respect of, or which is related to, or arises
out of, this Agreement or consummation of the transactions contemplated hereby.
(j) STOCKHOLDER APPROVAL; DISSENTER'S RIGHTS. The stockholders of
the Company shall have approved the Merger and other transactions contemplated
by this Agreement in accordance with the Iowa Business Corporation Act and the
Company's Articles of Incorporation, and the total amount of the Merger
Consideration that would have been payable to the holders of shares that are
Dissenting Shares at the closing had they not sought appraisal for their shares
shall not exceed $5,000.
(k) EMPLOYMENT AGREEMENTS. Merger Sub shall have executed the
Employment Agreements.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company makes the
representations and warranties set forth below, except as set forth in the
Disclosure Schedule. Each exception to the representations and warranties set
forth in the Disclosure Schedule shall reference by Section number the
representation and/or warranty to which it applies.
(a) ORGANIZATION AND CORPORATE POWER. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Iowa, and is duly qualified to do business as a foreign corporation in
good standing in each jurisdiction in which the properties owned, leased or
operated by it, or the nature of its activities or proposed activities makes
such qualification necessary, except in such jurisdictions where the failure to
be so qualified or in good standing would not have a material adverse effect on
the business, results of operations or financial condition of the Company taken
as a whole. The Company has all required corporate power and authority to own
properties and to carry on its business as now conducted. The Company has
furnished to Purchaser accurate and complete copies of the Articles of
Incorporation and Bylaws as in effect on the date hereof. Attached hereto as
SCHEDULE 4.1(a) is a list of all of the states in which the Company is qualified
to do business as a foreign corporation or in which qualification is necessary
or desirable to carry on the business and operations of the Company as presently
conducted. The Company has no other subsidiaries or affiliates.
(b) CORPORATE AUTHORIZATION. The Company has all power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of the Company and as such all corporate
action necessary for the approval or ratification of this Agreement has been
taken and no other corporate proceedings on the part of the Company is necessary
to authorize the execution and delivery of this Agreement or to consummate the
transactions so contemplated (subject to the approval and adoption of this
Agreement and the
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transactions contemplated hereby by the stockholders of the Company required in
accordance with the Iowa Business Corporation Act, and the Articles of
Incorporation and Bylaws of the Company).
(c) BINDING EFFECT. This Agreement constitutes a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except to the extent that the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and by principles
of equity regarding the availability of remedies.
(d) CONSENTS. Except as set forth in SCHEDULE 3.1(g) and/or the
Disclosure Schedule, there are no consents, authorizations, approvals (other
than stockholder approval as set forth in Section 2.2 hereof), governmental,
judicial, administrative or other, under any Contract, lease, License, Permit,
indenture, promissory note, agreement, mortgage or any other instrument to which
the Company is a party or is bound or to which its assets are subject or under
any statute, rule, regulation, judgment, decree or order of any court, agency or
other authority to which jurisdiction the Company is subject, which are required
for the execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
(e) CAPITALIZATION.
(i) The authorized capital stock of the Company consists of
100,000 shares of Common Stock, of which 2,000 shares are issued and
outstanding. SCHEDULE 4.1(e)(i) attached hereto includes a complete and correct
list of the present stockholders of record of the Company, showing the number of
shares of Stock owned by each such stockholder as well as the other information
to be set forth therein. All of the issued and outstanding Stock of the Company
has been duly authorized, is validly issued, fully paid and nonassessable. All
indebtedness of the Company for money borrowed as of the date hereof is
reflected on SCHEDULE 2.6(a) attached hereto. SCHEDULES 4.1(e)(i) and 2.6(a)
shall be updated by the Company on the Closing Date and as often as is necessary
for such schedules to remain true and accurate.
(ii) SCHEDULE 4.1(e)(ii) attached hereto includes a complete
and correct list of the Company's outstanding options to purchase its capital
stock ("Outstanding Options") and the Company's outstanding warrants to purchase
its capital stock ("Outstanding Warrants"), in each case showing the date of
issuance, the expiration date, the exercise price, the holders thereof and the
number of shares of capital stock subject thereto. The Company has furnished to
Purchaser accurate and complete copies of the Outstanding Options and
Outstanding Warrants. The copies of the Outstanding Options and Outstanding
Warrants represent the terms, conditions, provisions, agreements, obligations
and undertakings of the Company with respect to all Outstanding Options and
Outstanding Warrants. Except for the Outstanding Options and the Outstanding
Warrants, the Company does not have outstanding any stock or other securities
which are, in either case, convertible into or exchangeable for any shares of
its Stock, any warrants, options, purchase rights, subscription rights or other
contract rights or commitments or appreciation, phantom stock, profit
participation or similar rights to purchase or acquire any shares of its Stock
or any stock or securities convertible into or exchangeable for any of the Stock
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of the Company and is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock. No
stockholder of the Company has any preemptive or other purchase rights with
respect to the issue or sale of any Stock. The Company's stock transfer records
accurately reflect all issuances and transfers of Stock and other securities and
the minutes of meetings of incorporators, directors and stockholders completely
and correctly reflect all of their respective actions in all material respects.
(f) FINANCIAL STATEMENTS. As soon as possible, and in any event
prior to the Closing Date, the Company shall furnish Purchaser with the
following financial statements:
(i) an unaudited balance sheet of the Company for the
fiscal years ended December 31, 1995and December 31, 1996, and the related
statements of income and retained earnings and changes in financial position of
the Company for such periods; and
(ii) an unaudited balance sheet of the Company as at June
30, 1997 ("Financial Statement Date"), and the related statements of income and
retained earnings of the Company for the six (6) month period then ended.
Such financial statements, including any related schedules and notes
thereto (the "Financial Statements"), have been prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied
throughout the period or periods in question (except as specifically disclosed
therein) and show all liabilities, direct or contingent, of the Company required
to be shown in accordance with GAAP consistently applied throughout the period
or periods in question (except as specifically disclosed therein) and fairly
present the financial position and the results of the Company for the periods
indicated therein.
(g) NO ADVERSE CHANGE IN FINANCIAL CONDITION. Since the Financial
Statement Date, there has not been (i) any event, condition or fact that has
resulted or may reasonably be expected to result in any material adverse change
in the financial condition, business, sales, income, properties, assets or
liabilities of the Company shown on the Financial Statements; or (ii) any
material adverse change with respect to any Contract to which the Company is a
party or any event, circumstance, fact or other occurrence which may result in
any material adverse change to the condition (financial or otherwise), results
of operations, business, sales, income, properties or assets of the Company; or
(iii) any material damage, destruction or loss to the properties, assets or
business of the Company, whether or not covered by insurance, as the result of
any fire, explosion, accident, casualty, labor disturbance or interruption,
requisition or other taking of property by governmental body or agency, flood,
embargo, or act of God or the public enemy, or cessation, interruption or
diminution of operations, whether or not covered by insurance, which has
materially and adversely affected or impaired or which could reasonably be
expected to materially or adversely affect or impair the conduct of the
operations or business of the Company; or (iv) any labor trouble other than
routine grievances (including without limitation any negotiation, or request for
negotiation, for any representation or any labor contract) or to the Company's
knowledge any event or condition of any character which has materially and
adversely affected or which may be reasonably expected to materially and
adversely affect or impair the conduct of the Company's operations or business;
or (v) any declaration, setting aside, or
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payment of, any dividend or any distribution, in respect of the Common Stock; or
(vi) any redemption, purchase or other acquisition by the Company of any shares
of the Common Stock; or (vii) any significant loss of customers of the Company.
(h) ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
reflected or reserved against in the Financial Statements, the Company does not
have any liabilities, debts or obligations, whether absolute, accrued,
contingent, unliquidated or otherwise and whether due or to become due
(including without limitation any liability for breach of contract, breach of
warranty, torts, infringements, claims or lawsuits), arising out of any
transaction entered into on or prior to the Financial Statement Date, other than
contractual obligations incurred in the ordinary course of business not required
to be disclosed in accordance with GAAP.
(i) TITLE TO PROPERTIES; LIENS. SCHEDULE 4.1(i) attached hereto
sets forth, as of the date hereof, an accurate and complete list of all leases
and purchases and ownership by the Company of all real properties, license
agreements and all leases and purchases and ownership of all personal properties
(covering properties with a purchase price as of the date hereof greater than
$1,000) to which the Company is a party (whether as purchaser, lessor, lessee,
licensor or licensee) collectively the "Leases and Licenses". The Company, as
lessee or licensee, has entered into all such Leases and Licenses which the
Company reasonably believes may be necessary for the conduct of its business and
operations as now conducted. The Company has furnished to Purchaser accurate
and complete copies of all such Leases and Licenses. The Company has title to
each of the leasehold and other interests created by the Leases and Licenses
free and clear of all security interest, claims, liens and encumbrances of any
nature, other than Permitted Encumbrances. To the best of the knowledge of the
Company, each such Lease and License is in full force and effect. Each Lease
and License constitutes the legal, valid and binding obligation of the Company,
to the knowledge of the Company, enforceable against the Company in accordance
with its respective terms accept as may be limited by bankruptcy, insolvency,
reorganization, readjustment of debt, moratorium, general principles of equity
or other laws of general application related to or affecting the enforcement of
creditors rights generally. The Company has not received notice, or does not
have any reason to know, of any claim of default under any such Lease or
License. All Leases are fully effective and afford the Company, peaceful and
undisturbed possession of the property which is the subject matter of each such
Lease. All of the Contracts, agreements, Permits, authorizations and other
intangible assets of a similar nature of the Company are valid and binding
obligations of the parties thereto, and the Company does not have any knowledge
of an intention of or basis (other than the terms thereof) for any termination
of any such intangible assets by any party.
(j) MARKETABLE TITLE. Except for Permitted Encumbrances (as defined
herein) or as set forth on SCHEDULE 4.1(j) attached hereto, the Company has good
and marketable title to all of its assets and property as set forth in the
SCHEDULE 4.1(i) attached hereto, free and clear of all mortgages, liens,
pledges, charges, claims (real or assertive) or encumbrances of any nature
whatsoever.
(k) CONDITION OF TANGIBLE ASSETS. All material tangible portions
of the assets and properties owned by the Company, including all real
properties or leasehold interest in real
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property and structures thereon, are to the best of the Company's knowledge,
in good condition and repair, subject only to ordinary wear and tear in light
of their respective ages and there respective uses for which they are
currently used. The uses of the tangible properties and assets conform and
comply in all material respects with all rules, regulations and standards
applicable to the Company or its assets or properties, imposed by applicable
federal, state or local laws or regulations.
(l) ALL ASSETS. The properties and assets of the Company as of the
date hereof and the Closing Date include (i) all properties and assets whether
or not reflected on the balance sheet included in the Financial Statements,
including Licenses, Permits, Leases, Contracts, customer lists, goodwill and any
other tangible or intangible assets as disclosed in the Schedules attached to
this Agreement, and (ii) assets and properties acquired by the Company after the
Financial Statement Date up to and including the Closing Date as set forth in
SCHEDULE 4.1(l) which will be updated immediately prior to Closing, other than
such properties and assets as shall have been transferred or otherwise disposed
of by the Company in the ordinary course of business as shall be disclosed in
SCHEDULE 4.1(l).
(m) CERTAIN TAX MATTERS. The Company has prepared and duly filed
(and to the best of its knowledge has done so accurately and correctly) all
federal, state, county and local income, franchise, use, real property and
personal property tax returns and reports required to be filed as of the date
hereof with respect to the Company and has duly paid, withheld or reserved for
all taxes, penalties and other governmental charges required to be paid that
have been assessed or levied against or upon the Company or any of its
properties, assets, income, franchises, licenses or sales, including without
limitation, income, gross receipt, property taxes or to the extent that they
relate to periods on or prior to the Financial Statement Date are reflected as a
liability on the Financial Statements, or if not paid, is contesting such amount
in good faith by appropriate proceedings. In the event the Company is
contesting such amounts in good faith, the Company has established or reserved
accounts sufficient to satisfy the assessment or levy being contested which
reserve accounts shall automatically transfer to the Surviving Corporation as a
result of the Merger. The Company does not know and has no reason to know of any
proposal by any taxing authority for additional taxes or assessments against or
upon the Company. To the best of the knowledge of Company all monies required
to be held by the Company from employees for income taxes, social security and
unemployment insurance taxes, have been collected or withheld or either paid to
the respective governmental agencies or set aside in cash for such purpose. The
Company has not entered into any agreement for the extension of time or the
assessment of any tax or tax delinquency, nor has the Company received any
outstanding or unresolved notices from the Internal Revenue Service or any
taxing authority of any proposed examination or any proposed deficiency or
assessment or of any tax returns or tax liabilities due and payable. The
Company is not a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code. The Company has delivered to
Purchaser an accurate, correct and complete copy of each return or statement
filed by on behalf of or including the Company for federal income tax purposes
or state and local income or franchise tax purposes for the last three (3) tax
years of the Company. All material elections with respect to the taxes
affecting the Company as of the date hereof are set forth in SCHEDULE 4.1(m)
attached hereto. After the date
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hereof, no written election will be made by the Company without the Purchaser's
express written consent.
(n) FINANCIAL DISCLOSURE. The Company has made available to the
Purchaser and Merger Sub all information known to the Company with respect to
(i) accounts, borrowings resolutions and deposit boxes maintained by the Company
at any bank or any financial institution and the account numbers and the names
and addresses of all the persons authorized to effect transactions in such
accounts and pursuant to such resolutions and with access to such boxes, and
(ii) the names of all persons, firms, associations, corporations or business
organizations holding general or special powers of attorney from the Company. A
summary of the terms of any such powers of attorney is set forth on SCHEDULE
4.1(n) attached hereto.
(o) INSURANCE. SCHEDULE 4.1(o) attached hereto sets forth, as of the
date hereof, an accurate and complete list and brief description of the terms of
all policies of insurance carried by the Company and designating the Company as
the insured thereunder. The description of each policy consists of a
description of the subject property, the insurance coverage, the deductibles and
the additional insurance. The Company has furnished to Purchaser and Merger Sub
an accurate and complete copy of all such insurance polices. No insurance
carrier has refused any application for insurance by the Company or any other
person on behalf of the Company on any of its properties or assets.
(p) PATENTS, TRADE SECRETS, ETC. SCHEDULE 4.1(p) attached hereto
sets forth, as of the date hereof, an accurate and complete list of all letters
patent, patents applications, trade marks, service marks, trade names, brands,
logos, copyrights and licenses, both domestic and foreign, and rights with
respect to the foregoing, whether or not registerable with any governmental
authority, now owned or used by the Company. In addition, SCHEDULE 4.1(p)
attached hereto includes a separate list of all products, prototypes and
research work which is currently being undertaken by the Company to develop
products as well as drawings, schematics, engineering specifications, reports
and other similar instruments and documents used in the connection with the
development of such product to be owned or used in connection with the business
of the Company (collectively "Development Products"). The Company has not
received notice, or otherwise has no reason to know, of any claim or threatened
infringement of the rights of others with respect to any patents, trademarks,
service marks, trade names, brands, logos, copyrights and licenses used or owned
by the Company, the loss of which would have a material adverse effect upon the
business, operations, assets or financial condition of the Company. The Company
possess all patents, patent rights or licenses, trademarks, trademark rights and
copyrights that are required to conduct its business as now conducted. To the
best of the Company's knowledge, the Company owns all trade secrets and all
other rights to all Development Products which are being developed by the
Company, which may or may not be patented or patentable. The Company has no
knowledge that it is infringing upon or otherwise violating the rights of any
third party with respect to any patent, trademark, trade name, service mark or
copyright. The Company has the right to use, free and clear of claims or rights
of others, all trade secrets, customer lists and manufacturing or other
processes required for, used or to be used in, or incident to its business as
now conducted, and to the best knowledge of the Company and its executive
officers, after due inquiry, no current or former employee of the Company is or
was a party to any confidentiality
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agreement and/or agreement not to compete which restricts or forbids or
restricted or forbade at any time during such employee's employment by the
Company, such employee's performance of the Company's business, as the case may
be, or any activity that the employee has been hired to perform. To the best
knowledge of the Company, the Company is not now using, and has not in the past
used without appropriate authorization, any confidential information or trade
secrets of any third party. The Company has not received any notice alleging
such conduct.
(q) NO CONFLICTS. The execution, delivery and performance of this
Agreement, and the performance of the transactions contemplated hereby and the
compliance with the respective terms hereof by the Company, do not and will not
(i) conflict with or result in a breach of the terms, conditions or provisions
of, (ii) constitute a default under, (iii) result in the creation of any lien,
security interest, charge or encumbrance upon the Company's capital stock or
assets, (iv) give any third party the right to accelerate any obligation under,
or (v) result in a violation of (A) the Articles of Incorporation or Bylaws of
the Company or any other organization or governing instrument of the Company,
(B) any Contract, Lease, indenture, promissory note, agreement, mortgage or
other instrument to which the Company is a party or is bound or to which its
assets are subject or affected, or (C) any law, License, Permit, statute, rule,
regulation, judgment, decree or order of any Court, agency or other authority to
which jurisdiction the Company is subject.
(r) LITIGATION, ETC. Except as set forth on SCHEDULE 4.1(r) there
are no actions, suits, proceedings, arbitration proceedings, orders,
investigations or claims pending or threatened against or affecting the Company
or any of its properties at law or in equity, or before or by any governmental
or other department, commission, board, bureau, agency or instrumentality; there
are no governmental inquiries (including inquiries as to the qualification of
the Company to hold or receive any License or Permit) pending; and, to the best
of the Company's knowledge, there is no basis for any of the foregoing.
(s) PERMITS. The Company has all franchises, permits, licenses,
governmental authorizations, zoning variances, rights of way, easements and
other authorizations, rights and privileges (collectively "Permits") necessary
to permit it to own its properties and to conduct its business as now conducted.
All such Permits are listed and described in SCHEDULE 4.1(s) attached hereto.
All such Permits are in full force and effect and no revocation, cancellation or
withdrawal thereof has been effective or to the best knowledge of the Company
threatened. Except as disclosed in SCHEDULE 4.1(s) attached hereto, the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereunder will not result in the termination of,
or change in, any such Permits.
(t) NO VIOLATION OF LAWS OR REGULATIONS. To the best knowledge of
the Company, the Company has materially complied with, and is not in any
material respect in default under or in violation of, any laws, ordinances,
requirements, regulations or orders applicable to its business and properties,
including without limitation the rules and regulations of the Federal
Communications Commissions ("FCC") or any state public utilities commission
having jurisdiction over the business and operations of the Company, nor is the
Company in violation of or in default under any order, writ, injunction,
judgment or decree of any court, arbitrator, or
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federal, state or local department official, commission, authority, port,
bureau, agency or other instrumentality issued or pending against the Company
which might adversely affect the ability of the Company to execute, deliver and
perform its obligations under this Agreement or to consummate the transactions
contemplated hereby or which challenges or seeks to prevent, enjoin, alter or
materially delay any such transactions. The Company has not received notice or
otherwise has no reason to know, of any claim, default or violation with respect
to any of the foregoing. There have been no illegal payments, kickbacks, bribes
or political contributions made by the Company to any Person in the United
States or any foreign country or political subdivision. The Company does not
have any license or authorization from the FCC or any state public utility
commission and the Company is not required to obtain or have in effect any such
permits or licenses with the FCC or state public utility commission.
(u) CONTRACTS. SCHEDULE 4.1(u) attached hereto sets forth, as of the
date hereof and as of the Closing Date, an accurate and complete list of the
following:
(i) except for the Leases and Licenses, all agreements,
contracts, arrangements, commitments, understandings or obligations, oral or
written of the Company which are to be performed in whole or in part on or after
the date hereof and which require or may require the payment of Company in an
amount, or under which the Company is required or may be required to provide
goods or services of a value, greater than one thousand dollars ($1,000) during
any period of twelve (12) consecutive months;
(ii) any agreement to which the Company is a party or by
which the properties or assets of the Company are bound which limits the freedom
of the Company to compete in any line of business or with any Persons; and
(iii) all other agreements, contracts, arrangements,
commitments, understandings or obligations, oral or written (other than oral
contracts of employment) between the Company on the one part or any officer or
director of the Company on the other part or in which any of such persons or
entities has any financial interest, direct or indirect (including without
limitation any agreements affecting the properties or assets of the Company and
agreements to make loans). The Company has furnished Purchaser a copy of each
agreement, contract, arrangement, commitment or obligation set forth in SCHEDULE
4.1(u) attached hereto. Collectively, the contracts, agreements, arrangements,
commitments or obligations described in this Section 4.1(u) and listed in
SCHEDULE 4.1(u) are referred to herein as the "Contracts". Each such Contract
is in full force and effect and to the best of the Company's knowledge the
Company has performed in all material respects all of the obligations under each
Contract required to be performed by it, and no such contract is in default, nor
has any event occurred, which with the passage of time or the giving of notice
or both, will result in the occurrence of a default under any such Contract or
in the receipt of any claim of default with respect to any Contract to which the
Company is a party or is otherwise bound or to which its assets are subject.
The Company has no present expectation or intention of not fully performing
in all material respects all such obligations; the Company has no knowledge of
any breach or anticipated breach by other parties of any Contract or commitment
to which it is a party or is otherwise
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bound; and the Company is not a party or otherwise bound to any materially
adverse or burdensome Contract or commitment.
(v) CERTAIN CONTRACTS AND COMMITMENTS. Except for the Outstanding
Options and the Outstanding Warrants, the Company is not a party to, or
otherwise bound by, nor has the Company ever established, had in effect,
obligated to fund or make contributions to any written or oral plan, program or
arrangement relating to a pension, profit sharing, retirement savings, thrift,
deferred compensation, stock option, stock purchase, group insurance, accident,
sickness, medical, dental, disability or other plan providing for deferred or
other compensation to employees. Except as set forth in SCHEDULE 4.1(v)
attached hereto, the Company is not obligated to fund any vacation pay,
severance pay, incentive compensation, consulting agreement, bonus or other
employee benefits or fringe benefits either currently or as to any time in the
past (including health insurance, life insurance or other benefit plans
maintained for retirees or former employees) whether or not such plan, program
and arrangement constitute "employee benefit plans" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and whether or not any such plan, program or arrangement are in the
nature of formal or informal understandings. All such plans, programs and
arrangements referred to in this Section 4.1(v) are collectively referred to
herein as "Benefit Plans".
(w) EMPLOYEES AND LABOR. The Company is not aware that any executive
or key employee, or any group of employees of the Company has any plans to
terminate his, her or their employment with the Company, or that any executive
or key employee is subject to any agreement, obligation or other legal hindrance
that impedes or might impede such executive or key employee from devoting his or
her full business time to the affairs of the Company. The Company has complied
in all material respects with all laws relating to wages, hours, equal
opportunity, collective bargaining and the payment of social security and other
taxes, and the Company has no material labor relations problems. Except as
reflected on the Financial Statements, the Company is not indebted to any
officer, director or employee whether by loan, advance or otherwise, other than
for out-of-pocket expenses incurred in the ordinary course of business, nor is
any officer, director, employee or shareholder so indebted to the Company.
SCHEDULE 4.1(w) attached hereto describes the respective salaries as in effect
on the date hereof for the employees who constitute the sole officers and
employees of the Company. The Company is not a party to any agreement,
contract, arrangement, plan, commitment or understanding which has resulted or
would result, upon the consummation of the transactions contemplated under this
Agreement or otherwise, separately or in the aggregate, in the payment of any
"excess parachute payment" within the meaning of Section 280G of the Code. The
Company is not a party to any Benefit Plan, or any Contract, whether collective
bargaining agreements or other arrangements with any labor union or any
employment or consulting contracts not terminable at will without penalty to
which the Company is a party.
(x) ERISA. The Company has fulfilled its obligations under the
minimum funding standards of ERISA and the Code with respect to each Pension
Plan (as defined in Section 4001 of ERISA), and is in compliance in all material
respects with the provisions of ERISA and the Code. The Company has not
incurred any liability to the Pension Benefit Guaranty Corporation ("PBGC")
(other than annual premiums due to the PBGC) or a Pension
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Plan under Title IV of ERISA. SCHEDULE 4.1(x) attached hereto lists each
employee Benefit Plan covered by ERISA maintained or contributed to by the
Company at any time since January 1, 1990. The Company is not subject to any
obligations or liabilities under COBRA or any other employee Benefit Plan
existing prior to, but not on or after, January 1, 1990.
(y) ENVIRONMENTAL MATTERS. To the best knowledge of the Company, the
Company has duly complied with, and the operation of its businesses, equipment
and other assets in the facilities owned or leased by the Company are in
compliance with the provisions of all applicable federal, state and local
environmental, health and safety laws, statutes, ordinances, rules and
regulations of any governmental or a quasi governmental authority relating to
(i) errors or omissions, (ii) discharges to surface water or ground water, (iii)
solid or liquid waste disposal, (iv) the use, storage, generation, handling,
transport, discharge, release or disposal of toxic or hazardous substances or
waste, (v) the emission of non-ionizing electromagnetic radiation or (vi) other
environmental, health or safety matters, including without limitation, the
Comprehensive Environmental Response Compensation and Liability Act of 1980 as
amended by the Superfund Amendments and Authorization Act of 1986; the
Occupational Safety and Health Act; the Resource Conservation Recovery Act of
1976; the Federal Water Pollution Control Act of 1970; the Safe Drinking Water
Act of 1974; the Toxic Substances Control Act of 1976; the Emergency Planning
Community Right to Know Act of 1986, as amended; and the Clean Air Act, as
amended, (collectively "Environmental and Health Laws") or the Federal
Communications Act, as amended, ("FCC Law"). To the best knowledge of Company,
there are no investigations, administrative proceedings, judicial actions,
orders, claims or notices which are pending, anticipated or threatened against
the Company, relating to violations of the Environmental and Health Laws and the
FCC Law. The Company has not received a notice of, and does not know or have any
reason to suspect, any facts which constitute a violation of any Environmental
and Health Laws or the FCC Law which relate to the use, ownership or occupancy
of any property or facilities used by the Company in connection with the
operation of its business or any activity of the business of the Company which
would result in a violation or threatened violation of any Environmental or
Health Laws or the FCC Law.
(z) ACCOUNTS RECEIVABLE. All of the accounts receivable of the
Company constitute valid receivables, have been incurred in the ordinary course
of business consistent with past practices and, to the knowledge of the Company,
are collectable in the ordinary course of business, except for the reserve for
bad debts or doubtful accounts as reflected in the Financial Statements and are
not subject to any setoffs or counterclaims. To the Company's knowledge, no
part of such accounts receivable is contingent upon the performance by the
Company of any obligation, and no agreements for deduction or discounts have
been made with respect to any part of such receivables. The Company shall
deliver a SCHEDULE 4.1(z) at the Closing listing all of the accounts receivable
of the Company as of the Closing Date.
(aa) PAYABLES. The list of itemized accounts payable of the Company
as shown in SCHEDULE 4.1(aa) attached hereto and such payables to be shown in
SCHEDULE 4.1(aa) to be updated at the Closing will represent a complete list of
the accounts payable of the Company to its creditors other than those not posted
to the Company's accounting records that were incurred
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in the ordinary course of business. Except as set forth in SCHEDULE 4.1(aa)
attached hereto none of the accounts payable as so listed are currently in
default.
(bb) DIRECTORS AND OFFICERS. The SCHEDULE 4.1(bb) attached hereto is
a correct and complete list as of the date hereof showing the names of each of
the Officers and Directors of the Company, each of whom has been duly elected or
appointed.
(cc) INVENTORY. The inventories of finished goods, work in process
and raw materials of the Company, including, without limitation, those set forth
on the Company's balance sheet as of the Financial Statement Date, other than
inventory sold in the ordinary course of business sold through the Closing Date
(collectively, the "Inventory"), are of a quality usable or saleable in the
normal course of the Company's business. The value of the Inventory as carried
on the Company's books and records reflect the normal inventory valuation policy
used by the Company and is in accordance with generally accepted accounting
principles, consistently applied, stating the value of the Inventory at the
lower of cost or market on a specific identification basis.
(dd) FULL DISCLOSURE. None of the written information provided by the
Company to Purchaser and Merger Sub in connection with the negotiation of this
Agreement contains any intentionally misleading statement of a material fact.
There is no fact which the Company has not disclosed to Purchaser or Merger Sub
in writing which materially affects or which will materially affect adversely
the Company's business, sales, income, properties, assets, liabilities,
activities, customers, or the ability of the Company to perform under this
Agreement.
4.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB. Purchaser
and Merger Sub represent and warrant to the Company as follows:
(a) ORGANIZATION AND CORPORATE POWER OF PURCHASER AND MERGER SUB.
Each of Purchaser and Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and is duly qualified to do business as a foreign corporation in
good standing in each jurisdiction in which the properties owned, leased or
operated by it, or the nature of its activities or proposed activities makes
such qualification necessary, except in such jurisdictions where the failure to
be so qualified or in good standing would not have a material adverse effect on
the business, results of operations or financial condition of the Purchaser and
its subsidiaries taken as a whole. Each of Purchaser and Merger Sub has all
required corporate power and authority to own its property and to carry on its
business as now conducted.
(b) CORPORATE AUTHORIZATION. Each of Purchaser and Merger Sub has
full power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement, and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all corporate action on the part of
Purchaser or Merger Sub, and no other corporate proceedings on the part of
either Purchaser or Merger Sub are necessary to authorize the execution and
delivery of this Agreement or to consummate the transactions so contemplated.
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(c) BINDING EFFECT. This Agreement constitutes the legal, valid and
binding agreement of Purchaser and Merger Sub enforceable against Purchaser and
Merger Sub in accordance with its terms, except to the extent that the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditor's
rights generally and by principles of equity regarding the availability of
remedies.
(d) CAPITALIZATION.
(i) The authorized capital of Merger Sub consists of 10,000,000
shares of common stock, no par value per share, 7,500,010 of which have been
issued to and are owned 100% by Purchaser, and 1,000,000 shares of preferred
stock, no par value per share, none of which have been issued. The authorized
capital of Purchaser consists of 50,000,000 shares of Purchaser Stock and
1,000,000 shares of preferred stock, no par value. The number of shares of
Purchaser Stock which are issued and outstanding as of the date hereof is set
forth in SCHEDULE 4.2(d)(i) attached hereto. There are no shares of preferred
stock issued or outstanding All of such outstanding shares are validly issued
and outstanding, fully paid and nonassessable. All shares of Purchaser Stock to
be issued to the stockholders of the Company in the Merger will be validly
issued, fully paid and nonassessable.
(ii) The description of the capitalization of Purchaser as set
forth in the Disclosure Documents (as defined in Section 4.2(f)), is true and
correct. There is no right of first refusal or similar restrictions on the
transferability of shares of its capital stock imposed by Purchaser's Articles
of Incorporation or Bylaws, as amended, or by any agreement to which Purchaser
is a party, (other than provisions of agreements that require compliance with
securities laws). Except as set forth in SCHEDULE 4.2(d)(ii) no person has the
right to cause Purchaser to effect the registration under the Securities Act, of
any shares of its capital stock or any other securities (including debt
securities) of Purchaser. No shareholder of Purchaser has any preemptive or
other purchase rights with respect to the issue or sale of any of its capital
stock.
(e) NO CONFLICTS. The execution, delivery and performance of this
Agreement, and the performance of the transactions contemplated hereby and the
compliance with the respective terms hereof by Purchaser and Merger Sub, do not
and will not (i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in the creation of
any lien, security interest, charge or encumbrance upon Purchaser's or Merger
Sub's capital stock or assets pursuant to, (iv) give any third party the right
to accelerate any obligation under, (v) result in a violation of, or (vi)
require any authorization, consent, approval, exemption or other action by or
notice to any court or administrative or governmental body or any other Person
pursuant to (A) the Articles of Incorporation or Bylaws of Purchaser or the
Articles of Incorporation or Bylaws of Merger Sub or any other organization or
governing instrument of Purchaser or Merger Sub, (B) any Contract, Lease,
indenture, promissory note, agreement, mortgage or other instrument to which
Purchaser or Merger Sub is a party or is bound or to which their assets are
subject or affected, or (C) any law, License, Permit, statute, rule, regulation,
judgment, decree or order of any Court, agency or other authority to which
Purchaser or Merger Sub is subject.
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(f) DISCLOSURE. Purchaser has furnished to the Company its most
recent (as of the date hereof) annual report to its shareholders and
consolidated audited financial statements for the year ended December 31, 1996
(the "Disclosure Documents"). The Disclosure Documents, including all financial
statements contained therein, do not contain any untrue statement of material
fact nor does any Disclosure Document or financial statement contained therein
omit to state any material fact necessary to make the statements made, in the
context in which made, not materially misleading. Except as set forth in
SCHEDULE 4.2(f) attached hereto, there is no fact which Purchaser or Merger Sub
has not disclosed to the Company that might materially adversely affect the
business, condition, or prospects (financial or other) of Purchaser or the
ability of Purchaser or Merger Sub to perform this Agreement or any of the
transactions contemplated hereby.
ARTICLE V
COVENANTS OF THE COMPANY
5.1 COVENANTS OF THE COMPANY . The Company covenants and agrees that:
(a) CONDUCT OF THE COMPANY. From the date hereof until the Effective
Time, the Company will conduct its business in the ordinary course consistent
with past practice and will use its best efforts to preserve intact its business
organization and relationships with third parties and to keep available the
services of its present officers and employees. Without limiting the generality
of the foregoing, from the date hereof until the Effective Time and without the
written consent of Purchaser:
(i) The Company will not declare, set aside or pay any
dividend or other distribution with respect to any shares of Stock of the
Company;
(ii) The Company will not amend or alter any material term
of any outstanding Stock;
(iii) The Company will not (A) issue or sell any securities
convertible into or exchangeable for debt securities of the Company; or (B)
issue or sell any options, warrants or other rights to acquire from the Company,
directly or indirectly, any debt securities of the Company or any securities
convertible into or exchangeable for any such debt securities;
(iv) The Company will not create, assume or incur any lien
on any material asset of the Company that will not be discharged at the Closing;
(v) Except as set forth in SCHEDULE 5.1(a)(v) attached
hereto and except for the issuance of shares pursuant to the exercise of the
Outstanding Options or the Outstanding Warrants, the Company will not (A) issue
or sell any additional Stock or (B) redeem, repurchase or otherwise acquire any
additional Stock;
(vi) The Company will not relinquish any material contract
or other material right of the Company, make any payment (direct or indirect) of
any liability of the
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Company before the same becomes due in accordance with its terms or make any
change in its operations that is in any such case material to the Company, its
business, prospects and financial condition taken as a whole;
(vii) The Company will not adopt any change in any method of
accounting or accounting practice used by the Company other than by reason of a
concurrent change in GAAP and upon the recommendation of the Company's
independent public accountants;
(viii) Except for the agreements referenced in SCHEDULE
5.1(a)(viii), which the Company may amend with the prior written consent of
Purchaser (which will not be unreasonably withheld), the Company will not (A)
grant or make any severance or termination payments to any officer, director or
employee of the Company, except pursuant to written agreements in effect on the
date hereof, (B) enter into any employment, deferred compensation or other
similar agreement (or enter into any amendment to any such existing agreement)
with any officer, director or employee of the Company, (C) without the consent
of Purchaser pay any officer, director, or employee compensation which is in
excess of the current compensation level of each employee, officer or director,
except for standard periodic increases to non-management employees consistent
with past practices in terms of timing and amount; (D) materially accelerate or
increase benefits payable under any existing severance or termination pay
policies or employment agreements, or (E) accelerate, vest, pay or provide for
any increase in compensation, bonus, or other benefits payable to officers,
directors or employees of the Company except for normal increases to
non-managerial employees consistent with past practice, to the extent required
under existing employment and labor agreements.
(ix) The Company will not amend its Articles of
Incorporation or Bylaws or change its corporate name or, except as set forth in
SCHEDULE 5.1(ix) attached hereto, permit the use thereof by any other Person;
(x) Subject to the fiduciary duties of its Board of
Directors, the Company will not merge or consolidate with any Person, acquire
any stock or other ownership interest in any Person, or the assets of any
business as an entity, or liquidate, dissolve or otherwise reorganize or seek
protection from creditors;
(xi) Subject to the fiduciary duties of its Board of
Directors, the Company will not intentionally take any action, the taking of
which, would reasonably be expected to cause any of the representations and
warranties in Section 4.1 hereof to be inaccurate in any material respect at or
as of any time prior to the Effective Time;
(xii) Except for the sale of inventory and the disposition of
obsolete or defective equipment or other assets in the ordinary course of
business, the Company will not sell, transfer, mortgage, or otherwise dispose
of, or encumber, or agree to sell, transfer, mortgage or otherwise dispose of or
encumber, any assets or properties, real, personal or mixed;
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(xiii) Subject to the fiduciary duties of its Board of
Directors, the Company will not (A) enter into any other agreements, commitments
or contracts (including without limitation joint venture agreements or material
license agreements) which, individually or in the aggregate, are material to the
Company, except agreements, commitments or contracts for the purchase, sale or
lease of goods or services, consistent with past practice or (B) otherwise make
any material change in any existing material agreement, commitment or
arrangement, except in the ordinary course of business;
(xiv) The Company will not make any investment of a capital
nature either by purchase of stock or securities, contributions to capital,
property transfers or otherwise, or by the purchase of any property or assets of
any other Person, except the purchase of fixed assets as permitted by Section
5.1(a)(xv) hereof;
(xv) The Company will not purchase any fixed assets which,
singly or in the aggregate have an installed purchase price greater than $1,000;
(xvi) The Company will not distribute or otherwise circulate
any notices, directives or other communications directed to all or groups of
customers, vendors, employees, distributors or others associated with its
business without consulting with Purchaser and giving Purchaser reasonable
opportunity to comment thereon;
(xvii) The Company will not make any changes in management
without prior written consent of Purchaser;
(xviii) The Company will not increase the amount of any
indebtedness outstanding under any loan agreement, mortgage or borrowing
arrangement in existence on the date hereof or obtain any additional loans or
incur any additional indebtedness, unless the Company first advises Purchaser
and receives Purchaser's consent thereto (which consent shall not be
unreasonably withheld);
(xix) The Company shall pay when due in accordance with past
practices all of its accounts payable and trade obligations;
(xx) The Company shall use its best efforts to maintain its
facilities, assets and properties in good operating repair, order and condition,
reasonable wear and tear excepted, and notify Purchaser promptly upon any loss
of, damage to, or destruction of any of its facilities, properties or assets;
(xxi) The Company shall maintain in full force and effect all
insurance coverage of the types and in the amounts set forth in the Schedules
attached hereto and apply the proceeds received under any insurance policy or as
a result of, damage to, or destruction of any of its facilities, properties or
assets to the repair or replacement of such facilities, properties or assets;
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(xxii) The Company shall maintain in full force and effect all
Licenses and Permits, and shall use its best efforts to maintain in full force
and effect all Leases and Contracts, for or related to the operation of the
Company's business and in all respects and in all places as such business is now
conducted;
(xxiii) The Company shall use its best efforts to preserve its
business organizations intact, to keep available the services of its present
employees and to preserve the good will of its customers and others having
business relations with the Company;
(xxiv) The Company shall promptly advise Purchaser in writing
of the commencement of, and any known threat to commence, any suit, claim,
action, arbitration, legal or administrative proceedings, governmental
investigation or tax audit against the Company;
(xxv) The Company shall deliver to Purchaser as soon as
available monthly financial statements ("Monthly Financial Statements") of the
Company commencing with the month of July, 1997, and for each calendar month
thereafter prior to the Closing Date;
(xxvi) Promptly following the execution of this Agreement, the
Company shall have notified any Person having Outstanding Options of the matters
contemplated by the Company's outstanding stock option plans, and any Person
having Outstanding Warrants of the matters as to which notice is required to be
given in accordance with their respective notice provisions. The Company shall
use its best efforts to obtain from the holders of the Outstanding Warrants and
Outstanding Options listed in SCHEDULE 5.1(a)(xxvi) attached hereto a written
agreement as to the termination and cancellation of their Outstanding Warrants
and Outstanding Options.
(xxvii) The Company shall pay all payroll withholding expenses
with respect to the exercise, prior to the Closing Date, of any Outstanding
Options or Outstanding Warrants outstanding as of the date hereof and all other
expenses and costs incurred by the Company in the ordinary course of business as
such expenses and costs shall become due and payable.
(xxviii) The Company shall not incur any liability or be
obligated to fund any vacation pay, severance pay, incentive, compensation,
consulting agreement, bonus or other employee benefit or fringe benefit. The
Company shall not incur any additional accounts payable between the date hereof
and the Closing Date other than in the ordinary course of business without
Purchaser's express written consent.
(xxix) The Company shall not agree or commit to do any of the
matters specified in Section 5.1(a)(i) through 5.1(a)(xviii) and Section
5.1(a)(xxviii) hereof and the Company will take action and perform the matters
set forth in Sections 5.1(a)(xix) through 5.1(a)(xxvii) hereof.
(b) ACCESS TO INFORMATION. The Company will give Purchaser, its
counsel, financial advisors, auditors and other authorized representatives full
access to the offices,
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properties, books and records of the Company and will promptly furnish to
Purchaser, its counsel, financial advisors, auditors and authorized
representatives such financial and operating data and other information as such
persons may reasonably request and will instruct the officers, directors,
employees, counsel and financial advisors of the Company to discuss the business
operations, affairs and assets of such corporations and otherwise fully
cooperate with the other party in its investigation of the business of the
Company. No investigation pursuant to this Section 5.1(b) will affect any
representation or warranty given by the Company to Purchaser hereunder.
(c) NOTICE OF CERTAIN EVENTS. The Company will promptly notify
Purchaser of:
(i) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental
or regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(iii) any actions, suits, claims, investigations or
proceedings commenced or, to the best of the Company's knowledge, threatened
against, relating to or involving or otherwise affecting the Company which
relate to the consummation of the transactions contemplated by this Agreement or
which, if pending on the date of this Agreement, would have been required to
have been disclosed in the Disclosure Schedule; and
(iv) any other event or change of fact or circumstance
causing any representation contained in Section 4.1 of this Agreement to be, as
of the date of such event or change, incorrect or misleading in any material
respect.
(d) CONSENTS, APPROVALS AND FILINGS. Subject to the terms and
conditions herein provided and without being required to waive any conditions
herein, the Company will use its best efforts to obtain as promptly as possible
all necessary approvals, authorizations, consents, clearances or orders
("Consents") of governmental and regulatory authorities required in order for
the Company to perform its obligations hereunder. The receipt of such Consents
shall be a condition of Closing.
(e) BEST EFFORTS. The Company shall use its best efforts (i) to
cause to be fulfilled and satisfied all of the conditions to the Merger to be
fulfilled and satisfied by the Company, and (ii) to cause to be performed all of
the matters required of it at or prior to the Effective Time.
(f) EXCLUSIVITY. In order to induce Purchaser to enter into this
Agreement, the Company agrees that subject to the fiduciary duties of the Board
of Directors of the Company, the Company will not, prior to the Closing Date,
take any further action to solicit, initiate or encourage any offer or
indication of interest from any Person other than Purchaser relating to the
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merger, consolidation or sale of the Company or its Stock or properties and
assets of the Company, including without limitation, any such further action
through any investment banker, broker, finder or other intermediary previously
engaged or which may be engaged for the purpose of soliciting, initiating or
encouraging such offer or indication of interest.
5.2 COVENANTS OF PURCHASER. Purchaser covenants and agrees that:
(a) BEST EFFORTS. Subject to the terms and conditions herein
provided and without being required to waive any conditions herein, Purchaser
shall use its best efforts to (i) cause to be fulfilled and satisfied all of the
conditions to the Merger to be fulfilled and satisfied by it, and (ii) cause to
be performed all of the matters required of it at or prior to the Effective
Time.
(b) CONSENTS, APPROVALS AND FILINGS. Purchaser will use its best
efforts to obtain as promptly as possible all necessary approvals,
authorizations, consents, licenses, clearances or orders of governmental and
regulatory authorities required in order for Purchaser to perform its
obligations hereunder.
(c) ADVICE OF CHANGES. Purchaser will promptly advise the Company
orally and in writing of (i) any event occurring subsequent to the date of this
Agreement which would render any representation or warranty of Purchaser
contained in this Agreement, if made on or as of the date of such event or the
Effective Time, untrue, inaccurate or incomplete in any material respect and
(ii) any material adverse change in the financial condition, assets, liabilities
(whether absolute, accrued, contingent or otherwise), operating profits,
business or prospects of Purchaser.
ARTICLE VI
MISCELLANEOUS
6.1 SURVIVAL OF REPRESENTATIONS. The representations, warranties,
covenants, and agreements of the Company, Purchaser and Merger Sub made herein
or any certificate delivered by the Company or Purchaser and Merger Sub pursuant
to Sections 4.1 and 4.2 hereof, as the case may be, shall survive without
limitation the execution hereof and thereof and the delivery of the Merger
Consideration and shall remain in full force and effect for a period of five (5)
years after the Closing Date.
6.2 INCORPORATION BY REFERENCE. Except for the Disclosure Schedule and
Schedule 2.6(a) which will be attached as of the date of execution of this
Agreement, the Schedules, Exhibits and Attachments contemplated under this
Agreement shall be appended to this Agreement within five (5) days business
after the execution of this Agreement by the parties hereto. All Schedules,
Exhibits and Attachments to this Agreement and all documents delivered pursuant
to or referred to in this Agreement are incorporated herein by reference and
made a part hereof. Such Exhibits, Schedules and Attachments may be appended
hereto, amended or modified by a party provided that the other party ("Receiving
Party") has been furnished with a copy of the proposed amendment or modification
to such Schedule, Exhibit or Attachment; provided, however, that if any such
Schedule, Exhibit, Attachment or amendment thereto shall materially adversely
affect the economics, financial or business considerations of the transactions
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contemplated under this Agreement as determined by the Receiving Party, such
Receiving Party may terminate this Agreement in accordance with Section
6.16(a)(vii) hereof. The Schedules, Exhibits and Attachments to this Agreement
shall not be deemed to be part of the Plan of Merger.
6.3 PARTIES IN INTEREST. All covenants, agreements, representations,
warranties and undertakings in this Agreement made by and on behalf of any of
the parties hereto shall bind and inure to the benefit of their respective
successors and assigns and the term "Purchaser" herein shall apply to the
successors and assigns of Purchaser.
6.4 AMENDMENTS AND WAIVERS. This Agreement may be amended, or compliance
with any terms, covenants, agreement, condition or provision set forth herein
may be waived (either generally or in a particular instance and either
retroactively or prospectively) if agreed to in writing by the Company,
Purchaser and Merger Sub upon the approval of their respective Boards of
Directors at any time prior to filing the Articles of Merger with the Secretary
of State of Iowa or Colorado, respectively.
6.5 GOVERNING LAW; SEVERABILITY. This Agreement, together with the rights
and obligations of the parties hereunder, shall be governed by, construed and
enforced in accordance with the laws of the State of Colorado without giving
effect to the conflict of laws provisions thereof. If any provision of this
Agreement or the application of any such provision to any party shall be held by
a court of competent jurisdiction to be contrary to law, the remaining
provisions of this Agreement shall remain in full force and effect.
6.6 NOTICES. All notices, requests, consents and demands shall be in
writing and shall be deemed to have been sufficiently given, upon receipt, if
sent, postage prepaid, by registered or certified mail, return receipt
requested, to the Company at 527 - 6th Avenue, Des Moines, Iowa 50309, Attn:
President, with a copy to James D. Birkenholz, Esq. 974 73rd Street, Suite 20,
Des Moines, Iowa 50312; to the Purchaser or Merger Sub at 67 Inverness Drive
East, Suite 110, Englewood, Colorado 80112, Attn: Legal Department, or to such
other address as may from time to time be furnished in writing to the other
parties hereto.
6.7 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
6.8 CAPTIONS. The captions and headings of this Agreement are for
convenience only and are not to be construed as defining or limiting the scope
or intent of any of the provisions hereof.
6.9 COMPLETE AGREEMENT. This document, and the Exhibits and Schedules
hereto, embodies the complete agreement and understanding between and among the
parties hereto with respect to the subject matter hereof, and supersedes and
preempts any prior understandings, agreements, or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof.
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6.10 ARBITRATION. Any and all disputes arising out of, under, in
connection with, or relating to this Agreement shall be finally settled by
arbitration in Denver, Colorado, or in such other place as the parties hereto
agree, in accordance with the rules then in effect of the American Arbitration
Association. The board of arbitrators shall be composed of three arbitrators,
being qualified to make evaluations of the kind under dispute. Such arbitrators
shall be selected in accordance with the procedures of the American Arbitration
Association and shall be reasonably acceptable to both Purchaser and the
stockholders of the Company. The arbitration award, based upon written findings
of fact and conclusions of law, shall be final and binding on the parties. Each
party will pay its own expenses associated with such arbitration, provided that
the prevailing party in any arbitration shall be entitled to reimbursement of
reasonable attorney's fees and expenses (including, without limitation,
arbitration expenses) relating to such arbitration. Any arbitration award may
be enforced in any court having jurisdiction over the party against which
enforcement is sought.
6.11 INDEMNIFICATION BY COMPANY STOCKHOLDERS. The stockholders of the
Company identified in SCHEDULE 6.11 attached hereto (the "Indemnifying
Stockholders") will indemnify, defend and save and hold Purchaser and Merger Sub
harmless from and against any costs, expenses, damages, liabilities, losses or
deficiencies, including, without limitation, reasonable attorneys' fees and
other costs incident to any suit, action or proceeding (collectively "Losses")
suffered or incurred by Purchaser or Merger Sub, respectively, arising out of or
resulting from, and will pay Purchaser and Merger Sub on demand the full amount
of any amounts which Purchaser or Merger Sub as the Surviving Corporation,
respectively, may pay or may become obligated to pay in respect of:
(i) any material inaccuracy in any representation or
document delivered under or pursuant to this Agreement or the material breach of
any warranty made by the Company in or pursuant to this Agreement;
(ii) any misrepresentations in or omission from any
schedule, exhibit or any other attachment to this Agreement;
(iii) any failure by the Company duly to perform or observe
any term, provision, covenant, or agreement in this Agreement to be performed or
observed on the part of the Company for periods prior to the Closing Date; or
(iv) any action, suit, investigation, proceeding, demand,
assessment, audit, judgment and claim, including any employment-related claim
arising out of the foregoing paragraphs (i), (ii) and (iii) (collectively
"Claims") against the Company accruing prior to the Closing Date, even though
such claims may not come to light until after the Closing Date.
Purchaser and Merger Sub hereby covenant and agree to immediately provide
the Indemnifying Stockholders any and all notifications or other correspondence
that either such corporation receives related to matters which may affect this
indemnity and hereby agree to allow the Indemnifying Stockholders to defend any
and all actions affecting this indemnity and shall not settle any action or
dispute affecting this indemnity without obtaining the prior written consent of
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the Indemnifying Stockholders. However, failure to provide any such
notifications or other correspondence in a timely manner will not relieve the
Indemnifying Stockholders of their obligations to indemnify Purchaser and Merger
Sub under this Section 6.11; provided, however, that the Indemnifying
Stockholders shall have no obligation to indemnify Purchaser or Merger Sub in
the event Purchaser fails to timely notify the Indemnifying Stockholders of any
such Claim for indemnification which results in a material adverse effect on the
ability of the Indemnifying Stockholders to defend the Claim or in the event
such failure to so notify is willful. The Indemnifying Stockholders shall have
the right to select counsel of their choice, subject to the reasonable approval
of Purchaser, and to assume the defense of such claim. The Indemnifying
Stockholders shall give notice to Purchaser of the name of the counsel selected
by the Indemnifying stockholders and Purchaser shall have fifteen (15) days to
approve or disapprove such counsel. Purchaser or Merger Sub shall have the right
to employ separate counsel with respect to any such Claim and to participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of the indemnified party unless (i) the Indemnifying Stockholders have
agreed in writing to pay such fees and expenses, (ii) the Indemnifying
Stockholders have failed to assume defense and employ counsel, or (iii) the
named parties to such action include both Indemnifying Stockholders and an
indemnified party and the Indemnifying Stockholders have been advised by their
counsel that representation of such indemnified party and Indemnifying
Stockholders by the same counsel would be inappropriate under applicable
standards of professional conduct due to actual or potential differing interests
between them (in which case the Indemnifying Stockholders shall not have the
right to assume the defense of such action on behalf of Purchaser or Merger
Sub).
Except with respect to any failure of a representation or warranty or an
omission which makes any representation or warranty set forth in Section 4.1
hereof, or in any Schedule, Exhibit or any other Attachment to this Agreement
inaccurate or misleading and such failure is a result of fraud, gross negligence
or willful or wanton disregard by the Company as to the truth and accuracy of
the matters stated therein of which such stockholders had any knowledge, the
obligation of such stockholders of the Company to indemnify Purchaser and the
Merger Sub, as provided hereunder, shall not exceed the aggregate amount equal
to the Merger Consideration received by the Indemnifying Stockholders. The
aggregate amount of the Claims to be indemnified hereunder shall be shared
proportionally by the Indemnifying Stockholders based on the percentage that the
Merger Consideration received by each such Indemnifying Stockholder bears to the
Merger Consideration received by all such Indemnifying Stockholders of the
Company who are obligated to indemnify Purchaser and Merger Sub hereunder.
Otherwise, in the case of any failure of a representation or warranty or an
omission making the representation or warranty set forth in Section 4.1 hereof
or in any Schedule, Exhibit or other Attachment to this Agreement misleading,
which failure or omission involves fraud, gross negligence or willful and wanton
disregard on the part of the Company of which such Indemnifying Stockholders had
knowledge ("Knowledgeable Misrepresentation"), the obligation to indemnify the
amount of the Claims suffered or incurred by Purchaser or Merger Sub shall not
exceed the aggregate amount equal to the Merger Consideration received by the
Indemnifying Stockholders plus the total amount of the Bank Debt paid by
Purchaser or Merger Sub. Such obligation to indemnify shall be shared by such
Indemnifying Stockholders of the Company having knowledge of such fraud, gross
negligence or willful and wanton disregard in the proportion of the Merger
Consideration received
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by each such Indemnifying Stockholder and a percentage of the Merger
Consideration received by all such Indemnifying Stockholders of the Company
having such knowledge.
6.12 PURCHASER'S INDEMNIFICATION. Purchaser and Merger Sub agree that
notwithstanding the Closing and regardless of any investigation of any item made
by or on behalf of the Company or any information the stockholders of the
Company may have in respect thereof, the Purchaser or Merger Sub will indemnify
and save and hold the stockholders of the Company harmless from and against any
Losses suffered or incurred by the stockholders of the Company arising out of or
resulting from, and will pay the stockholders of the Company on demand the full
amount of any such amounts which the stockholders of the Company may pay or
become obligated to pay in respect of:
(i) any material inaccuracy in any representation or the
breach of any warranty made by Purchaser or Merger Sub in or pursuant to this
Agreement;
(ii) any failure by Purchaser or Merger Sub of their duty to
perform or observe any item, provision, covenant or agreement in this Agreement
to be performed or observed on the part of Purchaser or Merger Sub; or
(iii) any claim for damages arising after the Closing Date
for any act or omission of Purchaser or Merger Sub occurring after the Closing
Date.
6.13 LIMITATION OF INDEMNITY. Notwithstanding any provision herein to the
contrary, except as set forth in Section 6.14 hereof relating to brokers and
finders, neither Purchaser nor Merger Sub, on the one hand, nor the Indemnifying
Stockholders on the other hand, shall be required to indemnify the other for any
misrepresentation, breach of warranty or failure to fulfill any covenant or
agreement herein except to the extent that the aggregate amount which the
Indemnifying Stockholders, on the one hand, or Purchaser and Merger Sub, on the
other hand, respectively would otherwise (but for this provision) be liable on
account thereof exceeds in the aggregate the sum of five thousand dollars
($5,000) (the "Threshold Amount") and then only to the extent of such excess;
provided, however, for purposes of calculating whether the Threshold Amount has
been reached, any specific materiality provision contained in the
representations and warranties shall be disregarded. The obligations of the
Indemnifying Stockholders to indemnify Purchaser or Merger Sub under Section
6.11 shall terminate five years after the Closing Date except as to matters as
to which notice of a Claim has been given to the Indemnifying Stockholders under
Section 6.11 prior to the expiration of such five year period.
6.14 BROKERAGE COMMISSIONS. Each party to this Agreement warrants to the
other that it has not engaged or utilized the services of any broker or finder
in connection with the transaction contemplated by this Agreement, and no
commissions are payable with respect to the transactions contemplated by this
Agreement. Each such party hereto agrees to indemnify and hold the other
harmless from and against any liability for any claims of any broker or finder
claiming by, through, or under such party.
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6.15 PUBLICITY. Prior to the Closing Date, all notices to third parties
and all other publicity relating to the transactions contemplated by this
Agreement shall be jointly planned, coordinated and approved by the Company,
Purchaser and Merger Sub.
6.16 TERMINATION.
(a) TERMINATION. This Agreement may be terminated, and the Merger
contemplated by this Agreement may be abandoned, at any time prior to the
Effective Time, notwithstanding the adoption of this Agreement and the approval
of the Merger by the stockholders of the Company:
(i) By mutual written consent duly authorized by the Board
of Directors of Purchaser and by the Board of Directors of the Company;
(ii) By either Purchaser or the Company if the Merger has
not been consummated by October 31, 1997, except that the right to terminate
this Agreement under this Section 6.16(a)(ii) will not be available to any party
whose willful failure to perform any material obligation or to fulfill any
material condition under this Agreement has been the proximate cause of, or
resulted in, the failure of the Effective Time to occur on or before that date;
(iii) By either Purchaser or the Company if a court of
competent jurisdiction or an administrative, governmental, or regulatory
authority has issued a final nonappealable order, decree, or ruling, or taken
any other action, having the effect of permanently restraining, enjoining, or
otherwise prohibiting the Merger;
(iv) By Purchaser if (A) Purchaser is not in material breach
of its obligations under this Agreement and (B) there has been (1) a material
breach by the Company of any of its representations and warranties under this
Agreement such that the conditions in Section 3.1(a) can not be satisfied or (2)
a material failure by the Company to perform any of its obligations under this
Agreement such that the conditions in Section 3.1(b) can not be satisfied, and,
in both case (1) and case (2), the breach or failure cannot be cured by the
Company within 30 calendar days following receipt by the Company of notice of
the breach;
(v) By the Company if (A) the Company is not in material
breach of its obligations under this Agreement and (B) there has been (1) a
material breach by Purchaser of any of its representations and warranties under
this Agreement such that the conditions in Section 3.2(a) will not be satisfied
or (2) a material failure by Purchaser to perform any of its obligations under
this Agreement such that the conditions in Section 3.2(b) will not be satisfied,
and, in both case (1) and case (2), the breach or failure cannot be cured by
Purchaser within 30 calendar days following receipt by Purchaser of notice of
the breach;
(vi) By the Purchaser if the total value of the appraisal
rights of the Dissenting Shares as determined under the applicable provisions of
the Iowa Business Corporation Act exceeds the amount set forth in Section 3.1(l)
hereof; and
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(vii) By either of the Purchaser or the Company, such party
not then being in breach of the Agreement, if any Exhibit, Schedule or
Attachment appended hereto subsequent to the date of the Agreement or any
amendment to any Exhibit, Schedule or Attachment hereto made subsequent to the
date of the Agreement shall materially adversely affect the economics, financial
or business considerations of the transactions contemplated under this Agreement
as determined by the Receiving Party.
This Agreement may be terminated by the Board of Directors of either the
Company or Purchaser in accordance with the foregoing provisions notwithstanding
the approval of the Agreement by the stockholders of the Company or Merger Sub.
(b) EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 6.16(a)(i),(ii) (unless the failure to consummate
the transactions contemplated hereunder is caused by the acts or omissions of
Purchaser), (iii), (iv), (vi) and/or (vii) hereof, the Company shall return the
Earnest Money received from Purchaser. In the event of the termination of this
Agreement pursuant to Subsections 6.16(a)(ii) (if the failure to consummate the
transactions hereunder is caused by the acts or omissions of Purchaser) or (v),
the Company shall be entitled to retain the Earnest Money received from
Purchaser.
6.17 COSTS AND EXPENSES OF MERGER. The Company shall be responsible
for the payment of all Transactional Costs as provided in SCHEDULE 6.17 and
Purchaser and Merger Sub shall be responsible for the payment of their costs and
expenses, including, without limiting the generality thereof, the costs and
expenses of its attorneys, accountants and other consultants engaged by such
party in connection with the investigation or due diligence review of documents
of the other party, filing fees, recording and notification fees, travel,
entertainment and lodging expenses and any other expenses or costs relating to
the consummation of the transactions contemplated under this Agreement up to and
including the Closing Date. The amount of the Transactional Costs shall reduce
the total amount of the Cash Consideration in accordance with this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first set forth above.
CONVERGENT COMMUNICATIONS, INC.,
a Colorado corporation
By: /s/ John R. Evans
-------------------------------------
John R. Evans, Chief Executive Officer
CONVERGENT COMMUNICATIONS SERVICES, INC.
a Colorado corporation
By: /s/ John R. Evans
-------------------------------------
John R. Evans
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John R. Evans, Chief Executive Officer
A.T.T.EX CORPORATION
an Iowa corporation
By: /s/ Barry Howard
------------------------------------
Barry Howard, President
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made this 1st day of
September 1997, by and among CONVERGENT COMMUNICATIONS, INC., a Colorado
corporation ("Purchaser"), CONVERGENT COMMUNICATIONS SERVICES, INC., a Colorado
corporation ("Merger Sub"), and VITAL INTEGRATION SOLUTIONS, INC., an Iowa
corporation ("Company").
RECITALS
A. Company provides various telecommunications services;
B. Purchaser owns 100% of the issued and outstanding capital stock of
Merger Sub; and
C. Purchaser desires to acquire the business of the Company by merging
the Company with and into Merger Sub in accordance with the terms and conditions
of this Agreement in a transaction designed and intended to meet the
requirements of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue
Code of 1986, as amended ("Code"), and as a result of the Merger of the Company
with and into Merger Sub, as the Surviving Corporation, the assets and certain
liabilities of the Company will be merged with and into the Merger Sub.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1. CERTAIN DEFINITIONS. As used herein, the following terms shall have
the following meanings unless the context otherwise requires:
1.1 "AGREEMENT" shall mean this Agreement and Plan of Merger.
1.2 "BANK DEBT" shall mean that portion of the Funded Debt identified
as Bank Debt on SCHEDULE 2.6(a) attached hereto.
1.3 "CASH CONSIDERATION" shall mean a total amount of $500,000 cash
less (i) the Earnest Money, (ii) Transactional Costs, (iii) Escrowed Funds, (iv)
any amount of Funded Debt in excess of zero dollars ("Funded Debt Threshold") as
of the Closing Date and (v) any amount by which the trades payable as of the
Closing Date listed in SCHEDULE 2.6(d)-2 exceeds the accounts receivable of the
Company as listed on Schedule 4.1(z) as of the Closing Date.
1.4 "CLOSING" shall mean the consummation of the transactions
contemplated by this Agreement.
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1.5 "CLOSING DATE" shall mean the date on which the Closing occurs
pursuant to Section 2.3(a).
1.6 "COMMON STOCK" shall mean the Common Stock, no par value per
share, of the Company.
1.7 "DEEMED EQUIVALENT" of a share of Purchaser Stock shall mean an
amount equal to $3.00 per share.
1.8 "DISCLOSURE SCHEDULE" shall mean the Schedule attached to this
Agreement at execution as contemplated in Section 4.1 hereof and which shall not
be modified or changed in any respect after the date hereof without the prior
written consent of Purchaser.
1.9 "DISSENTING SHARE" shall have the same meaning as defined in
Section 2.5(d)(i) hereof.
1.10 "EARNEST MONEY" shall mean the $25,000 cash previously advanced
by the Purchaser to the Company pursuant to that certain letter of intent
between Purchaser and Company dated July 11, 1997.
1.11 "EFFECTIVE TIME" shall mean the time when the Merger of the
Company with and into Merger Sub becomes effective under applicable law.
1.12 "ESCROW FUND" shall mean the portion of the total Cash
Consideration set aside to pay the full amount of the appraised value of any
Dissenting Shares in accordance with Section 2.5(e) hereof.
1.13 "FAIR MARKET VALUE" shall mean for purposes of this
Agreement, $3.00 per share of Purchaser Stock.
1.14 "FUNDED DEBT" shall mean the indebtedness and other obligations
of the Company, including principal, accrued interest and other amounts payable
in connection therewith, identified on SCHEDULE 2.6(a), and all other
indebtedness for borrowed money incurred by the Company after the date hereof
and prior to the Closing Date subject to Section 5.1(a)(xviii) hereof. Such term
shall not include the trade payables incurred by the Company in the ordinary
course of business, except as specifically identified on SCHEDULE 2.6(a).
1.15 "MERGER" shall have the same meaning as set forth in Section
2.1(a) hereof.
1.16 "MERGER CONSIDERATION" shall mean the Cash Consideration and the
Stock Consideration but shall not include any cash paid by Purchaser to pay the
portion of the Funded Debt as provided in Sections 2.6(a) hereof.
1.17 "PERMITTED ENCUMBRANCES" shall mean the following liens, charges
and other encumbrances of a similar nature with respect to the properties and
assets of the Company;
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(i) liens for current state or local property taxes not yet
due and payable or subject to penalties;
(ii) zoning ordinances, building laws, restrictions and
regulations imposed by governmental authorities, if any, none of which is
materially violated by existing buildings and uses by the Company;
(iii) any assessment for local benefits levied by any
governmental authority and not now a lien upon all or any portion of any real
property; provided, however, neither the Company knows or has any reason to know
of any such assessment;
(iv) liens of carriers, warehousemen, mechanics and material
men, and other like liens in existence less than 120 days from the date of
creation thereof, all of which shall be satisfied and released on or prior to
the Closing Date;
(v) any mortgage, deeds of trust or other encumbrances on
leasehold properties which the Company is leasing from the third party which is
the owner of the property and leased by the Company subject to any such
encumbrance; and
(vi) such imperfections of title, liens, easements or
encumbrances, if any, which are not material in character, amount or extent and
do not, severely or in the aggregate, materially detract from the value or
materially or adversely interfere with the present use of the property subject
thereto or affected thereby or otherwise materially impair the business and
operations of the Company.
1.18 "PERSON" shall mean an individual, partnership, corporation,
limited liability company, trust, unincorporated organization, association, or
joint venture or a government, agency, political subdivision, or instrumentality
thereof.
1.19 "PURCHASER STOCK" shall mean the common stock, no par value, of
Purchaser.
1.20 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
1.21 "STOCK" shall mean the Common Stock together with all other
equity securities of the Company.
1.22 "STOCK CONSIDERATION" shall mean 750,000 shares of Purchaser
Stock.
1.23 "STOCKHOLDER INVESTMENT LETTER" means the letter agreement to be
executed by each stockholder of the Company receiving Purchaser Stock pursuant
to the terms of this Agreement. A form of Stockholder Investment Letter is
attached to this Agreement as EXHIBIT 1.23.
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1.24 "SURVIVING CORPORATION" shall mean Merger Sub as the Surviving
Corporation after the Merger as provided in Section 2.1(a) hereof.
1.25 "TRANSACTIONAL COSTS" shall mean those costs and expenses which
relate, directly and indirectly, to the negotiation, revision, amendment,
execution, implementation and Closing of this Agreement (and the transactions
contemplated hereunder) by or on behalf of the Company which shall be borne by
the Company as provided in Section 6.17 hereof. The costs and expenses included
as Transactional Costs shall consist of attorneys', accountants' and other
advisors' fees and disbursements incurred by the Company in connection with the
Merger.
ARTICLE II
2.1 THE MERGER AND RELATED MATTERS.
(a) MERGER. At the Effective Time and subject to and upon the terms
and conditions of this Agreement and Colorado and Iowa law, the Company shall
merge (the "Merger") with and into the Merger Sub, the separate corporate
existence of the Company shall cease and Merger Sub shall continue as the
Surviving Corporation. The Merger will have the effect set forth in the
Colorado Business Corporation Act and the Iowa Business Corporation Act. The
Surviving Corporation may, at any time after the Effective Time, take any
action, including executing and delivering any certificates, instruments and
documents as shall be reasonably determined by the Board of Directors of the
Surviving Corporation to be necessary and appropriate, in the name and on behalf
of either the Company or Merger Sub in order to carry out and effectuate the
transactions contemplated by this Agreement.
(b) SURVIVING CORPORATION. The Company shall be merged with and into
Merger Sub, with Merger Sub as the Surviving Corporation, and the separate
existence of the Company shall cease. As a result of the Merger the
stockholders of the Company immediately prior to the Effective Time shall cease
to hold any Stock but will instead have the rights specified in Section 2.5
hereof and all rights, privileges, powers, franchises and interest of the
Company and all of its properties, whether real, personal or mixed, all debts
due on whatever account and every other interest of the Company, whether
tangible or intangible shall be deemed to vest in the Surviving Corporation
without further act or deed, and all claims, demands, property and every other
interest shall be as of the Effective Time the property of the Surviving
Corporation to the same extent as previously owned or held by the Company.
(c) ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The Articles
of Incorporation of the Merger Sub in effect at and as of the Effective Time
shall remain the Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided by law.
(d) BYLAWS OF SURVIVING CORPORATION. The Bylaws of Merger Sub as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by law.
(e) DIRECTORS AND OFFICERS. The number of directors of the Surviving
Corporation and the persons serving as Directors of the Surviving Corporation
shall be the same
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number of directors and the same persons serving on the Board of Directors of
Merger Sub immediately prior to the Effective Time and they shall continue to
hold office until their successors have been duly nominated, elected or
appointed as provided under the Surviving Corporation's Bylaws as may
subsequently be amended in accordance with the provisions thereof. The officers
of Merger Sub as constituted immediately prior to the Effective Time shall hold
the same offices in the Surviving Corporation following the Effective Time,
until such time as their successors have been duly appointed and qualified.
(f) EFFECT OF MERGER. The Merger, from and after the Effective Time,
shall have all the effects provided for a merger under Iowa and Colorado law,
provided that Colorado law shall govern the Surviving Corporation.
2.2 APPROVAL BY COMPANY STOCKHOLDERS. The Company, acting through its
Board of Directors, shall duly call, give notice of, convene and hold a special
meeting of the stockholders of the Company (the "Special Meeting") to consider
and vote upon the approval and adoption of this Agreement and the Merger
contemplated hereby, or shall seek the requisite written consent of its
stockholders, all in accordance with Iowa law and its Articles of Incorporation
and Bylaws. The Company shall hold the Special Meeting or obtain such written
consent as soon as practicable after the date hereof. Subject to its fiduciary
obligations, the Board of Directors of the Company will recommend that the
stockholders of the Company vote to adopt this Agreement and approve the Merger
at the Special Meeting and will use its best efforts to solicit from the
stockholders of the Company proxies in favor of the Merger and will take all
other action necessary or, in the opinion of Purchaser, advisable to secure the
vote or consent of the stockholders of the Company required by the Iowa Business
Corporation Act to effect the Merger. If this Agreement and the Merger are
approved and adopted by written consent of less than all of the stockholders of
the Company, the Company shall give prompt notice of such approval and adoption
in accordance with Iowa law to those stockholders who did not consent.
2.3 CLOSING
(a) CLOSING DATE AND LOCATION. The Closing shall take place at 10:00
a.m. (Denver time) at the offices of Merger Sub, 67 Inverness Drive East, Suite
110, Englewood, Colorado, on the second business day immediately following the
later to occur of (i) the Special Meeting approving the Merger if such a meeting
is held, (ii) the applicable waiting period after the giving of notice to the
stockholders of the Company who did not consent, if the Merger is approved by
written consent of less than all stockholders of the Company, or (iii) the date
on which all notice periods have run or consents have been received for notices
to be given or consents to be received under Sections 3.1(g) and 3.2 (g) hereof,
or at such other time or place as is mutually agreed by the parties hereto. The
Closing shall be effective as of the Effective Time.
(b) OBLIGATIONS OF THE COMPANY. At the Closing, the Company shall
deliver, or use its best efforts to cause to be delivered, to Purchaser the
following documents:
(i) stock certificates representing the shares of Common
Stock representing all of the issued and outstanding Stock of the Company as the
Closing Date, which
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stock certificates will be accompanied stock powers duly completed and executed
in blank by the holders thereof;
(ii) a certificate of good standing from the State of Iowa
for the Company certified by the appropriate official of each such state, dated
as of the date not more than five (5) days prior to the Closing Date certifying
that the Company is duly qualified and in good standing and has filed all
franchise tax returns due up to the date of such certificate, that all taxes
shown on such return to be due have been paid in full, and that there are no
outstanding franchise tax claims or assessments against the Company as of the
date of such certificate;
(iii) the Certificate of the Secretary of the Company
pursuant to Section 3.1(d) hereof;
(iv) the Certificate of the President or Vice President of
the Company pursuant to Section 3.1(e) hereof;
(v) the opinion of David L. Wetsch, Esq. as counsel for the
Company pursuant to Section 3.1(f) hereof;
(vi) the consents and waivers, if any, pursuant to Section
3.1(g) hereof;
(vii) the executed Employment Agreements pursuant to Section
2.7 hereof;
(viii) the resignation letters from the officers and
directors of the Company pursuant to Section 3.1(k) hereof;
(ix) the books and records referred to in Section 3.1(m)
hereof;
(x) Articles of Merger in the form of EXHIBIT 2.3(b)(x)(,
attached hereto;
(xi) documentation (including, without limitation, duly
executed UCC-3 termination statements) satisfactory in form and substance to
Purchaser and Merger Sub as requested by Purchaser and Merger Sub to release all
encumbrances securing all Funded Debt to be paid on the Closing Date, including
Bank Debt (to the extent available as of the Closing Date and otherwise by no
later than ten (10) days after the Closing Date).
(xii) a Schedule identifying all Stockholders of the Company
owning all of the issued and outstanding shares of the Company's Stock, which
Schedule shall set forth the name, address and social security number or
employer identification number (to the extent available to the Company) of each
stockholder of the Company and the number of shares of each class and series of
stock owned by each such stockholder;
(xiii) Stockholder Investment Letters from each stockholder
receiving Purchaser Stock pursuant to this Agreement;
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(xiv) such other documents or instruments of further
assurance as shall be necessary and appropriate by Purchaser and Merger Sub.
(c) OBLIGATIONS OF PURCHASER AND MERGER SUB. Purchaser and Merger
Sub shall deliver to the Company and the stockholders of the Company the
following documents on the Closing Date:
(i) the Certificate of the Secretary or other officer of
Purchaser pursuant to Section 3.2(d) hereof;
(ii) the Certificate of the President or Vice President of
Purchaser pursuant to Section 3.2(e) hereof;
(iii) the opinion of Miller & Welch, LLC as counsel for
Purchaser and Merger Sub pursuant to Section 3.2(f) hereof;
(iv) the consents and waivers, if any, pursuant to Section
3.2(g); and
(v) the Employment Agreements pursuant to Section 2.7;
(vi) the Merger Consideration as provided in Section 2.5
payable directly by Purchaser to those stockholders of the Company who have
delivered their stock certificates for surrender and cancellation as provided in
Section 2.3(b)(i) hereof.
2.4 CONSUMMATION OF THE TRANSACTIONS. At the Closing, Purchaser, Merger
Sub and the Company will each carry out the procedures specified under the
applicable provisions of Iowa and Colorado law, to the end that the Merger shall
become effective. The Merger shall be consummated by filing the Articles of
Merger ("Articles of Merger") with each of the Secretary of State of Colorado
and the Secretary of State of Iowa in each case in such form as required by, and
executed in accordance with the relevant provisions of the applicable state law.
2.5 COMPANY'S CAPITAL STOCK
(a) CONVERSION OF THE STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of Purchaser, Merger Sub, the Company
or the holders of any of their securities, the outstanding Common Stock of the
Company shall be converted into the right to receive (a) $96.9388 in cash per
share of Common Stock held by such stockholder from the Cash Consideration; and
(b) 153.0612 shares of Purchaser Stock per share of Common Stock held by such
stockholder from the Stock Consideration. Each holder of a certificate
representing any Common Stock (except for Dissenting Shares) shall, after the
Effective Time, cease to have any rights with respect to such Common Stock,
except the right to receive the Merger Consideration for such Common Stock upon
the surrender of such certificate in accordance with Section 2.6(c) hereof.
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(b) NO SUBSEQUENT TRANSFERS; LOST, STOLEN OR DESTROYED CERTIFICATES.
After the Effective Time, there shall be no transfers on the stock transfer
books of the Company of shares of Common Stock or Dissenting Shares that were
registered as outstanding immediately prior to the Effective Time. If any
registered certificate for Common Stock shall have been lost, stolen or
destroyed, the Surviving Corporation, upon the making of an affidavit of that
fact by the Person claiming such certificate to be lost, stolen or destroyed and
subject to the following sentence, shall pay the appropriate Merger
Consideration for the shares of Common Stock represented by such certificate in
accordance with this Section 2.5 and Section 2.6 hereof to the persons legally
entitled thereto. The Surviving Corporation, in its sole discretion and as a
condition precedent to the delivery of the Merger Consideration in exchange for
the shares of Common Stock represented by such certificate, may require the
owner of such lost, stolen or destroyed certificate to provide a bond or other
security in such sum as it reasonably may direct as indemnity against any claim
that may be made against the Surviving Corporation with respect to the
certificate alleged to have been so lost, stolen or destroyed.
(c) CONVERSION, RETENTION AND TRANSFER OF STOCK. Each stock
certificate representing the Common Stock and Dissenting Shares shall, after the
Effective Time, cease to have any rights except the right to receive the Merger
Consideration as provided in Section 2.5(a) hereof (or in the case of Dissenting
Shares, the right to receive amounts under Section 2.5(d)) upon the surrender of
such certificates accompanied by stock powers duly completed and executed in
blank and any other documents required to be delivered in connection therewith.
Until surrendered as contemplated by the preceding sentences each such
certificate shall be deemed for all purposes to represent only the right to
receive upon such surrender the Merger Consideration payable in respect thereof
as contemplated by this Agreement. As a consequence of the Merger and without
any action on the part of the parties to this Agreement, each of the issued and
outstanding shares of the Company's Common Stock shall be cancelled and retired
in exchange for the Merger Consideration (or in the case of Dissenting Shares,
the right to receive amounts under Section 2.5(d)). Each share of common stock,
no par value, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall remain outstanding. Each such share of Merger Sub shall
continue as one share of the capital stock of the Surviving Corporation, and
each certificate evidencing ownership of any such shares shall continue to
evidence the same number of shares of the Surviving Corporation.
(d) DISSENTING SHARES.
(i) Notwithstanding any provision of this Agreement to the
contrary, any shares of Common Stock held by a holder who has demanded and
perfected his right for appraisal of such shares in accordance with Iowa law and
who, as of the Effective Time, has not effectively withdrawn or lost such right
to appraisal ("Dissenting Shares"), shall not be converted into or represent the
right to receive the Merger Consideration pursuant to Section 2.5(a), but the
holder thereof shall be entitled only to such rights as are granted by Iowa law.
(ii) Notwithstanding Section 2.5(d)(i), if any holder of
shares of Common Stock who demands an appraisal of such shares under Iowa law
shall effectively withdraw or lose (through failure to perfect or otherwise) his
right to appraisal, then, as of the later of the Effective Time or the
occurrence of such event, such holder's shares shall no longer be
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Dissenting Shares and shall automatically be converted into and represent only
the right to receive the Merger Consideration applicable to such shares as
provided in this Section 2.5, without interest, upon surrender of the
certificate or certificates representing such shares, in accordance with Section
2.5(a) hereof.
(iii) The Company shall give Purchaser notice of any written
demand for appraisal of any shares of Common Stock received prior to the
Effective Time and any withdrawal of such demands. Amounts payable by the
Surviving Corporation to holders of Dissenting Shares shall be paid from the
Escrow Fund.
(e) ESCROW FUND. In the event that there are any Dissenting Shares
then a portion of the Cash Consideration shall be held in a non-interest bearing
escrow fund ("Escrow Fund"). Payment to the holders of the Dissenting Shares
shall be made solely from the Escrow Fund. The Cash Consideration available to
holders of non-Dissenting Shares shall be reduced by the total amount paid, or
payable, to the holders of Dissenting Shares.
2.6 OTHER PAYMENTS MADE IN CONNECTION WITH THE MERGER.
(a) REPAYMENT OF DEBT. At the Closing, Purchaser will repay the
principal amount of the Bank Debt, including accrued and unpaid interest
thereon. The Funded Debt, including the Bank Debt, is more particularly
described in SCHEDULE 2.6(a) attached hereto. If the actual amount of the
Funded Debt, is less than the Funded Debt Threshold, the extent of Purchaser's
obligations to repay such Funded Debt shall be limited to the actual amount of
payment required to satisfy any such obligations, including the benefit of any
settlement or compromise of any such indebtedness. In addition, SCHEDULE 2.6(a)
shall be amended to list all of the Company's debt as of the Closing Date
comprising the total amount of the Funded Debt, including any amounts in excess
of the Funded Debt Threshold. SCHEDULE 2.6(a) shall include in addition to a
detailed description of the indebtedness comprising the Funded Debt and all
accrued and unpaid interest thereon and all other amounts then owed under the
loan agreements, notes and other documents pursuant to which such funds were
borrowed and sets forth the names and addresses of the obligees of such debt,
the maturity date and the terms of repayment of such debt. Funded Debt other
than the Bank Debt shall be paid when due or on such earlier date as Purchaser
may elect.
(b) REPAYMENT OF BALANCE OF FUNDED DEBT. The remaining balance of
the Funded Debt to the extent it exceeds the Funded Debt Threshold will be paid
from the Cash Consideration and to the extent of any such payment will reduce
the total amount of Cash Consideration available for distribution as part of the
Merger Consideration payable to the holders of the Common Stock as provided in
Section 2.5(a) hereof.
(c) MERGER CONSIDERATION. Purchaser shall pay to each stockholder of
Company the Merger Consideration upon surrender by such stockholder to Purchaser
of the certificates representing such stockholder's shares.
(d) REDUCTION OF CASH CONSIDERATION FOR TRADE PAYABLES. Effective as
of the Closing Date and in connection with the Merger, Purchaser will become
obligated for the trade
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payables of the Company that are listed on SCHEDULE 2.6(d)-1 attached hereto or
that are incurred in the ordinary course of business of each such corporation.
A new SCHEDULE 2.6(d)-2, shall be delivered at Closing, which shall include (i)
all trade payables of the Company as of the Closing Date, and (ii) all
Transactional Costs. As contemplated by Section 1.3, the total amount of cash
available for distribution as part of the Merger Consideration will be reduced
by the amount of the Transactional Costs and the amount, if any, by which the
trade payables as of the Closing Date listed on SCHEDULE 2.6(d)-2 exceed the
accounts receivable of the Company as of the Closing Date listed on SCHEDULE
4.1.
2.7 EMPLOYMENT AGREEMENTS . Certain employees of the Company will
receive employment agreements with Merger Sub, in the form of EXHIBITS 2.7(1)
THROUGH 2.7(5) ("Employment Agreements").
ARTICLE III
CONDITIONS PRECEDENT
3.1 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. The obligations of
Purchaser and Merger Sub to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction, on or before the Closing Date,
of each of the following conditions, all or any of which may be waived, in whole
or part, by Purchaser:
(a) REPRESENTATIONS TRUE AT CLOSING. The representations and
warranties made by the Company in this Agreement or the attachments hereto shall
be true and correct in all material respects on the Closing Date with the same
force and effect as though such representations and warranties had been made on
and as of such time, except for changes previously disclosed to Purchaser or
contemplated by this Agreement.
(b) COVENANTS. The Company shall have duly performed in all material
respects all of the covenants, acts, obligations, conditions, agreements and
undertakings to be performed by it on or prior to the Closing Date pursuant to
the terms of this Agreement.
(c) ABSENCE OF ADVERSE CHANGES. The Company shall not have suffered
any material adverse change in its financial condition, business, property or
assets since the Financial Statement Date (as herein defined).
(d) SECRETARY'S CERTIFICATES. Purchaser shall have received a
certificate of good standing from the Secretary of State of each of the states
in which the Company is operating, or in which it is necessary or desirable to
be qualified to do business, stating that the Company is qualified to do
business and is in good standing and a certificate of the Secretary or Assistant
Secretary of the Company certifying: (i) the Company's Articles of Incorporation
and Bylaws; (ii) the incumbency of all officers of the Company having authority
to execute and deliver this Agreement and the agreements and documents
contemplated hereby; and (iii) resolutions of the Company's Board of Directors
and stockholders approving the execution, delivery and performance of this
Agreement.
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(e) OFFICER'S CERTIFICATE. Purchaser shall have received a
certificate from the President or a Vice President of the Company as to the
matters set forth in Sections 3.1(a), 3.1(b) and 3.1(c).
(f) OPINION OF COMPANY COUNSEL. An opinion of counsel for the
Company shall have been delivered to Purchaser and Merger Sub dated as of the
Closing Date, substantially in the form and substance of the opinion attached as
EXHIBIT 3.1(f), which shall include matters related to FCC and state utility
commission compliance of the Company.
(g) CONSENTS AND WAIVERS. The Company shall have obtained and
Purchaser shall have received a true and correct copy of the consents and
waivers described SCHEDULE 3.1(g) hereof, or otherwise required for the
execution of this Agreement and the consummation of the transactions
contemplated hereby.
(h) APPROVALS. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby shall have been approved by
all regulatory authorities, if any, whose approvals are required by contractual
requirements or by law.
(i) NO LITIGATION OR OTHER PROCEEDINGS. No action, proceeding,
investigation, regulation or legislation shall have been instituted, threatened
or proposed before any court, governmental agency or legislative body to enjoin,
restrain, prohibit or obtain substantial damages in respect of, or which is
related to, or arises out of, this Agreement or the consummation of the
transactions contemplated hereby. No suit, action or other proceeding shall be
pending before any court or governmental agency, or threatened against or
affecting the Company which, if adversely determined, would have a material
adverse effect on the value of the business, assets or property of the Company.
(j) EMPLOYMENT AGREEMENTS. The Employment Agreements shall have been
executed and delivered.
(k) RESIGNATIONS OF OFFICERS AND DIRECTORS. Purchaser shall have
received the resignation of each officer and director of the Company.
(l) STOCKHOLDER APPROVAL; DISSENTERS RIGHTS. The stockholders of the
Company shall have approved the Merger and other transactions contemplated by
this Agreement in accordance with the Iowa Business Corporation Act and the
Company's Articles of Incorporation, and the total amount of the Merger
Consideration that would have been payable to the holders of shares that are
Dissenting Shares at the Closing (had they not sought appraisal for their
shares) shall not exceed $5,000.
(m) CORPORATE RECORDS. Purchaser shall have received the Stock
Books, Minute Books and Corporate Seal (if any) of the Company and any other
subsidiary in which the Company may have an interest.
(n) NO LIEN, INDEBTEDNESS. Except as set forth in SCHEDULE 2.6(a)
attached hereto, the Company shall not be subject to any indebtedness nor shall
any of their properties or
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assets be subject to liens or encumbrances of any kind, other than (i)
indebtedness and liens for current taxes, wages and operating expenses in the
normal course of business, payment of which at the time of Closing shall not yet
be due; (ii) indebtedness reflected in the Financial Statements or any loans
advanced to the Company subsequent to the Financial Statement Date that are
approved by Purchaser; (iii) accounts payable incurred in the ordinary course of
business subsequent to the Financial Statement Date; and (iv) Permitted
Encumbrances.
(o) NO ATTACHMENT. None of the assets or properties of the Company
shall have been attached or levied upon or placed in the hands of a receiver or
assignee for the benefit of creditors. No petition or similar instrument shall
have been filed with respect to the Company under any bankruptcy or insolvency
law, and no injunction or restraining orders shall have been instituted against
the Company that would have a material adverse effect on the Company.
(p) INDEMNIFICATION AGREEMENTS; POWERS OF ATTORNEY. The stockholders
of the Company listed in Schedule 6.11 shall have executed and delivered to
Purchaser an Indemnification Agreement in the form of EXHIBIT 3.1(p).
(q) STOCKHOLDER INVESTMENT LETTERS. The stockholders of the Company
receiving Purchaser Stock pursuant to the terms of this Agreement shall have
executed the Stockholder Investment Letters.
3.2 CONDITIONS PRECEDENT TO COMPANY'S OBLIGATIONS. The obligations
of the Company to consummate the transactions contemplated by this Agreement
shall be subject to the satisfaction, on or before the Closing Date, of each of
the following conditions, all or any of which may be waived, in whole or part,
by the Company:
(a) REPRESENTATIONS TRUE AT CLOSING. The representations and
warranties made by Purchaser and Merger Sub in this Agreement or the attachments
hereto shall be true and correct in all material respects on the Closing Date
with the same force and effect as though such representations and warranties had
been made on and as of such time, except for changes contemplated by this
Agreement.
(b) COVENANTS. Purchaser and Merger Sub shall have duly performed in
all material respects all of the covenants, acts and undertakings to be
performed by them on or prior to the Closing Date pursuant to the terms of this
Agreement.
(c) ABSENCE OF ADVERSE CHANGE. Purchaser shall not have suffered any
material adverse change in its financial condition, business, property or assets
since the date of this Agreement.
(d) SECRETARY'S CERTIFICATE. The Company shall have received a
certificate of the Secretary, Assistant Secretary or other officer of Purchaser
certifying (i) Purchaser's articles of incorporation and bylaws; (ii) the
incumbency of all officers of Purchaser having authority to execute and deliver
this Agreement and the agreements and documents contemplated hereby; and (iii)
resolutions of Purchaser's board of directors approving the execution, delivery
and performance of this Agreement.
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(e) OFFICER'S CERTIFICATE. The Company shall have received a
certificate from the President or a Vice President of Purchaser as to the
matters set forth in Sections 3.2(a), 3.2(b) and 3.2(c).
(f) OPINION OF PURCHASER COUNSEL. An opinion of counsel for
Purchaser and Merger Sub shall have been delivered to the Company dated as of
the Closing Date, substantially in the form and substance of the opinion
attached as EXHIBIT 3.2(f).
(g) CONSENTS AND WAIVERS. Purchaser shall have obtained and the
Company shall have received a true and correct copy of the consents and waivers
described in SCHEDULE 3.2(g) hereof or otherwise required for the execution of
this Agreement and the consummation of the transactions contemplated hereby.
(h) APPROVALS. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby shall have been approved by
all regulatory authorities, if any, whose approvals are required by law.
(i) NO LITIGATION OR OTHER PROCEEDINGS. No action, proceeding,
investigation, regulation or legislation shall have been instituted, threatened
or proposed before any court, governmental agency or legislative body to enjoin,
restrain, prohibit or obtain substantial damages in respect of, or which is
related to, or arises out of, this Agreement or consummation of the transactions
contemplated hereby.
(j) STOCKHOLDER APPROVAL; DISSENTER'S RIGHTS. The stockholders of
the Company shall have approved the Merger and other transactions contemplated
by this Agreement in accordance with the Iowa Business Corporation Act and the
Company's Articles of Incorporation, and the total amount of the Merger
Consideration that would have been payable to the holders of shares that are
Dissenting Shares at the closing had they not sought appraisal for their shares
shall not exceed $5,000.
(k) EMPLOYMENT AGREEMENTS. Merger Sub shall have executed the
Employment Agreements.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company makes the
representations and warranties set forth below, except as set forth in the
Disclosure Schedule. Each exception to the representations and warranties set
forth in the Disclosure Schedule shall reference by Section number the
representation and/or warranty to which it applies.
(a) ORGANIZATION AND CORPORATE POWER. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Iowa, and is duly qualified to do business as a foreign corporation in
good standing in each jurisdiction in which the
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properties owned, leased or operated by it, or the nature of its activities or
proposed activities makes such qualification necessary, except in such
jurisdictions where the failure to be so qualified or in good standing would not
have a material adverse effect on the business, results of operations or
financial condition of the Company taken as a whole. The Company has all
required corporate power and authority to own properties and to carry on its
business as now conducted. The Company has furnished to Purchaser accurate and
complete copies of the Articles of Incorporation and Bylaws as in effect on the
date hereof. Attached hereto as SCHEDULE 4.1(a) is a list of all of the states
in which the Company is qualified to do business as a foreign corporation or in
which qualification is necessary or desirable to carry on the business and
operations of the Company as presently conducted. The Company has no other
subsidiaries or affiliates.
(b) CORPORATE AUTHORIZATION. The Company has all power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of the Company and as such all corporate
action necessary for the approval or ratification of this Agreement has been
taken and no other corporate proceedings on the part of the Company is necessary
to authorize the execution and delivery of this Agreement or to consummate the
transactions so contemplated (subject to the approval and adoption of this
Agreement and the transactions contemplated hereby by the stockholders of the
Company required in accordance with the Iowa Business Corporation Act, and the
Articles of Incorporation and Bylaws of the Company).
(c) BINDING EFFECT. This Agreement constitutes a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except to the extent that the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and by principles
of equity regarding the availability of remedies.
(d) CONSENTS. Except as set forth in SCHEDULE 3.1(g) and/or the
Disclosure Schedule, there are no consents, authorizations, approvals (other
than stockholder approval as set forth in Section 2.2 hereof), governmental,
judicial, administrative or other, under any Contract, lease, License, Permit,
indenture, promissory note, agreement, mortgage or any other instrument to which
the Company is a party or is bound or to which its assets are subject or under
any statute, rule, regulation, judgment, decree or order of any court, agency or
other authority to which jurisdiction the Company is subject, which are required
for the execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
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(e) CAPITALIZATION.
(i) The authorized capital stock of the Company consists of
100,000 shares of Common Stock, of which 4,900 shares are issued and
outstanding. SCHEDULE 4.1(e)(i) attached hereto includes a complete and correct
list of the present stockholders of record of the Company, showing the number of
shares of Stock owned by each such stockholder as well as the other information
to be set forth therein. All of the issued and outstanding Stock of the Company
has been duly authorized, is validly issued, fully paid and nonassessable. All
indebtedness of the Company for money borrowed as of the date hereof is
reflected on SCHEDULE 2.6(a) attached hereto. SCHEDULES 4.1(e)(i) and 2.6(a)
shall be updated by the Company on the Closing Date and as often as is necessary
for such schedules to remain true and accurate.
(ii) SCHEDULE 4.1(e)(ii) attached hereto includes a complete
and correct list of the Company's outstanding options to purchase its capital
stock ("Outstanding Options") and the Company's outstanding warrants to purchase
its capital stock ("Outstanding Warrants"), in each case showing the date of
issuance, the expiration date, the exercise price, the holders thereof and the
number of shares of capital stock subject thereto. The Company has furnished to
Purchaser accurate and complete copies of the Outstanding Options and
Outstanding Warrants. The copies of the Outstanding Options and Outstanding
Warrants represent the terms, conditions, provisions, agreements, obligations
and undertakings of the Company with respect to all Outstanding Options and
Outstanding Warrants. Except for the Outstanding Options and the Outstanding
Warrants, the Company does not have outstanding any stock or other securities
which are, in either case, convertible into or exchangeable for any shares of
its Stock, any warrants, options, purchase rights, subscription rights or other
contract rights or commitments or appreciation, phantom stock, profit
participation or similar rights to purchase or acquire any shares of its Stock
or any stock or securities convertible into or exchangeable for any of the Stock
of the Company and is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock. No
stockholder of the Company has any preemptive or other purchase rights with
respect to the issue or sale of any Stock. The Company's stock transfer records
accurately reflect all issuances and transfers of Stock and other securities and
the minutes of meetings of incorporators, directors and stockholders completely
and correctly reflect all of their respective actions in all material respects.
(f) FINANCIAL STATEMENTS. As soon as possible, and in any event
prior to the Closing Date, the Company shall furnish Purchaser with the
following financial statements:
(i) an unaudited balance sheet of the Company for the
fiscal years ended December 31, 1995, and December 31, 1996, and the related
statements of income and retained earnings and changes in financial position of
the Company for such periods; and
(ii) an unaudited balance sheet of the Company as at June
30, 1997 ("Financial Statement Date"), and the related statements of income and
retained earnings of the Company for the six (6) month period then ended.
Such financial statements, including any related schedules and notes
thereto (the "Financial Statements"), have been prepared in accordance with
generally accepted accounting principles
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("GAAP") consistently applied throughout the period or periods in question
(except as specifically disclosed therein) and show all liabilities, direct or
contingent, of the Company required to be shown in accordance with GAAP
consistently applied throughout the period or periods in question (except as
specifically disclosed therein) and fairly present the financial position and
the results of the Company for the periods indicated therein.
(g) NO ADVERSE CHANGE IN FINANCIAL CONDITION. Since the Financial
Statement Date, there has not been (i) any event, condition or fact that has
resulted or may reasonably be expected to result in any material adverse change
in the financial condition, business, sales, income, properties, assets or
liabilities of the Company shown on the Financial Statements; or (ii) any
material adverse change with respect to any Contract to which the Company is a
party or any event, circumstance, fact or other occurrence which may result in
any material adverse change to the condition (financial or otherwise), results
of operations, business, sales, income, properties or assets of the Company; or
(iii) any material damage, destruction or loss to the properties, assets or
business of the Company, whether or not covered by insurance, as the result of
any fire, explosion, accident, casualty, labor disturbance or interruption,
requisition or other taking of property by governmental body or agency, flood,
embargo, or act of God or the public enemy, or cessation, interruption or
diminution of operations, whether or not covered by insurance, which has
materially and adversely affected or impaired or which could reasonably be
expected to materially or adversely affect or impair the conduct of the
operations or business of the Company; or (iv) any labor trouble other than
routine grievances (including without limitation any negotiation, or request for
negotiation, for any representation or any labor contract) or to the Company's
knowledge any event or condition of any character which has materially and
adversely affected or which may be reasonably expected to materially and
adversely affect or impair the conduct of the Company's operations or business;
or (v) any declaration, setting aside, or payment of, any dividend or any
distribution, in respect of the Common Stock; or (vi) any redemption, purchase
or other acquisition by the Company of any shares of the Common Stock; or (vii)
any significant loss of customers of the Company.
(h) ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
reflected or reserved against in the Financial Statements, the Company does not
have any liabilities, debts or obligations, whether absolute, accrued,
contingent, unliquidated or otherwise and whether due or to become due
(including without limitation any liability for breach of contract, breach of
warranty, torts, infringements, claims or lawsuits), arising out of any
transaction entered into on or prior to the Financial Statement Date, other than
contractual obligations incurred in the ordinary course of business not required
to be disclosed in accordance with GAAP.
(i) TITLE TO PROPERTIES; LIENS. SCHEDULE 4.1(i) attached hereto
sets forth, as of the date hereof, an accurate and complete list of all leases
and purchases and ownership by the Company of all real properties, license
agreements and all leases and purchases and ownership of all personal properties
(covering properties with a purchase price as of the date hereof greater than
$1,000) to which the Company is a party (whether as purchaser, lessor, lessee,
licensor or licensee) collectively the "Leases and Licenses". The Company, as
lessee or licensee, has entered into all such Leases and Licenses which the
Company reasonably believes may be necessary for the conduct of its business and
operations as now conducted. The Company has furnished to Purchaser accurate
and complete copies of all such Leases and Licenses. The Company has title
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to each of the leasehold and other interests created by the Leases and Licenses
free and clear of all security interest, claims, liens and encumbrances of any
nature, other than Permitted Encumbrances. To the best of the knowledge of the
Company, each such Lease and License is in full force and effect. Each Lease
and License constitutes the legal, valid and binding obligation of the Company,
to the knowledge of the Company, enforceable against the Company in accordance
with its respective terms accept as may be limited by bankruptcy, insolvency,
reorganization, readjustment of debt, moratorium, general principles of equity
or other laws of general application related to or affecting the enforcement of
creditors rights generally. The Company has not received notice, or does not
have any reason to know, of any claim of default under any such Lease or
License. All Leases are fully effective and afford the Company, peaceful and
undisturbed possession of the property which is the subject matter of each such
Lease. All of the Contracts, agreements, Permits, authorizations and other
intangible assets of a similar nature of the Company are valid and binding
obligations of the parties thereto, and the Company does not have any knowledge
of an intention of or basis (other than the terms thereof) for any termination
of any such intangible assets by any party.
(j) MARKETABLE TITLE. Except for Permitted Encumbrances (as defined
herein) or as set forth on SCHEDULE 4.1(j) attached hereto, the Company has good
and marketable title to all of its assets and property as set forth in the
SCHEDULE 4.1(i) attached hereto, free and clear of all mortgages, liens,
pledges, charges, claims (real or assertive) or encumbrances of any nature
whatsoever.
(k) CONDITION OF TANGIBLE ASSETS. All material tangible portions of
the assets and properties owned by the Company, including all real properties or
leasehold interest in real property and structures thereon, are to the best of
the Company's knowledge, in good condition and repair, subject only to ordinary
wear and tear in light of their respective ages and there respective uses for
which they are currently used. The uses of the tangible properties and assets
conform and comply in all material respects with all rules, regulations and
standards applicable to the Company or its assets or properties, imposed by
applicable federal, state or local laws or regulations.
(l) ALL ASSETS. The properties and assets of the Company as of the
date hereof and the Closing Date include (i) all properties and assets whether
or not reflected on the balance sheet included in the Financial Statements,
including Licenses, Permits, Leases, Contracts, customer lists, goodwill and any
other tangible or intangible assets as disclosed in the Schedules attached to
this Agreement, and (ii) assets and properties acquired by the Company after the
Financial Statement Date up to and including the Closing Date as set forth in
SCHEDULE 4.1(l) which will be updated immediately prior to Closing, other than
such properties and assets as shall have been transferred or otherwise disposed
of by the Company in the ordinary course of business as shall be disclosed in
SCHEDULE 4.1(l).
(m) CERTAIN TAX MATTERS. The Company has prepared and duly filed
(and to the best of its knowledge has done so accurately and correctly) all
federal, state, county and local income, franchise, use, real property and
personal property tax returns and reports required to be filed as of the date
hereof with respect to the Company and has duly paid, withheld or reserved for
all taxes, penalties and other governmental charges required to be paid that
have been assessed
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or levied against or upon the Company or any of its properties, assets, income,
franchises, licenses or sales, including without limitation, income, gross
receipt, property taxes or to the extent that they relate to periods on or prior
to the Financial Statement Date are reflected as a liability on the Financial
Statements, or if not paid, is contesting such amount in good faith by
appropriate proceedings. In the event the Company is contesting such amounts in
good faith, the Company has established or reserved accounts sufficient to
satisfy the assessment or levy being contested which reserve accounts shall
automatically transfer to the Surviving Corporation as a result of the Merger.
The Company does not know and has no reason to know of any proposal by any
taxing authority for additional taxes or assessments against or upon the
Company. To the best of the knowledge of Company all monies required to be held
by the Company from employees for income taxes, social security and unemployment
insurance taxes, have been collected or withheld or either paid to the
respective governmental agencies or set aside in cash for such purpose. The
Company has not entered into any agreement for the extension of time or the
assessment of any tax or tax delinquency, nor has the Company received any
outstanding or unresolved notices from the Internal Revenue Service or any
taxing authority of any proposed examination or any proposed deficiency or
assessment or of any tax returns or tax liabilities due and payable. The
Company is not a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code. The Company has delivered to
Purchaser an accurate, correct and complete copy of each return or statement
filed by on behalf of or including the Company for federal income tax purposes
or state and local income or franchise tax purposes for the last three (3) tax
years of the Company. All material elections with respect to the taxes
affecting the Company as of the date hereof are set forth in SCHEDULE 4.1(m)
attached hereto. After the date hereof, no written election will be made by the
Company without the Purchaser's express written consent.
(n) FINANCIAL DISCLOSURE. The Company has made available to the
Purchaser and Merger Sub all information known to the Company with respect to
(i) accounts, borrowings resolutions and deposit boxes maintained by the Company
at any bank or any financial institution and the account numbers and the names
and addresses of all the persons authorized to effect transactions in such
accounts and pursuant to such resolutions and with access to such boxes, and
(ii) the names of all persons, firms, associations, corporations or business
organizations holding general or special powers of attorney from the Company. A
summary of the terms of any such powers of attorney is set forth on SCHEDULE
4.1(n) attached hereto.
(o) INSURANCE. SCHEDULE 4.1(o) attached hereto sets forth, as of the
date hereof, an accurate and complete list and brief description of the terms of
all policies of insurance carried by the Company and designating the Company as
the insured thereunder. The description of each policy consists of a
description of the subject property, the insurance coverage, the deductibles and
the additional insurance. The Company has furnished to Purchaser and Merger Sub
an accurate and complete copy of all such insurance polices. No insurance
carrier has refused any application for insurance by the Company or any other
person on behalf of the Company on any of its properties or assets.
(p) PATENTS, TRADE SECRETS, ETC. SCHEDULE 4.1(p) attached hereto
sets forth, as of the date hereof, an accurate and complete list of all letters
patent, patents applications, trade marks, service marks, trade names, brands,
logos, copyrights and licenses, both domestic and
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foreign, and rights with respect to the foregoing, whether or not registerable
with any governmental authority, now owned or used by the Company. In addition,
SCHEDULE 4.1(p) attached hereto includes a separate list of all products,
prototypes and research work which is currently being undertaken by the Company
to develop products as well as drawings, schematics, engineering specifications,
reports and other similar instruments and documents used in the connection with
the development of such product to be owned or used in connection with the
business of the Company (collectively "Development Products"). The Company has
not received notice, or otherwise has no reason to know, of any claim or
threatened infringement of the rights of others with respect to any patents,
trademarks, service marks, trade names, brands, logos, copyrights and licenses
used or owned by the Company, the loss of which would have a material adverse
effect upon the business, operations, assets or financial condition of the
Company. The Company possess all patents, patent rights or licenses,
trademarks, trademark rights and copyrights that are required to conduct its
business as now conducted. To the best of the Company's knowledge, the Company
owns all trade secrets and all other rights to all Development Products which
are being developed by the Company, which may or may not be patented or
patentable. The Company has no knowledge that it is infringing upon or
otherwise violating the rights of any third party with respect to any patent,
trademark, trade name, service mark or copyright. The Company has the right to
use, free and clear of claims or rights of others, all trade secrets, customer
lists and manufacturing or other processes required for, used or to be used in,
or incident to its business as now conducted, and to the best knowledge of the
Company and its executive officers, after due inquiry, no current or former
employee of the Company is or was a party to any confidentiality agreement
and/or agreement not to compete which restricts or forbids or restricted or
forbade at any time during such employee's employment by the Company, such
employee's performance of the Company's business, as the case may be, or any
activity that the employee has been hired to perform. To the best knowledge of
the Company, the Company is not now using, and has not in the past used without
appropriate authorization, any confidential information or trade secrets of any
third party. The Company has not received any notice alleging such conduct.
(q) NO CONFLICTS. The execution, delivery and performance of this
Agreement, and the performance of the transactions contemplated hereby and the
compliance with the respective terms hereof by the Company, do not and will not
(i) conflict with or result in a breach of the terms, conditions or provisions
of, (ii) constitute a default under, (iii) result in the creation of any lien,
security interest, charge or encumbrance upon the Company's capital stock or
assets, (iv) give any third party the right to accelerate any obligation under,
or (v) result in a violation of (A) the Articles of Incorporation or Bylaws of
the Company or any other organization or governing instrument of the Company,
(B) any Contract, Lease, indenture, promissory note, agreement, mortgage or
other instrument to which the Company is a party or is bound or to which its
assets are subject or affected, or (C) any law, License, Permit, statute, rule,
regulation, judgment, decree or order of any Court, agency or other authority to
which jurisdiction the Company is subject.
(r) LITIGATION, ETC. Except as set for in SCHEDULE 4.1(r), there are
no actions, suits, proceedings, arbitration proceedings, orders, investigations
or claims pending or threatened against or affecting the Company or any of its
properties at law or in equity, or before or by any governmental or other
department, commission, board, bureau, agency or instrumentality; there are no
governmental inquiries (including inquiries as to the qualification of the
Company to hold
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or receive any License or Permit) pending; and, to the best of the Company's
knowledge, there is no basis for any of the foregoing.
(s) PERMITS. The Company has all franchises, permits, licenses,
governmental authorizations, zoning variances, rights of way, easements and
other authorizations, rights and privileges (collectively "Permits") necessary
to permit it to own its properties and to conduct its business as now conducted.
All such Permits are listed and described in SCHEDULE 4.1(s) attached hereto.
All such Permits are in full force and effect and no revocation, cancellation or
withdrawal thereof has been effective or to the best knowledge of the Company
threatened. Except as disclosed in SCHEDULE 4.1(s) attached hereto, the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereunder will not result in the termination of,
or change in, any such Permits.
(t) NO VIOLATION OF LAWS OR REGULATIONS. To the best knowledge of
the Company, the Company has materially complied with, and is not in any
material respect in default under or in violation of, any laws, ordinances,
requirements, regulations or orders applicable to its business and properties,
including without limitation the rules and regulations of the Federal
Communications Commissions ("FCC") or any state public utilities commission
having jurisdiction over the business and operations of the Company, nor is the
Company in violation of or in default under any order, writ, injunction,
judgment or decree of any court, arbitrator, or federal, state or local
department official, commission, authority, port, bureau, agency or other
instrumentality issued or pending against the Company which might adversely
affect the ability of the Company to execute, deliver and perform its
obligations under this Agreement or to consummate the transactions contemplated
hereby or which challenges or seeks to prevent, enjoin, alter or materially
delay any such transactions. The Company has not received notice or otherwise
has no reason to know, of any claim, default or violation with respect to any of
the foregoing. There have been no illegal payments, kickbacks, bribes or
political contributions made by the Company to any Person in the United States
or any foreign country or political subdivision. The Company does not have any
license or authorization from the FCC or any state public utility commission and
the Company is not required to obtain or have in effect any such permits or
licenses with the FCC or state public utility commission.
(u) CONTRACTS. SCHEDULE 4.1(u) attached hereto sets forth, as of the
date hereof and as of the Closing Date, an accurate and complete list of the
following:
(i) except for the Leases and Licenses, all agreements,
contracts, arrangements, commitments, understandings or obligations, oral or
written of the Company which are to be performed in whole or in part on or after
the date hereof and which require or may require the payment of Company in an
amount, or under which the Company is required or may be required to provide
goods or services of a value, greater than one thousand dollars ($1,000) during
any period of twelve (12) consecutive months;
(ii) any agreement to which the Company is a party or by
which the properties or assets of the Company are bound which limits the freedom
of the Company to compete in any line of business or with any Persons; and
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(iii) all other agreements, contracts, arrangements,
commitments, understandings or obligations, oral or written (other than oral
contracts of employment) between the Company on the one part or any officer or
director of the Company on the other part or in which any of such persons or
entities has any financial interest, direct or indirect (including without
limitation any agreements affecting the properties or assets of the Company and
agreements to make loans). The Company has furnished Purchaser a copy of each
agreement, contract, arrangement, commitment or obligation set forth in SCHEDULE
4.1(u) attached hereto. Collectively, the contracts, agreements, arrangements,
commitments or obligations described in this Section 4.1(u) and listed in
SCHEDULE 4.1(u) are referred to herein as the "Contracts". Each such Contract
is in full force and effect and to the best of the Company's knowledge the
Company has performed in all material respects all of the obligations under each
Contract required to be performed by it, and no such contract is in default, nor
has any event occurred, which with the passage of time or the giving of notice
or both, will result in the occurrence of a default under any such Contract or
in the receipt of any claim of default with respect to any Contract to which the
Company is a party or is otherwise bound or to which its assets are subject.
The Company has no present expectation or intention of not fully performing
in all material respects all such obligations; the Company has no knowledge of
any breach or anticipated breach by other parties of any Contract or commitment
to which it is a party or is otherwise bound; and the Company is not a party or
otherwise bound to any materially adverse or burdensome Contract or commitment.
(v) CERTAIN CONTRACTS AND COMMITMENTS. Except for the Outstanding
Options and the Outstanding Warrants, the Company is not a party to, or
otherwise bound by, nor has the Company ever established, had in effect,
obligated to fund or make contributions to any written or oral plan, program or
arrangement relating to a pension, profit sharing, retirement savings, thrift,
deferred compensation, stock option, stock purchase, group insurance, accident,
sickness, medical, dental, disability or other plan providing for deferred or
other compensation to employees. Except as set forth in SCHEDULE 4.1(v)
attached hereto, the Company is not obligated to fund any vacation pay,
severance pay, incentive compensation, consulting agreement, bonus or other
employee benefits or fringe benefits either currently or as to any time in the
past (including health insurance, life insurance or other benefit plans
maintained for retirees or former employees) whether or not such plan, program
and arrangement constitute "employee benefit plans" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and whether or not any such plan, program or arrangement are in the
nature of formal or informal understandings. All such plans, programs and
arrangements referred to in this Section 4.1(v) are collectively referred to
herein as "Benefit Plans".
(w) EMPLOYEES AND LABOR. The Company is not aware that any executive
or key employee, or any group of employees of the Company has any plans to
terminate his, her or their employment with the Company, or that any executive
or key employee is subject to any agreement, obligation or other legal hindrance
that impedes or might impede such executive or key employee from devoting his or
her full business time to the affairs of the Company. The Company has complied
in all material respects with all laws relating to wages, hours, equal
opportunity, collective bargaining and the payment of social security and other
taxes, and the Company has no material labor relations problems. Except as
reflected on the Financial
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Statements, the Company is not indebted to any officer, director or employee
whether by loan, advance or otherwise, other than for out-of-pocket expenses
incurred in the ordinary course of business, nor is any officer, director,
employee or shareholder so indebted to the Company. SCHEDULE 4.1(w) attached
hereto describes the respective salaries as in effect on the date hereof for the
employees who constitute the sole officers and employees of the Company. The
Company is not a party to any agreement, contract, arrangement, plan, commitment
or understanding which has resulted or would result, upon the consummation of
the transactions contemplated under this Agreement or otherwise, separately or
in the aggregate, in the payment of any "excess parachute payment" within the
meaning of Section 280G of the Code. The Company is not a party to any Benefit
Plan, or any Contract, whether collective bargaining agreements or other
arrangements with any labor union or any employment or consulting contracts not
terminable at will without penalty to which the Company is a party.
(x) ERISA. The Company has fulfilled its obligations under the
minimum funding standards of ERISA and the Code with respect to each Pension
Plan (as defined in Section 4001 of ERISA), and is in compliance in all material
respects with the provisions of ERISA and the Code. The Company has not
incurred any liability to the Pension Benefit Guaranty Corporation ("PBGC")
(other than annual premiums due to the PBGC) or a Pension Plan under Title IV of
ERISA. SCHEDULE 4.1(x) attached hereto lists each employee Benefit Plan covered
by ERISA maintained or contributed to by the Company at any time since January
1, 1990. The Company is not subject to any obligations or liabilities under
COBRA or any other employee Benefit Plan existing prior to, but not on or after,
January 1, 1990.
(y) ENVIRONMENTAL MATTERS. To the best knowledge of the Company, the
Company has duly complied with, and the operation of its businesses, equipment
and other assets in the facilities owned or leased by the Company are in
compliance with the provisions of all applicable federal, state and local
environmental, health and safety laws, statutes, ordinances, rules and
regulations of any governmental or a quasi governmental authority relating to
(i) errors or omissions, (ii) discharges to surface water or ground water, (iii)
solid or liquid waste disposal, (iv) the use, storage, generation, handling,
transport, discharge, release or disposal of toxic or hazardous substances or
waste, (v) the emission of non-ionizing electromagnetic radiation or (vi) other
environmental, health or safety matters, including without limitation, the
Comprehensive Environmental Response Compensation and Liability Act of 1980 as
amended by the Superfund Amendments and Authorization Act of 1986; the
Occupational Safety and Health Act; the Resource Conservation Recovery Act of
1976; the Federal Water Pollution Control Act of 1970; the Safe Drinking Water
Act of 1974; the Toxic Substances Control Act of 1976; the Emergency Planning
Community Right to Know Act of 1986, as amended; and the Clean Air Act, as
amended, (collectively "Environmental and Health Laws") or the Federal
Communications Act, as amended, ("FCC Law"). To the best knowledge of Company,
there are no investigations, administrative proceedings, judicial actions,
orders, claims or notices which are pending, anticipated or threatened against
the Company, relating to violations of the Environmental and Health Laws and the
FCC Law. The Company has not received a notice of, and does not know or have any
reason to suspect, any facts which constitute a violation of any Environmental
and Health Laws or the FCC Law which relate to the use, ownership or occupancy
of any property or facilities used by the Company in connection with the
operation of its business or any activity of
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the business of the Company which would result in a violation or threatened
violation of any Environmental or Health Laws or the FCC Law.
(z) ACCOUNTS RECEIVABLE. All of the accounts receivable of the
Company constitute valid receivables, have been incurred in the ordinary course
of business consistent with past practices and, to the knowledge of the Company,
are collectable in the ordinary course of business, except for the reserve for
bad debts or doubtful accounts as reflected in the Financial Statements and are
not subject to any setoffs or counterclaims. To the Company's knowledge, no
part of such accounts receivable is contingent upon the performance by the
Company of any obligation, and no agreements for deduction or discounts have
been made with respect to any part of such receivables. The Company shall
deliver a SCHEDULE 4.1(z) at the Closing listing all of the accounts receivable
of the Company as of the Closing Date.
(aa) PAYABLES. The list of itemized accounts payable of the Company
as shown in SCHEDULE 4.1(aa) attached hereto and such payables to be shown in
SCHEDULE 4.1(aa) to be updated at the Closing will represent a complete list of
the accounts payable of the Company to its creditors other than those not posted
to the Company's accounting records that were incurred in the ordinary course of
business. Except as set forth in SCHEDULE 4.1(aa) attached hereto none of the
accounts payable as so listed are currently in default.
(bb) DIRECTORS AND OFFICERS. The SCHEDULE 4.1(bb) attached hereto is
a correct and complete list as of the date hereof showing the names of each of
the Officers and Directors of the Company, each of whom has been duly elected or
appointed.
(cc) INVENTORY. The inventories of finished goods, work in process
and raw materials of the Company, including, without limitation, those set forth
on the Company's balance sheet as of the Financial Statement Date, other than
inventory sold in the ordinary course of business sold through the Closing Date
(collectively, the "Inventory"), are of a quality usable or saleable in the
normal course of the Company's business. The value of the Inventory as carried
on the Company's books and records reflect the normal inventory valuation policy
used by the Company and is in accordance with generally accepted accounting
principles, consistently applied, stating the value of the Inventory at the
lower of cost or market on a specific identification basis.
(dd) FULL DISCLOSURE. None of the written information provided by the
Company to Purchaser and Merger Sub in connection with the negotiation of this
Agreement contains any intentionally misleading statement of a material fact.
There is no fact which the Company has not disclosed to Purchaser or Merger Sub
in writing which materially affects or which will materially affect adversely
the Company's business, sales, income, properties, assets, liabilities,
activities, customers, or the ability of the Company to perform under this
Agreement.
4.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB. Purchaser
and Merger Sub represent and warrant to the Company as follows:
(a) ORGANIZATION AND CORPORATE POWER OF PURCHASER AND MERGER SUB.
Each of Purchaser and Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and is duly qualified to do business as
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a foreign corporation in good standing in each jurisdiction in which the
properties owned, leased or operated by it, or the nature of its activities or
proposed activities makes such qualification necessary, except in such
jurisdictions where the failure to be so qualified or in good standing would not
have a material adverse effect on the business, results of operations or
financial condition of the Purchaser and its subsidiaries taken as a whole.
Each of Purchaser and Merger Sub has all required corporate power and authority
to own its property and to carry on its business as now conducted.
(b) CORPORATE AUTHORIZATION. Each of Purchaser and Merger Sub has
full power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement, and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all corporate action on the part of
Purchaser or Merger Sub, and no other corporate proceedings on the part of
either Purchaser or Merger Sub are necessary to authorize the execution and
delivery of this Agreement or to consummate the transactions so contemplated.
(c) BINDING EFFECT. This Agreement constitutes the legal, valid and
binding agreement of Purchaser and Merger Sub enforceable against Purchaser and
Merger Sub in accordance with its terms, except to the extent that the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditor's
rights generally and by principles of equity regarding the availability of
remedies.
(d) CAPITALIZATION.
(i) The authorized capital of Merger Sub consists of
10,000,000 shares of common stock, no par value per share, 7,500,010 of which
have been issued to and are owned 100% by Purchaser, and 1,000,000 shares of
preferred stock, no par value per share, none of which have been issued. The
authorized capital of Purchaser consists of 50,000,000 shares of Purchaser Stock
and 1,000,000 shares of preferred stock, no par value. The number of shares of
Purchaser Stock which are issued and outstanding as of the date hereof is set
forth in SCHEDULE 4.2(d)(i) attached hereto. There are no shares of preferred
stock issued or outstanding All of such outstanding shares are validly issued
and outstanding, fully paid and nonassessable. All shares of Purchaser Stock to
be issued to the stockholders of the Company in the Merger will be validly
issued, fully paid and nonassessable.
(ii) The description of the capitalization of Purchaser as
set forth in the Disclosure Documents (as defined in Section 4.2(f)), is true
and correct. There is no right of first refusal or similar restrictions on the
transferability of shares of its capital stock imposed by Purchaser's Articles
of Incorporation or Bylaws, as amended, or by any agreement to which Purchaser
is a party, (other than provisions of agreements that require compliance with
securities laws). Except as set forth in SCHEDULE 4.2(d)(ii) no person has the
right to cause Purchaser to effect the registration under the Securities Act, of
any shares of its capital stock or any other securities (including debt
securities) of Purchaser. No shareholder of Purchaser has any preemptive or
other purchase rights with respect to the issue or sale of any of its capital
stock.
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(e) NO CONFLICTS. The execution, delivery and performance of this
Agreement, and the performance of the transactions contemplated hereby and the
compliance with the respective terms hereof by Purchaser and Merger Sub, do not
and will not (i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in the creation of
any lien, security interest, charge or encumbrance upon Purchaser's or Merger
Sub's capital stock or assets pursuant to, (iv) give any third party the right
to accelerate any obligation under, (v) result in a violation of, or (vi)
require any authorization, consent, approval, exemption or other action by or
notice to any court or administrative or governmental body or any other Person
pursuant to (A) the Articles of Incorporation or Bylaws of Purchaser or the
Articles of Incorporation or Bylaws of Merger Sub or any other organization or
governing instrument of Purchaser or Merger Sub, (B) any Contract, Lease,
indenture, promissory note, agreement, mortgage or other instrument to which
Purchaser or Merger Sub is a party or is bound or to which their assets are
subject or affected, or (C) any law, License, Permit, statute, rule, regulation,
judgment, decree or order of any Court, agency or other authority to which
Purchaser or Merger Sub is subject.
(f) DISCLOSURE. Purchaser has furnished to the Company its most
recent (as of the date hereof) annual report to its shareholders and
consolidated audited financial statements for the year ended December 31, 1996
(the "Disclosure Documents"). The Disclosure Documents, including all financial
statements contained therein, do not contain any untrue statement of material
fact nor does any Disclosure Document or financial statement contained therein
omit to state any material fact necessary to make the statements made, in the
context in which made, not materially misleading. Except as set forth in
SCHEDULE 4.2(f) attached hereto, there is no fact which Purchaser or Merger Sub
has not disclosed to the Company that might materially adversely affect the
business, condition, or prospects (financial or other) of Purchaser or the
ability of Purchaser or Merger Sub to perform this Agreement or any of the
transactions contemplated hereby.
ARTICLE V
COVENANTS OF THE COMPANY
5.1 COVENANTS OF THE COMPANY. The Company covenants and agrees that:
(a) CONDUCT OF THE COMPANY. From the date hereof until the Effective
Time, the Company will conduct its business in the ordinary course consistent
with past practice and will use its best efforts to preserve intact its business
organization and relationships with third parties and to keep available the
services of its present officers and employees. Without limiting the generality
of the foregoing, from the date hereof until the Effective Time and without the
written consent of Purchaser:
(i) The Company will not declare, set aside or pay any
dividend or other distribution with respect to any shares of Stock of the
Company;
(ii) The Company will not amend or alter any material term
of any outstanding Stock;
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(iii) The Company will not (A) issue or sell any securities
convertible into or exchangeable for debt securities of the Company; or (B)
issue or sell any options, warrants or other rights to acquire from the Company,
directly or indirectly, any debt securities of the Company or any securities
convertible into or exchangeable for any such debt securities;
(iv) The Company will not create, assume or incur any lien
on any material asset of the Company that will not be discharged at the Closing;
(v) Except as set forth in SCHEDULE 5.1(a)(v) attached
hereto and except for the issuance of shares pursuant to the exercise of the
Outstanding Options or the Outstanding Warrants, the Company will not (A) issue
or sell any additional Stock or (B) redeem, repurchase or otherwise acquire any
additional Stock;
(vi) The Company will not relinquish any material contract
or other material right of the Company, make any payment (direct or indirect) of
any liability of the Company before the same becomes due in accordance with its
terms or make any change in its operations that is in any such case material to
the Company, its business, prospects and financial condition taken as a whole;
(vii) The Company will not adopt any change in any method of
accounting or accounting practice used by the Company other than by reason of a
concurrent change in GAAP and upon the recommendation of the Company's
independent public accountants;
(viii) Except for the agreements referenced in SCHEDULE
5.1(a)(viii), which the Company may amend with the prior written consent of
Purchaser (which will not be unreasonably withheld), the Company will not (A)
grant or make any severance or termination payments to any officer, director or
employee of the Company, except pursuant to written agreements in effect on the
date hereof, (B) enter into any employment, deferred compensation or other
similar agreement (or enter into any amendment to any such existing agreement)
with any officer, director or employee of the Company, (C) without the consent
of Purchaser pay any officer, director, or employee compensation which is in
excess of the current compensation level of each employee, officer or director,
except for standard periodic increases to non-management employees consistent
with past practices in terms of timing and amount; (D) materially accelerate or
increase benefits payable under any existing severance or termination pay
policies or employment agreements, or (E) accelerate, vest, pay or provide for
any increase in compensation, bonus, or other benefits payable to officers,
directors or employees of the Company except for normal increases to
non-managerial employees consistent with past practice, to the extent required
under existing employment and labor agreements.
(ix) The Company will not amend its Articles of
Incorporation or Bylaws or change its corporate name or, except as set forth in
SCHEDULE 5.1(a)(ix) attached hereto, permit the use thereof by any other Person;
(x) Subject to the fiduciary duties of its Board of
Directors, the Company will not merge or consolidate with any Person, acquire
any stock or other ownership
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interest in any Person, or the assets of any business as an entity, or
liquidate, dissolve or otherwise reorganize or seek protection from creditors;
(xi) Subject to the fiduciary duties of its Board of
Directors, the Company will not intentionally take any action, the taking of
which, would reasonably be expected to cause any of the representations and
warranties in Section 4.1 hereof to be inaccurate in any material respect at or
as of any time prior to the Effective Time;
(xii) Except for the sale of inventory and the disposition of
obsolete or defective equipment or other assets in the ordinary course of
business, the Company will not sell, transfer, mortgage, or otherwise dispose
of, or encumber, or agree to sell, transfer, mortgage or otherwise dispose of or
encumber, any assets or properties, real, personal or mixed;
(xiii) Subject to the fiduciary duties of its Board of
Directors, the Company will not (A) enter into any other agreements, commitments
or contracts (including without limitation joint venture agreements or material
license agreements) which, individually or in the aggregate, are material to the
Company, except agreements, commitments or contracts for the purchase, sale or
lease of goods or services, consistent with past practice or (B) otherwise make
any material change in any existing material agreement, commitment or
arrangement, except in the ordinary course of business;
(xiv) The Company will not make any investment of a capital
nature either by purchase of stock or securities, contributions to capital,
property transfers or otherwise, or by the purchase of any property or assets of
any other Person, except the purchase of fixed assets as permitted by Section
5.1(a)(xv) hereof;
(xv) The Company will not purchase any fixed assets
which, singly or in the aggregate have an installed purchase price greater
than $1,000;
(xvi) The Company will not distribute or otherwise circulate
any notices, directives or other communications directed to all or groups of
customers, vendors, employees, distributors or others associated with its
business without consulting with Purchaser and giving Purchaser reasonable
opportunity to comment thereon;
(xvii) The Company will not make any changes in management
without prior written consent of Purchaser;
(xviii) The Company will not increase the amount of any
indebtedness outstanding under any loan agreement, mortgage or borrowing
arrangement in existence on the date hereof or obtain any additional loans or
incur any additional indebtedness, unless the Company first advises Purchaser
and receives Purchaser's consent thereto (which consent shall not be
unreasonably withheld);
(xix) The Company shall pay when due in accordance with past
practices all of its accounts payable and trade obligations;
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(xx) The Company shall use its best efforts to maintain its
facilities, assets and properties in good operating repair, order and condition,
reasonable wear and tear excepted, and notify Purchaser promptly upon any loss
of, damage to, or destruction of any of its facilities, properties or assets;
(xxi) The Company shall maintain in full force and effect all
insurance coverage of the types and in the amounts set forth in the Schedules
attached hereto and apply the proceeds received under any insurance policy or as
a result of, damage to, or destruction of any of its facilities, properties or
assets to the repair or replacement of such facilities, properties or assets;
(xxii) The Company shall maintain in full force and effect all
Licenses and Permits, and shall use its best efforts to maintain in full force
and effect all Leases and Contracts, for or related to the operation of the
Company's business and in all respects and in all places as such business is now
conducted;
(xxiii) The Company shall use its best efforts to preserve its
business organizations intact, to keep available the services of its present
employees and to preserve the good will of its customers and others having
business relations with the Company;
(xxiv) The Company shall promptly advise Purchaser in writing
of the commencement of, and any known threat to commence, any suit, claim,
action, arbitration, legal or administrative proceedings, governmental
investigation or tax audit against the Company;
(xxv) The Company shall deliver to Purchaser as soon as
available monthly financial statements ("Monthly Financial Statements") of the
Company commencing with the month of July, 1997, and for each calendar month
thereafter prior to the Closing Date;
(xxvi) Promptly following the execution of this Agreement, the
Company shall have notified any Person having Outstanding Options of the matters
contemplated by the Company's outstanding stock option plans, and any Person
having Outstanding Warrants of the matters as to which notice is required to be
given in accordance with their respective notice provisions. The Company shall
use its best efforts to obtain from the holders of the Outstanding Warrants and
Outstanding Options listed in SCHEDULE 5.1(a)(xxvi) attached hereto a written
agreement as to the termination and cancellation of their Outstanding Warrants
and Outstanding Options.
(xxvii) The Company shall pay all payroll withholding expenses
with respect to the exercise, prior to the Closing Date, of any Outstanding
Options or Outstanding Warrants outstanding as of the date hereof and all other
expenses and costs incurred by the Company in the ordinary course of business as
such expenses and costs shall become due and payable.
(xxviii) The Company shall not incur any liability or be
obligated to fund any vacation pay, severance pay, incentive, compensation,
consulting agreement, bonus or other employee benefit or fringe benefit. The
Company shall not incur any additional accounts payable
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between the date hereof and the Closing Date other than in the ordinary course
of business without Purchaser's express written consent.
(xxix) The Company shall not agree or commit to do any of the
matters specified in Section 5.1(a)(i) through 5.1(a)(xviii) and Section
5.1(a)(xxviii) hereof and the Company will take action and perform the matters
set forth in Sections 5.1(a)(xix) through 5.1(a)(xxvii) hereof.
(b) ACCESS TO INFORMATION. The Company will give Purchaser, its
counsel, financial advisors, auditors and other authorized representatives full
access to the offices, properties, books and records of the Company and will
promptly furnish to Purchaser, its counsel, financial advisors, auditors and
authorized representatives such financial and operating data and other
information as such persons may reasonably request and will instruct the
officers, directors, employees, counsel and financial advisors of the Company to
discuss the business operations, affairs and assets of such corporations and
otherwise fully cooperate with the other party in its investigation of the
business of the Company. No investigation pursuant to this Section 5.1(b) will
affect any representation or warranty given by the Company to Purchaser
hereunder.
(c) NOTICE OF CERTAIN EVENTS. The Company will promptly notify
Purchaser of:
(i) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental
or regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(iii) any actions, suits, claims, investigations or
proceedings commenced or, to the best of the Company's knowledge, threatened
against, relating to or involving or otherwise affecting the Company which
relate to the consummation of the transactions contemplated by this Agreement or
which, if pending on the date of this Agreement, would have been required to
have been disclosed in the Disclosure Schedule; and
(iv) any other event or change of fact or circumstance
causing any representation contained in Section 4.1 of this Agreement to be, as
of the date of such event or change, incorrect or misleading in any material
respect.
(d) CONSENTS, APPROVALS AND FILINGS. Subject to the terms and
conditions herein provided and without being required to waive any conditions
herein, the Company will use its best efforts to obtain as promptly as possible
all necessary approvals, authorizations, consents, clearances or orders
("Consents") of governmental and regulatory authorities required in order for
the Company to perform its obligations hereunder. The receipt of such Consents
shall be a condition of Closing.
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(e) BEST EFFORTS. The Company shall use its best efforts (i) to
cause to be fulfilled and satisfied all of the conditions to the Merger to be
fulfilled and satisfied by the Company, and (ii) to cause to be performed all of
the matters required of it at or prior to the Effective Time.
(f) EXCLUSIVITY. In order to induce Purchaser to enter into this
Agreement, the Company agrees that subject to the fiduciary duties of the Board
of Directors of the Company, the Company will not, prior to the Closing Date,
take any further action to solicit, initiate or encourage any offer or
indication of interest from any Person other than Purchaser relating to the
merger, consolidation or sale of the Company or its Stock or properties and
assets of the Company, including without limitation, any such further action
through any investment banker, broker, finder or other intermediary previously
engaged or which may be engaged for the purpose of soliciting, initiating or
encouraging such offer or indication of interest.
5.2 COVENANTS OF PURCHASER. Purchaser covenants and agrees that:
(a) BEST EFFORTS. Subject to the terms and conditions herein
provided and without being required to waive any conditions herein, Purchaser
shall use its best efforts to (i) cause to be fulfilled and satisfied all of the
conditions to the Merger to be fulfilled and satisfied by it, and (ii) cause to
be performed all of the matters required of it at or prior to the Effective
Time.
(b) CONSENTS, APPROVALS AND FILINGS. Purchaser will use its best
efforts to obtain as promptly as possible all necessary approvals,
authorizations, consents, licenses, clearances or orders of governmental and
regulatory authorities required in order for Purchaser to perform its
obligations hereunder.
(c) ADVICE OF CHANGES. Purchaser will promptly advise the Company
orally and in writing of (i) any event occurring subsequent to the date of this
Agreement which would render any representation or warranty of Purchaser
contained in this Agreement, if made on or as of the date of such event or the
Effective Time, untrue, inaccurate or incomplete in any material respect and
(ii) any material adverse change in the financial condition, assets, liabilities
(whether absolute, accrued, contingent or otherwise), operating profits,
business or prospects of Purchaser.
ARTICLE VI
MISCELLANEOUS
6.1 SURVIVAL OF REPRESENTATIONS. The representations, warranties,
covenants, and agreements of the Company, Purchaser and Merger Sub made herein
or any certificate delivered by the Company or Purchaser and Merger Sub pursuant
to Sections 4.1 and 4.2 hereof, as the case may be, shall survive without
limitation the execution hereof and thereof and the delivery of the Merger
Consideration and shall remain in full force and effect for a period of five (5)
years after the Closing Date.
6.2 INCORPORATION BY REFERENCE. Except for the Disclosure Schedule and
Schedule 2.6(a) which will be attached as of the date of execution of this
Agreement, the Schedules, Exhibits and Attachments contemplated under this
Agreement shall be appended to
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this Agreement within five (5) days business after the execution of this
Agreement by the parties hereto. All Schedules, Exhibits and Attachments to
this Agreement and all documents delivered pursuant to or referred to in this
Agreement are incorporated herein by reference and made a part hereof. Such
Exhibits, Schedules and Attachments may be appended hereto, amended or modified
by a party provided that the other party ("Receiving Party") has been furnished
with a copy of the proposed amendment or modification to such Schedule, Exhibit
or Attachment; provided, however, that if any such Schedule, Exhibit, Attachment
or amendment thereto shall materially adversely affect the economics, financial
or business considerations of the transactions contemplated under this Agreement
as determined by the Receiving Party, such Receiving Party may terminate this
Agreement in accordance with Section 6.16(a)(vii) hereof. The Schedules,
Exhibits and Attachments to this Agreement shall not be deemed to be part of the
Plan of Merger.
6.3 PARTIES IN INTEREST. All covenants, agreements, representations,
warranties and undertakings in this Agreement made by and on behalf of any of
the parties hereto shall bind and inure to the benefit of their respective
successors and assigns and the term "Purchaser" herein shall apply to the
successors and assigns of Purchaser.
6.4 AMENDMENTS AND WAIVERS. This Agreement may be amended, or compliance
with any terms, covenants, agreement, condition or provision set forth herein
may be waived (either generally or in a particular instance and either
retroactively or prospectively) if agreed to in writing by the Company,
Purchaser and Merger Sub upon the approval of their respective Boards of
Directors at any time prior to filing the Articles of Merger with the Secretary
of State of Iowa or Colorado, respectively.
6.5 GOVERNING LAW; SEVERABILITY. This Agreement, together with the rights
and obligations of the parties hereunder, shall be governed by, construed and
enforced in accordance with the laws of the State of Colorado without giving
effect to the conflict of laws provisions thereof. If any provision of this
Agreement or the application of any such provision to any party shall be held by
a court of competent jurisdiction to be contrary to law, the remaining
provisions of this Agreement shall remain in full force and effect.
6.6 NOTICES. All notices, requests, consents and demands shall be in
writing and shall be deemed to have been sufficiently given, upon receipt, if
sent, postage prepaid, by registered or certified mail, return receipt
requested, to the Company at 2900 Westown Parkway, Suite F, West Des Moines,
Iowa 50266, Attn: President, with a copy to David L. Wetsch, Esq., 974
Seventy-Third Street, Suite 20, Des Moines, Iowa 50312-1032; to the Purchaser or
Merger Sub at 67 Inverness Drive East, Suite 110, Englewood, Colorado 80112,
Attn: Legal Department, or to such other address as may from time to time be
furnished in writing to the other parties hereto.
6.7 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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6.8 CAPTIONS. The captions and headings of this Agreement are for
convenience only and are not to be construed as defining or limiting the scope
or intent of any of the provisions hereof.
6.9 COMPLETE AGREEMENT. This document, and the Exhibits and Schedules
hereto, embodies the complete agreement and understanding between and among the
parties hereto with respect to the subject matter hereof, and supersedes and
preempts any prior understandings, agreements, or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof.
6.10 ARBITRATION. Any and all disputes arising out of, under, in
connection with, or relating to this Agreement shall be finally settled by
arbitration in Denver, Colorado, or in such other place as the parties hereto
agree, in accordance with the rules then in effect of the American Arbitration
Association. The board of arbitrators shall be composed of three arbitrators,
being qualified to make evaluations of the kind under dispute. Such arbitrators
shall be selected in accordance with the procedures of the American Arbitration
Association and shall be reasonably acceptable to both Purchaser and the
stockholders of the Company. The arbitration award, based upon written findings
of fact and conclusions of law, shall be final and binding on the parties. Each
party will pay its own expenses associated with such arbitration, provided that
the prevailing party in any arbitration shall be entitled to reimbursement of
reasonable attorney's fees and expenses (including, without limitation,
arbitration expenses) relating to such arbitration. Any arbitration award may
be enforced in any court having jurisdiction over the party against which
enforcement is sought.
6.11 INDEMNIFICATION BY COMPANY STOCKHOLDERS. The stockholders of the
Company identified in SCHEDULE 6.11 attached hereto (the "Indemnifying
Stockholders") will indemnify, defend and save and hold Purchaser and Merger Sub
harmless from and against any costs, expenses, damages, liabilities, losses or
deficiencies, including, without limitation, reasonable attorneys' fees and
other costs incident to any suit, action or proceeding (collectively "Losses")
suffered or incurred by Purchaser or Merger Sub, respectively, arising out of or
resulting from, and will pay Purchaser and Merger Sub on demand the full amount
of any amounts which Purchaser or Merger Sub as the Surviving Corporation,
respectively, may pay or may become obligated to pay in respect of:
(i) any material inaccuracy in any representation or
document delivered under or pursuant to this Agreement or the material breach of
any warranty made by the Company in or pursuant to this Agreement;
(ii) any misrepresentations in or omission from any
schedule, exhibit or any other attachment to this Agreement;
(iii) any failure by the Company duly to perform or observe
any term, provision, covenant, or agreement in this Agreement to be performed or
observed on the part of the Company for periods prior to the Closing Date; or
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(iv) any action, suit, investigation, proceeding, demand,
assessment, audit, judgment and claim, including any employment-related claim
arising out of the foregoing paragraphs (i), (ii) and (iii) (collectively
"Claims") against the Company accruing prior to the Closing Date, even though
such claims may not come to light until after the Closing Date.
Purchaser and Merger Sub hereby covenant and agree to immediately provide
the Indemnifying Stockholders any and all notifications or other correspondence
that either such corporation receives related to matters which may affect this
indemnity and hereby agree to allow the Indemnifying Stockholders to defend any
and all actions affecting this indemnity and shall not settle any action or
dispute affecting this indemnity without obtaining the prior written consent of
the Indemnifying Stockholders. However, failure to provide any such
notifications or other correspondence in a timely manner will not relieve the
Indemnifying Stockholders of their obligations to indemnify Purchaser and Merger
Sub under this Section 6.11; provided, however, that the Indemnifying
Stockholders shall have no obligation to indemnify Purchaser or Merger Sub in
the event Purchaser fails to timely notify the Indemnifying Stockholders of any
such Claim for indemnification which results in a material adverse effect on the
ability of the Indemnifying Stockholders to defend the Claim or in the event
such failure to so notify is willful. The Indemnifying Stockholders shall have
the right to select counsel of their choice, subject to the reasonable approval
of Purchaser, and to assume the defense of such claim. The Indemnifying
Stockholders shall give notice to Purchaser of the name of the counsel selected
by the Indemnifying stockholders and Purchaser shall have fifteen (15) days to
approve or disapprove such counsel. Purchaser or Merger Sub shall have the right
to employ separate counsel with respect to any such Claim and to participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of the indemnified party unless (i) the Indemnifying Stockholders have
agreed in writing to pay such fees and expenses, (ii) the Indemnifying
Stockholders have failed to assume defense and employ counsel, or (iii) the
named parties to such action include both Indemnifying Stockholders and an
indemnified party and the Indemnifying Stockholders have been advised by their
counsel that representation of such indemnified party and Indemnifying
Stockholders by the same counsel would be inappropriate under applicable
standards of professional conduct due to actual or potential differing interests
between them (in which case the Indemnifying Stockholders shall not have the
right to assume the defense of such action on behalf of Purchaser or Merger
Sub).
Except with respect to any failure of a representation or warranty or an
omission which makes any representation or warranty set forth in Section 4.1
hereof, or in any Schedule, Exhibit or any other Attachment to this Agreement
inaccurate or misleading and such failure is a result of fraud, gross negligence
or willful or wanton disregard by the Company as to the truth and accuracy of
the matters stated therein of which such stockholders had any knowledge, the
obligation of such stockholders of the Company to indemnify Purchaser and the
Merger Sub, as provided hereunder, shall not exceed the aggregate amount equal
to the Merger Consideration received by the Indemnifying Stockholders. The
aggregate amount of the Claims to be indemnified hereunder shall be shared
proportionally by the Indemnifying Stockholders based on the percentage that the
Merger Consideration received by each such Indemnifying Stockholder bears to the
Merger Consideration received by all such Indemnifying Stockholders of the
Company who are obligated to indemnify Purchaser and Merger Sub hereunder.
Otherwise, in the case of any failure of a representation or warranty or an
omission making the representation or
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warranty set forth in Section 4.1 hereof or in any Schedule, Exhibit or other
Attachment to this Agreement misleading, which failure or omission involves
fraud, gross negligence or willful and wanton disregard on the part of the
Company of which such Indemnifying Stockholders had knowledge ("Knowledgeable
Misrepresentation"), the obligation to indemnify the amount of the Claims
suffered or incurred by Purchaser or Merger Sub shall not exceed the aggregate
amount equal to the Merger Consideration received by the Indemnifying
Stockholders plus the total amount of the Bank Debt paid by Purchaser or Merger
Sub. Such obligation to indemnify shall be shared by such Indemnifying
Stockholders of the Company having knowledge of such fraud, gross negligence or
willful and wanton disregard in the proportion of the Merger Consideration
received by each such Indemnifying Stockholder and a percentage of the Merger
Consideration received by all such Indemnifying Stockholders of the Company
having such knowledge.
6.12 PURCHASER'S INDEMNIFICATION. Purchaser and Merger Sub agree that
notwithstanding the Closing and regardless of any investigation of any item made
by or on behalf of the Company or any information the stockholders of the
Company may have in respect thereof, the Purchaser or Merger Sub will indemnify
and save and hold the stockholders of the Company harmless from and against any
Losses suffered or incurred by the stockholders of the Company arising out of or
resulting from, and will pay the stockholders of the Company on demand the full
amount of any such amounts which the stockholders of the Company may pay or
become obligated to pay in respect of:
(i) any material inaccuracy in any representation or the
breach of any warranty made by Purchaser or Merger Sub in or pursuant to this
Agreement;
(ii) any failure by Purchaser or Merger Sub of their duty to
perform or observe any item, provision, covenant or agreement in this Agreement
to be performed or observed on the part of Purchaser or Merger Sub; or
(iii) any claim for damages arising after the Closing Date
for any act or omission of Purchaser or Merger Sub occurring after the Closing
Date.
6.13 LIMITATION OF INDEMNITY. Notwithstanding any provision herein to the
contrary, except as set forth in Section 6.14 hereof relating to brokers and
finders, neither Purchaser nor Merger Sub, on the one hand, nor the Indemnifying
Stockholders on the other hand, shall be required to indemnify the other for any
misrepresentation, breach of warranty or failure to fulfill any covenant or
agreement herein except to the extent that the aggregate amount which the
Indemnifying Stockholders, on the one hand, or Purchaser and Merger Sub, on the
other hand, respectively would otherwise (but for this provision) be liable on
account thereof exceeds in the aggregate the sum of five thousand dollars
($5,000) (the "Threshold Amount") and then only to the extent of such excess;
provided, however, for purposes of calculating whether the Threshold Amount has
been reached, any specific materiality provision contained in the
representations and warranties shall be disregarded. The obligations of the
Indemnifying Stockholders to indemnify Purchaser or Merger Sub under Section
6.11 shall terminate five years after the Closing Date except as to matters as
to which notice of a Claim has been given to the Indemnifying Stockholders under
Section 6.11 prior to the expiration of such five year period.
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6.14 BROKERAGE COMMISSIONS. Each party to this Agreement warrants to the
other that it has not engaged or utilized the services of any broker or finder
in connection with the transaction contemplated by this Agreement, and no
commissions are payable with respect to the transactions contemplated by this
Agreement. Each such party hereto agrees to indemnify and hold the other
harmless from and against any liability for any claims of any broker or finder
claiming by, through, or under such party.
6.15 PUBLICITY. Prior to the Closing Date, all notices to third parties
and all other publicity relating to the transactions contemplated by this
Agreement shall be jointly planned, coordinated and approved by the Company,
Purchaser and Merger Sub.
6.16 TERMINATION.
(a) TERMINATION. This Agreement may be terminated, and the Merger
contemplated by this Agreement may be abandoned, at any time prior to the
Effective Time, notwithstanding the adoption of this Agreement and the approval
of the Merger by the stockholders of the Company:
(i) By mutual written consent duly authorized by the Board
of Directors of Purchaser and by the Board of Directors of the Company;
(ii) By either Purchaser or the Company if the Merger has
not been consummated by October 31, 1997, except that the right to terminate
this Agreement under this Section 6.16(a)(ii) will not be available to any party
whose willful failure to perform any material obligation or to fulfill any
material condition under this Agreement has been the proximate cause of, or
resulted in, the failure of the Effective Time to occur on or before that date;
(iii) By either Purchaser or the Company if a court of
competent jurisdiction or an administrative, governmental, or regulatory
authority has issued a final nonappealable order, decree, or ruling, or taken
any other action, having the effect of permanently restraining, enjoining, or
otherwise prohibiting the Merger;
(iv) By Purchaser if (A) Purchaser is not in material breach
of its obligations under this Agreement and (B) there has been (1) a material
breach by the Company of any of its representations and warranties under this
Agreement such that the conditions in Section 3.1(a) can not be satisfied or (2)
a material failure by the Company to perform any of its obligations under this
Agreement such that the conditions in Section 3.1(b) can not be satisfied, and,
in both case (1) and case (2), the breach or failure cannot be cured by the
Company within 30 calendar days following receipt by the Company of notice of
the breach;
(v) By the Company if (A) the Company is not in material
breach of its obligations under this Agreement and (B) there has been (1) a
material breach by Purchaser of any of its representations and warranties under
this Agreement such that the conditions in Section 3.2(a) will not be satisfied
or (2) a material failure by Purchaser to perform any of its obligations under
this Agreement such that the conditions in Section 3.2(b) will not be satisfied,
and, in both
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case (1) and case (2), the breach or failure cannot be cured by Purchaser within
30 calendar days following receipt by Purchaser of notice of the breach;
(vi) By the Purchaser if the total value of the appraisal
rights of the Dissenting Shares as determined under the applicable provisions of
the Iowa Business Corporation Act exceeds the amount set forth in Section 3.1(l)
hereof; and
(vii) By either of the Purchaser or the Company, such party
not then being in breach of the Agreement, if any Exhibit, Schedule or
Attachment appended hereto subsequent to the date of the Agreement or any
amendment to any Exhibit, Schedule or Attachment hereto made subsequent to the
date of the Agreement shall materially adversely affect the economics, financial
or business considerations of the transactions contemplated under this Agreement
as determined by the Receiving Party.
This Agreement may be terminated by the Board of Directors of either the
Company or Purchaser in accordance with the foregoing provisions notwithstanding
the approval of the Agreement by the stockholders of the Company or Merger Sub.
(b) EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 6.16(a)(i),(ii) (unless the failure to consummate
the transactions contemplated hereunder is caused by the acts or omissions of
Purchaser), (iii), (iv), (vi) and/or (vii) hereof, the Company shall return the
Earnest Money received from Purchaser. In the event of the termination of this
Agreement pursuant to Subsections 6.16(a)(ii) (if the failure to consummate the
transactions hereunder is caused by the acts or omissions of Purchaser) or (v),
the Company shall be entitled to retain the Earnest Money received from
Purchaser.
6.17 COSTS AND EXPENSES OF MERGER. The Company shall be responsible
for the payment of all Transactional Costs as provided in SCHEDULE 6.17 and
Purchaser and Merger Sub shall be responsible for the payment of their costs and
expenses, including, without limiting the generality thereof, the costs and
expenses of its attorneys, accountants and other consultants engaged by such
party in connection with the investigation or due diligence review of documents
of the other party, filing fees, recording and notification fees, travel,
entertainment and lodging expenses and any other expenses or costs relating to
the consummation of the transactions contemplated under this Agreement up to and
including the Closing Date. The amount of the Transactional Costs shall reduce
the total amount of the Cash Consideration in accordance with this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first set forth above.
CONVERGENT COMMUNICATIONS, INC.,
a Colorado corporation
By: /s/ John R. Evans
-------------------------------------
John R. Evans, Chief Executive Officer
CONVERGENT COMMUNICATIONS SERVICES, INC.
a Colorado corporation
By: /s/ John R. Evans
-------------------------------------
John R. Evans, Chief Executive Officer
VITAL INTEGRATION SOLUTIONS, INC.
an Iowa corporation
By: /s/ David R. Backstrom
-------------------------------------
David R. Backstrom, President
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made this 1st day of
October, 1997 by and between CONVERGENT COMMUNICATIONS SERVICES, INC., a
Colorado corporation ("CCSI") whose address is 67 Inverness Drive East, Suite
110, Englewood, Colorado 80112, and BIG PLANET, INC., an Oregon corporation
("BPI"), whose address is 120 S.W. Ankeny, Suite 600, Portland, Oregon 97204
(hereinafter collectively referred to as "the parties").
RECITALS
A. CCSI is desirous of buying BPI's Assets and BPI is desirous of selling
BPI's Assets to CCSI.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, both parties agree as follows:
1. IDENTIFICATION AND TRANSFER OF ASSETS.
1.1 IDENTIFICATION OF ASSETS TO BE TRANSFERRED TO CCSI. The assets
described in EXHIBIT 1.1 shall collectively constitute the "Identified Assets."
1.2 ASSUMPTION OF CERTAIN LIABILITIES. Except for those trade
liabilities set forth on EXHIBIT 1.2 (the "Assumed Liabilities"), which are
hereby expressly assumed by CCSI, CCSI shall assume no other liabilities and
obligations relating to the Identified Assets. BPI agrees to hold CCSI harmless
from any other liabilities or obligations incurred by BPI, or accruing with
respect to the Identified Assets, and all other assets of BPI, with respect to
any period prior to and including the Closing Date and from liabilities or
obligations with respect to all other assets of BPI with respect to any period
after the Closing Date.
1.3 TRANSFER OF IDENTIFIED ASSETS. BPI shall take all actions
reasonably requested by CCSI to transfer the Identified Assets to CCSI
including, but not limited to, the execution of a bill of sale and assignment in
the form attached hereto as EXHIBIT 1.3 ("Bill of Sale"), and all other bills of
sale, assignment and transfer forms, amendments, applications to governmental
agencies, licenses, and reports reasonably required by CCSI of BPI to effectuate
the transfer of the Identified Assets.
2. PURCHASE PRICE AND OFFSET.
2.1 PURCHASE PRICE. The Purchase Price shall be Two Hundred
Fifty Thousand Dollars ($250,000) paid by CCSI to BPI ("Purchase Price").
2.2 OFFSET OF SECURED NOTE. The Parties acknowledge that BPI
has executed a Senior Secured Promissory Note in the amount of $250,000 and a
Security Agreement
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granting CCSI a first priority security interest in the Collateral (as defined
therein), each dated as of September 25, 1997 (collectively the "Secured Note")
whereby CCSI has provided funding to BPI for BPI's operations. The Purchase
Price shall be paid by applying the amounts due to CCSI under the Secured Note
against the Purchase Price.
2.3 SALE OF RETAIL CUSTOMER ACCOUNTS. The parties acknowledge that
BPI is in the process of selling certain of its retail account customers to
NuSkin International, Inc. ("NuSkin"). The parties further acknowledge that all
amounts received by BPI as a result of the sale of the retail account customers
to NuSkin shall be credited to CCSI and shall become part of the Identified
Assets to be transferred and assigned to CCSI
3. CLOSING DATE DOCUMENTATION. In addition to the other documents
required hereunder, as a predicate to the closing of the transactions hereunder,
BPI shall supply CCSI with the following on or before the Closing Date.
3.1 TRANSFER DOCUMENTS. Transfer Documents, in form and substance
reasonably satisfactory to CCSI and BPI, to effect the transfer of the
Identified Assets to CCSI pursuant to the terms of this Agreement.
3.2 CONSENTS. Any and all consents, in a form and substance
reasonably satisfactory to CCSI and BPI, from any person or entity not a party
to this Agreement whose consent is necessary or desirable for the execution and
performance of this Agreement by CCSI and BPI.
3.3 COMPLIANCE CERTIFICATE. All corporate and other proceedings,
including approval by the directors and shareholders of BPI, required to be
taken by or on the part of BPI to authorize BPI to execute, deliver and carry
out this Agreement shall have been duly and properly taken. CCSI shall have
received a certificate of authorized individuals of BPI in the form of EXHIBIT
3.3, dated as of the Closing, certifying to the fulfillment of the conditions
specified in this Agreement.
4. REPRESENTATIONS OF BPI. As material representations to induce CCSI to
enter into this transaction, BPI represents to CCSI as follows:
4.1 OWNERSHIP. The Identified Assets transferred pursuant hereto
are owned by BPI, free and clear of all liens, encumbrances, agreements and
claims with or of third parties except the first priority security interest
granted to CCSI pursuant to the Secured Note.
4.2 CORPORATE STATUS AND AUTHORITY. BPI is a corporation duly
incorporated and existing in good standing under the laws of the state of its
incorporation and is fully authorized to carry on its business as it is now
being conducted and to enter into the transactions herein set forth. BPI is
duly qualified to transact business as a foreign corporation and is in good
standing in each of the jurisdictions requiring such qualification whether by
reason of the ownership or leasing of its properties or the conduct or nature of
its business. All corporate,
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<PAGE>
director, and stockholder approvals required have been secured to the extent
required. No consents, approvals, or filings from or with any person or entity
other than those delivered to CCSI herewith are necessary for the execution,
delivery and performance by BPI of this Agreement and the transactions
contemplated hereby. BPI has all requisite power and authority to execute this
Agreement and carry out all the actions required of it herein. This Agreement
is the legal, valid and binding agreement of BPI enforceable against BPI in
accordance with its terms.
4.3 PENDING CLAIMS. BPI is not presently subject to any claim which
would materially and adversely affect the Identified Assets such as:
litigation; disclosed or undisclosed claims or liabilities; or pending
governmental investigations or complaints of any kind or description. The
Identified Assets are subject to no contracts, claims or liens other than as set
forth in EXHIBIT 4.3.
4.4 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and
performance of and compliance with this Agreement, or any agreement or
instrument contemplated hereby, by BPI will not result in any violation of its
Certificate of Incorporation or Bylaws or be in material conflict with or
constitute a default in any material respect under any term of any agreement,
instrument, judgment, decree, or, to the knowledge of BPI, any order, statute,
rule or governmental regulation applicable to BPI, or result in the creation of
any lien, charge or encumbrance of any kind or nature on the Identified Assets.
4.5 UNDISCLOSED LIABILITIES. BPI does not have, with respect to its
current operation, any material and undisclosed liabilities or obligations of
any nature affecting the Identified Assets.
4.6 ENVIRONMENTAL MATTERS. To the best knowledge of BPI, BPI has
duly complied with, and the operation of its business, equipment and other
assets in the facilities owned or leased by BPI and its subsidiaries are in
compliance with the provisions of all applicable federal, state and local
environmental, health and safety laws, statutes, ordinance, rules and
regulations of any governmental or quasi governmental authority relating to (i)
error omissions, (ii) discharges to surface water or ground water, (iii) solid
or liquid waste disposal, (iv) the use, storage, generation, handling,
transport, discharge, release or disposal of toxic or hazardous substances or
waste, (v) the emission of non-ionizing electromagnetic radiation, or (vi) other
environmental, health or safety matters, including, without limitation, the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Authorization Act of 1986; the
Occupational Safety and Health Act; the Resource Conservation and Recovery Act
of 1976, as amended; the Federal Water Pollution Control Act of 1970; the Safe
Drinking Water Act of 1974; the Toxic Substances Control Act of 1976; the
Emergency Planning and Community Right to Know Act of 1986, as amended; and the
Clean Air Act, as amended (collectively "Environmental and Health Laws") or the
Federal Communications Act, as amended ("FCC Laws"). To the best knowledge of
BPI, there are no investigations, administrative proceedings, judicial actions,
orders, claims or notices which are pending, anticipated or threatened against
BPI, relating to violations of the Environmental and Health Laws and the FCC
Laws. BPI has not received a notice of, and does not know or have
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any reason to suspect, any facts which might constitute a violation of any
Environmental or Health Laws which relate to the use, ownership or occupancy of
any property or facilities used by BPI in connection with the operation of its
business or any activity of BPI's business which would result in a violation or
threaten violation of any Environmental or Health Laws and the FCC Laws.
4.7 TAX LIENS. There are no tax liens on any of the Identified
Assets. BPI has duly filed all federal, state and local tax returns and reports
(including, without limitation, returns for estimated tax), and all returns and
reports for any other governmental units or taxing authorities having
jurisdiction with respect to any taxes required to be paid by BPI, except where
extensions have been applied for and granted, and where such extensions have not
expired; all such returns and all such reports show the correct and proper
amounts due, and all taxes shown on such returns and reports and all assessments
received by BPI have been paid to the extent that such taxes or any estimates
thereon have become due. From the date of this Agreement until the Closing, BPI
shall pay all taxes as and when the same become due and payable.
4.8 LIQUIDATION. BPI has not adopted any plan of liquidation or
dissolution affecting the Identified Assets.
4.9 ACCURACY OF DOCUMENTS AND INFORMATION. The copies of all
instruments, agreements, other documents and written information set forth as,
or referenced in, Exhibits and attachments to this Agreement or specifically
required to be furnished pursuant to this Agreement to CCSI by BPI are and will
be complete and correct in all material respects. There have been no material
changes, and will be no material changes as of the Closing Date, in the
information set forth in the Exhibits and attachments between the date of the
Exhibits and attachments and the date of this Agreement. No representations or
warranties made by BPI in this Agreement, nor any document, written information,
statement, financial statement, certificate, Exhibit or attachment furnished to
CCSI pursuant to the requirements of this Agreement contains any untrue
statement of a material fact, or omits to state a material fact necessary to
make the statements or facts contained therein not misleading. There is no fact
which materially and adversely affects the Identified Assets known to BPI which
has not been expressly and fully set forth in this Agreement or the Exhibits and
attachments hereto.
4.10 DISCLOSURE. No representation or warranty whether contained in
this Agreement or in any certificates provided to CCSI pursuant to this
Agreement contains or will contain any materially untrue statement or omits, or
will omit, to state a material fact necessary to make any such statement(s) not
misleading.
4.11 ACCURACY OF REPRESENTATIONS. In the event that any of the
foregoing representations or warranties should be inaccurate as of the Closing
Date, BPI shall have thirty (30) days after written notice from CCSI in which to
cure such inaccuracy.
5. BPI'S EMPLOYEES AND CUSTOMERS. CCSI is not a successor business to
BPI nor any operation of BPI. CCSI shall not be liable for any obligations
which BPI has on any contracts including employment contracts, existing or
future workers compensation claims,
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employment discrimination claims, unfair labor practice claims, or compensation
claims except those obligations, if any, specifically identified on EXHIBIT 1.1,
EXHIBIT 1.2 or elsewhere in this Agreement and any obligations of which CCSI
hereby specifically assumes in writing. CCSI is purchasing the Identified
Assets only, and it is not taking over any employment contracts for any
employees or any obligations under agreements entered into by BPI in its own
right and CCSI shall not be liable for any sums owed to customers by BPI.
6. REPRESENTATIONS OF CCSI. As material representations to induce BPI to
enter into this transactions, CCSI represents to BPI as follows:
6.1 CORPORATE STATUS AND AUTHORITY. CCSI is a corporation duly
organized and existing in good standing under the laws of the state of its
incorporation and is fully authorized to carry on its business as it is now
being conducted and to enter into the transactions herein set forth. CCSI is
duly qualified to transact business as a foreign corporation and is in good
standing in each of the jurisdictions requiring such qualification whether by
reason of the ownership or leasing of its properties or the conduct or nature of
its business. All corporate approvals required have been secured. No consents,
approvals, or filings from or with any person or entity other than those
delivered to BPI herewith are necessary for the execution, delivery and
performance by CCSI of this Agreement and the transactions contemplated hereby.
CCSI has all requisite power and authority to execute this Agreement and carry
out all the actions required of it herein. This Agreement is the legal, valid
and binding agreement of CCSI enforceable against CCSI in accordance with its
terms.
6.2 DISCLOSURE. No representation or warranty whether contained in
this Agreement or in any certificates provided to BPI pursuant to this Agreement
contains or will contain any materially untrue statement or omits, or will omit,
to state a material fact necessary to make any such statement(s) not misleading.
6.3 CONSENTS. CCSI shall have delivered to BPI copies of all
consents from any person or entity not a party to this Agreement whose consent
is necessary or desirable for the execution and performance of this Agreement by
CCSI, prior to the Closing Date.
7. OBLIGATIONS PRIOR TO THE CLOSING DATE. The following conditions and
obligations shall be satisfactorily performed prior to the Closing Date.
7.1 NO OBSTRUCTIVE PROCEEDING. As of the Closing Date, no action or
proceeding shall have been instituted against, and no order, decree or judgment
of any court, agency, commission or governmental authority shall be subsisting
against BPI or CCSI that which renders or could render it unlawful to effect the
transactions contemplated hereunder in accordance with the terms hereof.
7.2 GOVERNMENTAL AGENCY APPROVALS. Any governmental agencies whose
approval is required prior to the consummation of the transactions contemplated
by this Agreement shall have approved such sale on the terms contemplated by
this Agreement.
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7.3 NOTICES TO CUSTOMERS. BPI, with the cooperation of CCSI and at
BPI's sole expense, shall have provided any notice(s) to its customers, if any,
required by its contracts, federal or state laws, rules or regulations, if any,
with respect to the transfer of the Identified Assets to CCSI. The content of
such notice(s) shall be approved by CCSI.
7.4 PERFORMANCE. Both parties shall have executed and delivered to
the other party this Agreement and the other documents required hereby and shall
have performed and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or complied with by the
parties prior to the Closing Date.
7.5 OPINION OF COUNSEL FOR BPI. CCSI shall have been furnished with
an opinion of BPI's counsel, including an opinion of counsel with respect to the
repeal of Oregon's Bulk Sales Act, dated the date of the Closing, in
substantially the form of EXHIBIT 7.5 attached hereto.
7.6 NO ACTION TO PREVENT COMPLETION. There shall not have been
instituted and be continuing or threatened any claim, action or proceeding that
would materially adversely affect the Identified Assets, nor shall there have
been instituted and be continuing or threatened any claim, action or proceeding
by or before any court or other governmental body to restrain, prohibit or
invalidate, or to obtain damages in respect of, the transactions contemplated by
this Agreement or which might affect the rights of CCSI.
8. CONDUCT OF BUSINESS AND CERTAIN COVENANTS. Prior to the Closing Date,
BPI agrees that, with respect only to the Identified Assets, unless otherwise
specifically provided for in this Agreement or unless otherwise consented to in
writing by CCSI:
8.1 ORDINARY COURSE. BPI shall conduct its business in the ordinary
course.
8.2 CERTAIN CHANGES. BPI shall not: (i) grant any security
interest to or in connection with the Identified Assets; (ii) make or offer to
make any disposition, including any sale or transfer, of any of the Identified
Assets; (iii) make any change in any method of accounting, billing, rates, rate
structure, tariffs, payment of fees and expenses related in any way to the
Identified Assets; and, (iv) enter into any material contract, agreement, or
commitment relating to the Identified Assets.
9. CLOSING DATE. Closing will occur within ten (10) business days after
the completion of due diligence and the receipt of any and all necessary board,
shareholder, governmental or other approvals, but not later than October 17,
1997, and will take place at the offices of CCSI.
10. NOTICES. Notices required or allowed hereunder shall be deemed given
when hand delivered or when deposited in the United States mail, postage
prepaid, return receipt requested, to the parties at the following addresses:
If to CCSI: Convergent Communications Services, Inc.
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67 Inverness Drive East, Suite 110
Englewood, Colorado 80112
Attn.: Legal Department
If to BPI: Big Planet Inc.
120 S.W. Ankeny, Suite 600
Portland, OR 97204
Attn: Chief Executive Officer
or to such other addresses as may from time to time be supplied.
11. INDEMNITY.
11.1 BPI'S INDEMNIFICATION. Notwithstanding the Closing and
regardless of any investigation at any time made by or on behalf of CCSI or of
any information CCSI may have in respect thereof, BPI will indemnify, defend and
save and hold CCSI harmless from and against any costs, expenses, damages,
liabilities, losses or deficiencies, including, without limitation, reasonable
attorneys' fees and other costs and expenses incident to any suit, action or
proceeding (collectively "Losses") suffered or incurred by CCSI arising out of
or resulting from, and will pay CCSI on demand the full amount of any such
amounts which CCSI may pay or may become obligated to pay in respect of:
(a) any material inaccuracy in any representation or document
delivered under or pursuant to this Agreement or the material breach of any
warranty made by BPI in or pursuant to this Agreement;
(b) any misrepresentations in or omission from any Exhibit,
Schedule, or other attachment to this Agreement;
(c) any failure by BPI duly to perform or observe any term,
provision, covenant, or agreement in this Agreement to be performed or observed
on the part of BPI; or
(d) any action, suit, investigation, proceeding, demand,
assessment, audit, judgment and claim, including any employment-related claim
arising out of the foregoing (collectively "Claims"), even though such Claims
may not be filed or come to light until after the Closing Date.
(e) acts or omissions in connection with business activities
conducted or to be conducted by BPI, including, without limitation, the sale of
goods or provision of services prior to the Closing Date.
CCSI hereby covenants and agrees to immediately provide to BPI any and
all notifications or other correspondence it receives related to matters which
may affect this
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indemnity and hereby agrees to allow BPI to defend any and all actions affecting
this indemnity and shall not settle any action or dispute affecting this
indemnity without obtaining the prior written consent of BPI. However, failure
to provide any such notifications or other correspondence in a timely manner
will not relieve BPI of its obligation to indemnify CCSI under this Section
11.1. If CCSI becomes unsatisfied with the conduct of the defense of the
Claims, CCSI may defend against, and consent to the entry of any judgment or
enter into any settlement with respect to such Claims in any manner it may deem
to be appropriate and BPI shall reimburse CCSI promptly for the acts of
defending against such Claims and will otherwise remain responsible for any Loss
which CCSI may suffer from, arising out of, relating to or caused by such Claims
to the full extent provided in this Section.
All statements of fact contained in any written statement, certificate,
schedule or other document delivered to CCSI by or on behalf of BPI pursuant to
this Agreement shall be deemed representations and warranties by BPI hereunder.
11.2 CCSI'S INDEMNIFICATION. CCSI agrees that notwithstanding the
Closing and regardless of any investigation at any time made by or on behalf of
BPI or any information BPI may have in respect thereof, CCSI will indemnify and
save and hold BPI harmless from and against any Losses suffered or incurred by
BPI arising out of or resulting from, and will pay BPI on demand the full amount
of any such amounts which BPI may pay or may become obligated to pay in respect
of:
(a) any material inaccuracy in any representation or the breach
of any warranty made by CCSI in or pursuant to this Agreement; or
(b) any failure by CCSI duly to perform or observe any item,
provision, covenant or agreement in this Agreement to be performed or observed
on the part of CCSI, as applicable.
12. NO THIRD PARTY BENEFICIARIES. This Agreement shall be for and inure
to the benefit of CCSI and BPI and there shall be no third party beneficiaries
hereto. Specifically excluded from any beneficial status hereunder are BPI's
creditors, employees, customers and suppliers.
13. GOVERNING LAW AND FORUM. This Agreement shall be construed under the
laws of the state of Colorado (except as to the applicable bulk sales laws,
where it is agreed that to the extent the parties' ability to so designate is
restricted, the laws of the applicable state shall apply) and any action to
enforce, construe or modify this Agreement shall be brought in an appropriate
court of competent jurisdiction in Colorado.
14. BINDING NATURE. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
assigns. This Agreement shall not be assigned by either party without the
express written consent of the other party.
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15. PARAGRAPH HEADINGS. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
16. TIME OF THE ESSENCE. Time is of the essence of this Agreement and the
obligations of the parties hereunder.
17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, indemnifications and agreements of CCSI and BPI provided herein
shall survive the Closing for a period of two (2) years following the Closing
Date.
18. WAIVER. The failure of either of the parties hereto to enforce any
provision of this Agreement shall not be construed to be a waiver of such
provision or of the right thereafter to enforce the same, and no waiver of any
breach shall be construed as an agreement to waive any subsequent breach of the
same or any other provisions.
19. EXPENSES. Except as expressly provided herein, each party will pay
their own expenses, including fees of their respective attorneys, accountants
and consultants in connection with this transaction.
20. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
21. NO BROKERS OR AGENTS. BPI represents that it has not used the
services of any brokers or agents in the negotiation or consummation of this
Agreement such that any commissions or fees are due to any such broker or agent
based upon the transactions herein set forth. CCSI represents that it has not
used the services of any brokers or agents in the negotiation or consummation of
this Agreement such that any commissions or fees are due to any such broker or
agent based upon the transactions herein set forth. Should any such claim be
advanced by any such foregoing broker or agent, it is agreed that the
satisfaction of such claim shall be the sole responsibility of the party which
it is claimed utilized the services of such broker or agent.
22. CONFIDENTIALITY. BPI and CCSI agree to not disclose the terms and
conditions of this Agreement except (i) as may be required to fulfill
obligations hereunder; (ii) as may be required by law, regulation, custom or
judicial or administrative proceeding; or, (iii) as and to the extent such
information becomes known to the general public through no fault of either party
in tangible, demonstrable form. Both parties shall take reasonable precautions
to insure that their respective employers, employees and agents also treat such
information in a confidential manner. The obligations of confidentiality shall
survive the consummation of the transactions herein set forth.
23. TAXES. CCSI shall be responsible for and shall pay all federal, state
and municipal taxes or other charges, if any, on the sale of the Identified
Assets except income taxes payable by BPI on the Purchase Price.
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24. SEVERABILITY. It is agreed and understood that should any of the
provisions of this Agreement be determined by any court of competent
jurisdiction to be invalid or void for any reason, then the parties consent that
this Agreement shall be amended retroactive to the date of its execution to
include all terms and conditions other than those found by the court to be
invalid or void in order to give effect to the parties intent.
25. PUBLIC ANNOUNCEMENT. Each party acknowledges and agrees that either
may make a public announcement of the transactions contemplated by this
Agreement any time after the date of execution of this Agreement provided that
the other party approves the form and substance of any such public announcement
prior to its release, which approval shall not be unreasonably withheld.
26. FORCE MAJEURE. This Agreement and the obligations of the parties
hereunder shall not be impaired or invalidated and a party shall not be in
breach hereof if such party is unable to fulfill any of its obligations
hereunder or is delayed in doing so by reason of strike, labor troubles, acts of
God or any other cause beyond the reasonable control of such party.
27. ATTACHMENTS. All Exhibits and attachments to this Agreement are made
a part of this Agreement by this reference. Any information disclosed in an
Exhibit or attachment shall be deemed to be disclosed and incorporated into any
other Exhibit or attachment where such disclosure would be appropriate.
28. ADDITIONAL DOCUMENTATION. BPI shall from time to time, subsequent to
Closing, at CCSI's request and without further consideration, execute and
deliver such other instruments of conveyance, assignment and transfer and take
such other action as CCSI reasonably may require in order more effectively to
effectuate the purchase of the Identified Assets.
29. ARBITRATION. Notwithstanding anything to the contrary herein, any
dispute arising pursuant to or in any way related to this Agreement or the
transactions contemplated hereby shall be settled by arbitration at a mutually
agreed upon location in Denver, Colorado; provided, however, that nothing in
this Section shall restrict the right of any party to apply to a court of
competent jurisdiction for emergency relief pending final determination of a
claim by arbitration in accordance with this Section. All arbitration shall be
conducted in accordance with the rules and regulations of the American
Arbitration Association, in force at the time of any such dispute. Each party
shall pay its own expenses associated with such arbitration, provided that the
prevailing party in any arbitration shall be entitled to reimbursement of
reasonable attorneys' fees and expenses (including, without limitation,
arbitration expenses) relating to such arbitration. The decision of the
arbitrators, based upon written findings of fact and conclusions of law, shall
be binding upon the parties; and judgment in accordance with that decision may
be entered in any court having jurisdiction thereof. In no event shall the
arbitrators be authorized to grant any punitive, incidental or consequential
damages of any nature or kind whatsoever.
30. TERMINATION.
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30.1 This Agreement may be terminated, and the transactions
contemplated hereby abandoned (i) by the mutual consent of CCSI and BPI; (ii) by
CCSI or BPI at any time after October 31, 1997 (or such later date as shall
have been agreed to in writing by the parties) if the conditions and obligations
set forth in this Agreement shall not have been fulfilled (or waived by the
party entitled to the benefit thereof) by such date, with no further liability
on the part of any party hereto; provided, however, that no party shall be
released from liability hereunder if any such condition is not fulfilled by
reason of the breach by such party of its obligations hereunder.
30.2 Notwithstanding anything contained in the foregoing to the
contrary, if this Agreement is terminated by CCSI due to a failure of BPI to
perform the conditions precedent to the Closing hereunder, the Secured Note
shall be immediately due and payable to CCSI and CCSI shall have all rights
available to it as a secured creditor pursuant to the Secured Note.
31. ENTIRE AGREEMENT; AMENDMENT. This Agreement, together with the
Exhibits and attachments hereto, contains the entire understanding between the
parties hereto with respect to the subject matter hereof and no prior or
collateral promises or conditions in connection with or with respect to the
subject matter hereof not incorporated herein shall be binding upon the parties.
No modification, extension, renewal, rescission, termination or waiver of any of
the provisions contained herein or any future representation, promise or
condition in connection with the subject matter hereof, shall be binding upon
either of the parties hereto unless made in writing and duly executed by both
the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives on the day and year first above
written.
CONVERGENT COMMUNICATIONS SERVICES, INC.,
a Colorado corporation
By: /s/ John R. Evans
----------------------------------------
John R. Evans, Chief Executive Officer
BIG PLANET, INC., an Oregon corporation
By: /s/ Michael Anderson
----------------------------------------
Title: Chief Executive Officer
-------------------------------------
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made this 3rd day of
December, 1997 by and between CONVERGENT COMMUNICATIONS SERVICES, INC., a
Colorado corporation ("CCSI") whose address is 67 Inverness Drive East, Suite
110, Englewood, Colorado 80112, and SIGMACOM CORPORATION, a Colorado corporation
("SIGMACOM"), whose address is 7475 Dakin Street, Suite 607, Denver, Colorado
80221 (hereinafter collectively referred to as "the parties").
RECITALS
A. CCSI is desirous of buying certain of SIGMACOM's Assets and SIGMACOM
is desirous of selling certain of SIGMACOM's Assets to CCSI.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, both parties agree as follows:
1. IDENTIFICATION AND TRANSFER OF ASSETS.
1.1 IDENTIFICATION OF ASSETS TO BE TRANSFERRED TO CCSI. The assets
described in EXHIBIT 1.1 shall collectively constitute the "Identified Assets."
1.2 ASSUMPTION OF CERTAIN LIABILITIES. Except for those liabilities
set forth on EXHIBIT 1.2 (the "Assumed Liabilities"), which are hereby expressly
assumed by CCSI, CCSI shall assume no other liabilities and obligations relating
to the Identified Assets. SIGMACOM agrees to hold CCSI harmless from any other
liabilities or obligations incurred by SIGMACOM, or accruing with respect to the
Identified Assets, and all other assets of SIGMACOM, with respect to any period
prior to and including the Closing Date and from liabilities or obligations with
respect to all other assets of SIGMACOM with respect to any period after the
Closing Date.
1.3 TRANSFER OF IDENTIFIED ASSETS. SIGMACOM shall take all actions
reasonably requested by CCSI to transfer the Identified Assets to CCSI
including, but not limited to, the execution of a bill of sale and assignment in
the form attached hereto as EXHIBIT 1.3 ("Bill of Sale"), and all other bills of
sale, assignment and transfer forms, amendments, applications to governmental
agencies, licenses, and reports reasonably required by CCSI of SIGMACOM to
effectuate the transfer of the Identified Assets.
1.4 SIGMACOM STOCK. SIGMACOM shall also issue to CCSI twenty percent
(20%) of the issued and outstanding shares of SIGMACOM's voting securities, on a
fully diluted basis ("SIGMACOM Stock"). The SIGMACOM Stock shall be included in
the Identified Assets.
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2. PURCHASE PRICE. The Purchase Price shall be up to a maximum of ONE
MILLION EIGHT HUNDRED TWENTY-NINE THOUSAND DOLLARS ($1,829,000) to be paid by
CCSI to SIGMACOM ("Purchase Price") on the Closing Date as follows:
2.1 CCSI NOTE. CCSI will issue SIGMACOM a promissory note, in
substantially the form attached hereto as EXHIBIT 2.1 ("CCSI Note") in an amount
equal to the outstanding principal balance of SIGMACOM's credit facility with
Colorado National Bank ("Credit Facility") up to a maximum of $600,000. The
CCSI Note shall be subject to adjustment as described in subsection 2.6 below.
2.2 LIABILITY PAYMENT. CCSI will pay SIGMACOM up to $475,000
("Liability Payment") which would be used by SIGMACOM to pay any liabilities
associated with the Assets in order to sell the Assets to CCSI free and clear of
all liens and encumbrances. The Liability Payment would be reduced by any
amounts assumed by CCSI for payment of commissions owed to employees of
SIGMACOM.
2.3 CASH PAYMENT. CCSI will pay SIGMACOM $300,000 by wire transfer
at the Closing. The parties acknowledge that CCSI has paid SIGMACOM $100,000 as
an earnest money deposit on November 12, 1997 ("Earnest Money"). The Earnest
Money shall be applied toward the Purchase Price on the Closing.
2.4 CONVERGENT STOCK. CCSI's parent company, namely Convergent
Communications, Inc., a Colorado corporation ("Convergent") will deliver a
treasury request to Convergent's transfer agent requesting the issuance of
118,000 shares of Convergent's no par value common stock ("Convergent Stock") to
SIGMACOM at the Closing. The parties agree that the value of the Convergent
Stock is $3.00 per share. The Convergent Stock shall be held in escrow until
July 24, 1998 pursuant to the escrow agreement in substantially the form
attached hereto as EXHIBIT 2.4 ("Escrow Agreement"). The Convergent Stock shall
be subject to adjustment as described in subsection 2.6 below.
2.5 CONVERGENT WARRANT. Convergent will issue to SIGMACOM a warrant,
in substantially the same form as EXHIBIT 2.5 attached hereto ("Convergent
Warrant"), to purchase additional Convergent Stock up to a total of 50,000
shares of Convergent Stock.
2.6 ADJUSTMENT OF PURCHASE PRICE. The Purchase Price shall be
allocated in accordance with SCHEDULE 2.6A, attached hereto. The Purchase Price
shall be adjusted in accordance with SCHEDULE 2.6B, attached hereto.
3. CLOSING DATE DOCUMENTATION. In addition to the other documents
required hereunder, as a predicate to the closing of the transactions hereunder,
SIGMACOM shall supply CCSI with the following on or before the Closing Date.
3.1 TRANSFER DOCUMENTS. Transfer Documents, in form and substance
reasonably satisfactory to CCSI and SIGMACOM, including, without limitation, a
stock
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certificate representing the SIGMACOM Stock, to effect the transfer of the
Identified Assets to CCSI pursuant to the terms of this Agreement.
3.2 CONSENTS. Any and all consents, in a form and substance
reasonably satisfactory to CCSI and SIGMACOM, from any person or entity not a
party to this Agreement whose consent is necessary or desirable for the
execution and performance of this Agreement by CCSI and SIGMACOM.
3.3 COMPLIANCE CERTIFICATE. All corporate and other proceedings,
including approval by the directors and shareholders of SIGMACOM, required to be
taken by or on the part of SIGMACOM to authorize SIGMACOM to execute, deliver
and carry out this Agreement shall have been duly and properly taken. CCSI and
SIGMACOM shall each have received a certificate of authorized individuals of the
other party in the form of EXHIBIT 3.3A and EXHIBIT 3.3B, RESPECTIVELY, dated as
of the Closing, certifying to the fulfillment of the conditions specified in
this Agreement.
3.4 LASSEN AGREEMENT. CCSI and Craig Lassen ("Lassen") will enter
into a consulting agreement, in substantially the same form as EXHIBIT 3.4,
attached hereto ("Lassen Agreement") whereby Lassen would assist CCSI, for up to
fifty (50) hours per month, in the transition of the Assets to CCSI.
4. REPRESENTATIONS OF SIGMACOM. As material representations to induce
CCSI to enter into this transaction, SIGMACOM represents to CCSI as follows:
4.1 OWNERSHIP. The Identified Assets transferred pursuant hereto are
owned by SIGMACOM, free and clear of all liens, encumbrances, agreements and
claims with or of third parties.
4.2 CORPORATE STATUS AND AUTHORITY. SIGMACOM is a corporation duly
incorporated and existing in good standing under the laws of the state of its
incorporation and is fully authorized to carry on its business as it is now
being conducted and to enter into the transactions herein set forth. SIGMACOM
is duly qualified to transact business as a foreign corporation and is in good
standing in each of the jurisdictions requiring such qualification whether by
reason of the ownership or leasing of its properties or the conduct or nature of
its business. All corporate, director, and stockholder approvals required have
been secured to the extent required. No consents, approvals, or filings from or
with any person or entity other than those delivered to CCSI herewith are
necessary for the execution, delivery and performance by SIGMACOM of this
Agreement and the transactions contemplated hereby. SIGMACOM has all requisite
power and authority to execute this Agreement and carry out all the actions
required of it herein. This Agreement is the legal, valid and binding agreement
of SIGMACOM enforceable against SIGMACOM in accordance with its terms.
4.3 PENDING CLAIMS. SIGMACOM is not presently subject to any claim
which would materially and adversely affect the Identified Assets such as:
litigation or pending
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governmental investigations or complaints of any kind or description. The
Identified Assets are subject to no contracts, claims or liens other than as set
forth in EXHIBIT 4.3.
4.4 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and
performance of and compliance with this Agreement, or any agreement or
instrument contemplated hereby, by SIGMACOM will not result in any violation of
its Certificate of Incorporation or Bylaws or be in material conflict with or
constitute a default in any material respect under any term of any agreement,
instrument, judgment, decree, or, to the knowledge of SIGMACOM, any order,
statute, rule or governmental regulation applicable to SIGMACOM, or result in
the creation of any lien, charge or encumbrance of any kind or nature on the
Identified Assets.
4.5 UNDISCLOSED LIABILITIES. SIGMACOM does not have, with respect to
its current operation, any material and undisclosed liabilities or obligations
of any nature affecting the Identified Assets.
4.6 ENVIRONMENTAL MATTERS. To the best knowledge of SIGMACOM,
SIGMACOM has duly complied with, and the operation of its business, equipment
and other assets in the facilities owned or leased by SIGMACOM and its
subsidiaries are in compliance with the provisions of all applicable federal,
state and local environmental, health and safety laws, statutes, ordinance,
rules and regulations of any governmental or quasi governmental authority
relating to (i) discharges to surface water or ground water, (ii) solid or
liquid waste disposal, (iii) the use, storage, generation, handling, transport,
discharge, release or disposal of toxic or hazardous substances or waste, (iv)
the emission of non-ionizing electromagnetic radiation, or (v) other
environmental, health or safety matters, including, without limitation, the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Authorization Act of 1986; the
Occupational Safety and Health Act; the Resource Conservation and Recovery Act
of 1976, as amended; the Federal Water Pollution Control Act of 1970; the Safe
Drinking Water Act of 1974; the Toxic Substances Control Act of 1976; the
Emergency Planning and Community Right to Know Act of 1986, as amended; and the
Clean Air Act, as amended (collectively "Environmental and Health Laws") or the
Federal Communications Act, as amended ("FCC Laws"). To the best knowledge of
SIGMACOM, there are no investigations, administrative proceedings, judicial
actions, orders, claims or notices which are pending, anticipated or threatened
against SIGMACOM, relating to violations of the Environmental and Health Laws
and the FCC Laws. SIGMACOM has not received a notice of, and does not know or
have any reason to suspect, any facts which might constitute a violation of any
Environmental or Health Laws which relate to the use, ownership or occupancy of
any property or facilities used by SIGMACOM in connection with the operation of
its business or any activity of SIGMACOM's business which would result in a
violation or threaten violation of any Environmental or Health Laws and the FCC
Laws.
4.7 TAX LIENS. There are no tax liens on any of the Identified
Assets. SIGMACOM has duly filed all federal, state and local tax returns and
reports (including, without limitation, returns for estimated tax), and all
returns and reports for any other governmental units or taxing authorities
having jurisdiction with respect to any taxes required to be paid by
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SIGMACOM, except where extensions have been applied for and granted, and
where such extensions have not expired; all such returns and all such reports
show the correct and proper amounts due, and all taxes shown on such returns
and reports and all assessments received by SIGMACOM have been paid to the
extent that such taxes or any estimates thereon have become due. From the
date of this Agreement until the Closing, SIGMACOM shall pay all taxes as and
when the same become due and payable.
4.8 LIQUIDATION. SIGMACOM has not adopted any plan of liquidation or
dissolution affecting the Identified Assets.
4.9 ACCURACY OF DOCUMENTS AND INFORMATION. The copies of all
instruments, agreements, other documents and written information set forth as,
or referenced in, Exhibits and attachments to this Agreement or specifically
required to be furnished pursuant to this Agreement to CCSI by SIGMACOM are and
will be complete and correct in all material respects. There have been no
material changes, and will be no material changes as of the Closing Date, in the
information set forth in the Exhibits and attachments between the date of the
Exhibits and attachments and the date of this Agreement. No representations or
warranties made by SIGMACOM in this Agreement, nor any document, written
information, statement, financial statement, certificate, Exhibit or attachment
furnished to CCSI pursuant to the requirements of this Agreement contains any
untrue statement of a material fact, or omits to state a material fact necessary
to make the statements or facts contained therein not misleading. There is no
fact which materially and adversely affects the Identified Assets known to
SIGMACOM which has not been expressly and fully set forth in this Agreement or
the Exhibits and attachments hereto.
4.10 CAPITALIZATION.
4.10.1 The authorized capital stock of SIGMACOM consists of
1,000,000 shares of voting Common Stock, of which 235,000 shares are issued and
outstanding and 1,000,000 shares of nonvoting Common Stock, of which no shares
are issued and outstanding. All of the issued and outstanding stock of SIGMACOM
has been duly authorized, is validly issued, fully paid and nonassessable.
4.10.2 SCHEDULE 4.10.2 attached hereto includes a complete and
correct list of SIGMACOM's outstanding options to purchase its capital stock
("Outstanding Options") and SIGMACOM's outstanding warrants to purchase its
capital stock ("Outstanding Warrants"), in each case showing the date of
issuance, the expiration date, the exercise price, the holders thereof and the
number of shares of capital stock subject thereto. SIGMACOM has furnished to
CCSI accurate and complete copies of the Outstanding Options and Outstanding
Warrants. The copies of the Outstanding Options and Outstanding Warrants
represent the terms, conditions, provisions, agreements, obligations and
undertakings of SIGMACOM with respect to all Outstanding Options and Outstanding
Warrants. Except for the Outstanding Options and the Outstanding Warrants,
SIGMACOM does not have outstanding any stock or other securities which are, in
either case, convertible into or exchangeable for any shares of its capital
stock, any warrants, options, purchase rights, subscription rights or other
contract rights or commitments or appreciation, phantom stock, profit
participation or similar rights to purchase or acquire any
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shares of its capital stock or any stock or securities convertible into or
exchangeable for any of the capital stock of SIGMACOM and is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock. No stockholder of SIGMACOM has any
preemptive or other purchase rights with respect to the issue or sale of any
capital stock.
4.11 MARKETABLE TITLE. CCSI will obtain good and marketable title to
the SIGMACOM Stock to be transferred pursuant to the terms hereof and the
SIGMACOM Stock will be presented to CCSI, free and clear of all liens,
encumbrances, equities and claims and will be duly authorized, validly issued,
fully paid and nonassessable.
4.12 STOCK REPRESENTATIONS. SIGMACOM (i) intends to acquire the
shares of Convergent Stock solely for the purpose of investment and not for the
resale and distribution thereof, and has no present intention to offer, sell,
pledge, hypothecate, assign or otherwise dispose of the same except in
accordance with this Section 4.12; (ii) understands and acknowledges that the
sale of such shares of Convergent Stock will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), the Convergent Stock
being acquired pursuant to this Agreement constitute "restricted securities" as
that term is defined under Rule 144 promulgated under the Securities Act and may
not be sold except pursuant to a registration statement under the Securities Act
or pursuant to an exemption available under federal and applicable state
Securities laws, and such shares may be required to be held indefinitely unless
the shares are subsequently registered under the Securities Act or an exemption
from such registration is available, (iii) agrees that it will not offer, sell,
pledge, hypothecate, transfer, assign or otherwise dispose of any such shares of
Convergent Stock unless such shares and such offer, pledge, hypothecation,
transfer, assignment or other disposition shall be registered or exempt from
registration under the Securities Act and shall comply with all applicable
federal and state securities laws, and (iv) agrees and acknowledges that the
stock certificates representing the shares of Convergent Stock will contain a
legend restricting the transferability of the shares as provided herein and that
stop order instructions may be imposed by Convergent's transfer agent
restricting the transferability of the Convergent Stock.
4.13 ACCURACY OF REPRESENTATIONS. In the event that any of the
foregoing representations or warranties should be inaccurate as of the Closing
Date, SIGMACOM shall have thirty (30) days after written notice from CCSI in
which to cure such inaccuracy.
5. SIGMACOM'S EMPLOYEES AND CUSTOMERS.
5.1 CCSI is not a successor business to SIGMACOM nor any operation
of SIGMACOM. CCSI shall not be liable for any obligations which SIGMACOM
Has on any contracts including employment contracts, existing or future
workers compensation claims, employment discrimination claims, unfair labor
practice claims, or compensation claims except those obligations, if any,
specifically identified on EXHIBIT 1.1, EXHIBIT 1.2 or elsewhere in this
Agreement and any obligations of which CCSI hereby specifically assumes in
writing. CCSI is purchasing the Identified Assets only, and it is not taking
over any employment contracts for any
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employees or any obligations under agreements entered into by SIGMACOM in its
own right and CCSI shall not be liable for any sums owed to customers by
SIGMACOM.
5.2 On or before the Closing Date, up to four (4) current employees
of SIGMACOM, to be identified by CCSI, shall be offered employment with CCSI.
Each of the employees shall receive 3,000 options to purchase Convergent Stock,
which shall vest evenly over a five (5) year period. The exercise price of the
options shall be $3.00 per share. If CCSI offers employment to fewer than four
(4) current employees, the number of shares of Convergent Stock issued to
SIGMACOM under Section 2.4 shall be increased by 3,000 shares for each employee
fewer than four (4) given an offer of employment.
5.3 Upon request, SIGMACOM shall receive transition assistance from
current engineering employees of SIGMACOM who accept employment with CCSI, up to
an aggregate of twenty-five (25) employee hours in December 1997 and ten (10)
employee hours in January 1998.
6. REPRESENTATIONS OF CCSI. As material representations to induce
SIGMACOM to enter into this transactions, CCSI represents to SIGMACOM as
follows:
6.1 CORPORATE STATUS AND AUTHORITY. CCSI is a corporation duly
organized and existing in good standing under the laws of the state of its
incorporation and is fully authorized to carry on its business as it is now
being conducted and to enter into the transactions herein set forth. CCSI is
duly qualified to transact business as a foreign corporation and is in good
standing in each of the jurisdictions requiring such qualification whether by
reason of the ownership or leasing of its properties or the conduct or nature of
its business. All corporate approvals required have been secured. No consents,
approvals, or filings from or with any person or entity other than those
delivered to SIGMACOM herewith are necessary for the execution, delivery and
performance by CCSI of this Agreement and the transactions contemplated hereby.
CCSI has all requisite power and authority to execute this Agreement and carry
out all the actions required of it herein. This Agreement is the legal, valid
and binding agreement of CCSI enforceable against CCSI in accordance with its
terms.
6.2 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and
performance of and compliance with this Agreement, or any agreement or
instrument contemplated hereby, by CCSI will not result in any violation of its
Certificate of Incorporation or Bylaws or be in material conflict with or
constitute a default in any material respect under any term of any agreement,
instrument, judgment, decree, or, to the knowledge of CCSI, any order, statute,
rule or governmental regulation applicable to CCSI.
6.3 DISCLOSURE. No representation or warranty whether contained in
this Agreement or in any certificates provided to SIGMACOM pursuant to this
Agreement contains or will contain any materially untrue statement or omits, or
will omit, to state a material fact necessary to make any such statement(s) not
misleading.
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6.4 STOCK REPRESENTATIONS. CCSI (i) intends to acquire the shares of
SIGMACOM Stock solely for the purpose of investment and not for the resale and
distribution thereof, and has no present intention to offer, sell, pledge,
hypothecate, assign or otherwise dispose of the same; (ii) understands and
acknowledges that the sale of such shares of SIGMACOM Stock will not be
registered under the Securities Act, the SIGMACOM Stock being acquired pursuant
to this Agreement constitute "restricted securities" as that term is defined
under Rule 144 promulgated under the Securities Act and may not be sold except
pursuant to a registration statement under the Securities Act or pursuant to an
exemption available under federal and applicable state Securities laws, and such
shares may be required to be held indefinitely unless the shares are
subsequently registered under the Securities Act or an exemption from such
registration is available, (iii) agrees that it will not offer, sell, pledge,
hypothecate, transfer, assign or otherwise dispose of any such shares of
SIGMACOM Stock unless such shares and such offer, pledge, hypothecation,
transfer, assignment or other disposition shall be registered or exempt from
registration under the Securities Act and shall comply with all applicable
federal and state securities laws, and (iv) agrees and acknowledges that the
stock certificates representing the shares of SIGMACOM Stock will contain a
legend restricting the transferability of the shares as provided herein and that
stop order instructions may be imposed by SIGMACOM's transfer agent restricting
the transferability of the SIGMACOM Stock.
7. OBLIGATIONS PRIOR TO THE CLOSING DATE. The following conditions and
obligations shall be satisfactorily performed prior to the Closing Date.
7.1 GOVERNMENTAL AGENCY APPROVALS. Any governmental agencies whose
approval is required prior to the consummation of the transactions contemplated
by this Agreement shall have approved such sale on the terms contemplated by
this Agreement.
7.2 NOTICES TO CUSTOMERS. SIGMACOM, with the cooperation of CCSI and
at SIGMACOM's sole expense, shall have provided any notice(s) to its customers,
if any, required by its contracts, federal or state laws, rules or regulations,
if any, with respect to the transfer of the Identified Assets to CCSI. The
content of such notice(s) shall be approved by CCSI.
7.3 PERFORMANCE. Both parties shall have executed and delivered to
the other party this Agreement and the other documents required hereby and shall
have performed and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or complied with by the
parties prior to the Closing Date.
7.4 OPINION OF COUNSEL FOR SIGMACOM. CCSI shall have been furnished
with an opinion of SIGMACOM's counsel, dated the date of the Closing, in
substantially the form of EXHIBIT 7.4 attached hereto.
7.5 OPINION OF COUNSEL FOR CCSI. SIGMACOM shall have been furnished
with an opinion of CCSI's counsel, dated the date of the Closing, in
substantially the form of EXHIBIT 7.5 attached hereto.
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7.6 NO ACTION TO PREVENT COMPLETION. There shall not have been
instituted and be continuing or threatened any claim, action or proceeding that
would materially adversely affect the Identified Assets, nor shall there have
been instituted and be continuing or threatened any claim, action or proceeding
by or before any court or other governmental body to restrain, prohibit or
invalidate, or to obtain damages in respect of, the transactions contemplated by
this Agreement or which might materially and adversely affect the rights of
CCSI.
8. CONDUCT OF BUSINESS AND CERTAIN COVENANTS. Prior to the Closing Date,
SIGMACOM agrees that, with respect only to the Identified Assets, unless
otherwise specifically provided for in this Agreement or unless otherwise
consented to in writing by CCSI:
8.1 ORDINARY COURSE. SIGMACOM shall conduct its business in the
ordinary course.
8.2 CERTAIN CHANGES. SIGMACOM shall not: (i) grant any security
interest to or in connection with the Identified Assets; (ii) make or offer to
make any disposition, including any sale or transfer, of any of the Identified
Assets; (iii) make any change in any method of accounting, billing, rates, rate
structure, tariffs, payment of fees and expenses related in any way to the
Identified Assets; and, (iv) enter into any material contract, agreement, or
commitment relating to the Identified Assets.
9. CLOSING DATE AND NAME CHANGE.
9.1 CLOSING DATE. Closing will occur within ten (10) business days
after the completion of due diligence and the receipt of any and all necessary
board, shareholder, governmental or other approvals, but not later than December
5, 1997, unless extended by mutual agreement of the parties, and will take place
at the offices of CCSI.
9.2 NAME CHANGE. No later than January 2, 1998, SIGMACOM shall
change its corporate name to a name not including the word "SigmaCom."
10. NOTICES. Notices required or allowed hereunder shall be deemed given
when hand delivered or when deposited in the United States mail, postage
prepaid, return receipt requested, to the parties at the following addresses:
If to CCSI: Convergent Communications Services, Inc.
67 Inverness Drive East, Suite 110
Englewood, Colorado 80112
Attn.: Legal Department
If to SIGMACOM: SigmaCom Corporation
7475 Dakin Street, Suite 607
Denver, Colorado 80221
Attn.: President
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or to such other addresses as may from time to time be supplied.
11. INDEMNITY.
11.1 SIGMACOM'S INDEMNIFICATION. Notwithstanding the Closing and
regardless of any investigation at any time made by or on behalf of CCSI or of
any information CCSI may have in respect thereof, SIGMACOM will indemnify,
defend and save and hold CCSI harmless from and against any costs, expenses,
damages, liabilities, losses or deficiencies, including, without limitation,
reasonable attorneys' fees and other costs and expenses incident to any suit,
action or proceeding (collectively "Losses") suffered or incurred by CCSI
arising out of or resulting from, and will pay CCSI on demand the full amount of
any such amounts which CCSI may pay in respect of:
(a) any material inaccuracy in any representation or document
delivered under or pursuant to this Agreement or the material breach of any
warranty made by SIGMACOM in or pursuant to this Agreement;
(b) any misrepresentations in or omission from any Exhibit,
Schedule, or other attachment to this Agreement;
(c) any failure by SIGMACOM duly to perform or observe any term,
provision, covenant, or agreement in this Agreement to be performed or observed
on the part of SIGMACOM ; or
(d) any action, suit, investigation, proceeding, demand,
assessment, audit, judgment and claim, including any employment-related claim
arising out of the foregoing (collectively "Claims"), even though such Claims
may not be filed or come to light until after the Closing Date.
(e) acts or omissions in connection with business activities
conducted or to be conducted by SIGMACOM, including, without limitation, the
sale of goods or provision of services, prior to the Closing Date.
CCSI hereby covenants and agrees to immediately provide to SIGMACOM any
and all notifications or other correspondence it receives related to matters
which may affect this indemnity and hereby agrees to allow SIGMACOM to defend
any and all actions affecting this indemnity and shall not settle any action or
dispute affecting this indemnity without obtaining the prior written consent of
SIGMACOM. However, failure to provide any such notifications or other
correspondence in a timely manner will not relieve SIGMACOM of its obligation to
indemnify CCSI under this Section 11.1. If CCSI becomes unsatisfied with the
conduct of the defense of the Claims, CCSI may defend against, and consent to
the entry of any judgment or enter into any settlement with respect to such
Claims in any manner it may deem to be appropriate and SIGMACOM shall reimburse
CCSI promptly for the acts of defending against such Claims and will otherwise
remain responsible for any Loss which CCSI may suffer from, arising out of,
relating to or caused by such Claims to the full extent provided in this
Section.
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All statements of fact contained in any written statement, certificate,
schedule or other document delivered to CCSI by or on behalf of SIGMACOM
attached to this Agreement shall be deemed representations and warranties by
SIGMACOM hereunder.
11.2 CCSI'S INDEMNIFICATION. CCSI agrees that notwithstanding the
Closing and regardless of any investigation at any time made by or on behalf of
SIGMACOM or any information SIGMACOM may have in respect thereof, CCSI will
indemnify, defend and save and hold SIGMACOM harmless from and against any
Losses suffered or incurred by SIGMACOM arising out of or resulting from, and
will pay SIGMACOM on demand the full amount of any such amounts which SIGMACOM
may pay in respect of:
(a) any material inaccuracy in any representation or the breach
of any warranty made by CCSI in or pursuant to this Agreement;
(b) any failure by CCSI duly to perform or observe any item,
provision, covenant or agreement in this Agreement to be performed or observed
on the part of CCSI, as applicable;
(c) acts or omissions in connection with business activities
conducted or to be conducted by CCSI, including, without limitation, the sale of
goods or provision of services, following the Closing Date.
12. NO THIRD PARTY BENEFICIARIES. This Agreement shall be for and inure
to the benefit of CCSI and SIGMACOM and there shall be no third party
beneficiaries hereto. Specifically excluded from any beneficial status
hereunder are SIGMACOM's creditors, employees, customers and suppliers.
13. GOVERNING LAW AND FORUM. This Agreement shall be construed under the
laws of the state of Colorado (except as to the applicable bulk sales laws,
where it is agreed that to the extent the parties' ability to so designate is
restricted, the laws of the applicable state shall apply) and any action to
enforce, construe or modify this Agreement shall be brought in an appropriate
court of competent jurisdiction in Colorado.
14. BINDING NATURE. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
assigns. This Agreement shall not be assigned by either party without the
express written consent of the other party.
15. PARAGRAPH HEADINGS. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
16. TIME OF THE ESSENCE. Time is of the essence of this Agreement and the
obligations of the parties hereunder.
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17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, indemnifications and agreements of CCSI and SIGMACOM provided herein
shall survive the Closing for a period of one (1) year following the Closing
Date.
18. WAIVER. The failure of either of the parties hereto to enforce any
provision of this Agreement shall not be construed to be a waiver of such
provision or of the right thereafter to enforce the same, and no waiver of any
breach shall be construed as an agreement to waive any subsequent breach of the
same or any other provisions.
19. EXPENSES. Except as expressly provided herein, each party will pay
their own expenses, including fees of their respective attorneys, accountants
and consultants in connection with this transaction.
20. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
21. NO BROKERS OR AGENTS. SIGMACOM represents that it has not used the
services of any brokers or agents in the negotiation or consummation of this
Agreement such that any commissions or fees are due to any such broker or agent
based upon the transactions herein set forth. CCSI represents that it has not
used the services of any brokers or agents in the negotiation or consummation of
this Agreement such that any commissions or fees are due to any such broker or
agent based upon the transactions herein set forth. Should any such claim be
advanced by any such foregoing broker or agent, it is agreed that the
satisfaction of such claim shall be the sole responsibility of the party which
it is claimed utilized the services of such broker or agent.
22. CONFIDENTIALITY. SIGMACOM and CCSI agree to not disclose the terms
and conditions of this Agreement except (i) as may be required to fulfill
obligations hereunder; (ii) as may be required by law, regulation, custom or
judicial or administrative proceeding; or, (iii) as and to the extent such
information becomes known to the general public through no fault of either party
in tangible, demonstrable form. Both parties shall take reasonable precautions
to insure that their respective employers, employees and agents also treat such
information in a confidential manner. The obligations of confidentiality shall
survive the consummation of the transactions herein set forth.
23. TAXES. CCSI shall be responsible for and shall pay all federal, state
and municipal taxes or other charges, if any, on the sale of the Identified
Assets except income taxes payable by SIGMACOM on the Purchase Price.
24. SEVERABILITY. It is agreed and understood that should any of the
provisions of this Agreement be determined by any court of competent
jurisdiction to be invalid or void for any reason, then the parties consent that
this Agreement shall be amended retroactive to the date of its execution to
include all terms and conditions other than those found by the court to be
invalid or void in order to give effect to the parties intent.
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25. PUBLIC ANNOUNCEMENT. Each party acknowledges and agrees that either
may make a public announcement of the transactions contemplated by this
Agreement any time after the date of execution of this Agreement provided that
the other party approves the form and substance of any such public announcement
prior to its release, which approval shall not be unreasonably withheld.
26. FORCE MAJEURE. This Agreement and the obligations of the parties
hereunder shall not be impaired or invalidated and a party shall not be in
breach hereof if such party is unable to fulfill any of its obligations
hereunder or is delayed in doing so by reason of strike, labor troubles, acts of
God or any other cause beyond the reasonable control of such party.
27. ATTACHMENTS. All Exhibits and attachments to this Agreement are made
a part of this Agreement by this reference. Any information disclosed in an
Exhibit or attachment shall be deemed to be disclosed and incorporated into any
other Exhibit or attachment where such disclosure would be appropriate.
28. ADDITIONAL DOCUMENTATION. SIGMACOM shall from time to time,
subsequent to Closing, at CCSI's request and without further consideration,
execute and deliver such other instruments of conveyance, assignment and
transfer and take such other action as CCSI reasonably may require in order more
effectively to effectuate the purchase of the Identified Assets.
29. ARBITRATION. Notwithstanding anything to the contrary herein, any
dispute arising pursuant to or in any way related to this Agreement or the
transactions contemplated hereby shall be settled by arbitration at a mutually
agreed upon location in Denver, Colorado; provided, however, that nothing in
this Section shall restrict the right of any party to apply to a court of
competent jurisdiction for emergency relief pending final determination of a
claim by arbitration in accordance with this Section. All arbitration shall be
conducted in accordance with the rules and regulations of the American
Arbitration Association, in force at the time of any such dispute. Each party
shall pay its own expenses associated with such arbitration, provided that the
prevailing party in any arbitration shall be entitled to reimbursement of
reasonable attorneys' fees and expenses (including, without limitation,
arbitration expenses) relating to such arbitration. The decision of the
arbitrators, based upon written findings of fact and conclusions of law, shall
be binding upon the parties; and judgment in accordance with that decision may
be entered in any court having jurisdiction thereof. In no event shall the
arbitrators be authorized to grant any punitive, incidental or consequential
damages of any nature or kind whatsoever.
30. TERMINATION.
30.1 This Agreement may be terminated, and the transactions
contemplated hereby abandoned (i) by the mutual consent of CCSI and SIGMACOM;
(ii) by CCSI or SIGMACOM at any time after November 26, 1997 (or such later
date as shall have been agreed to in writing by the parties) if the conditions
and obligations set forth in this Agreement shall not have been fulfilled (or
waived by the party entitled to the benefit thereof) by such date, with no
further liability on the part of any party hereto; provided, however, that no
party shall be released
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from liability hereunder if any such condition is not fulfilled by reason of the
breach by such party of its obligations hereunder.
30.2 Notwithstanding anything contained in the foregoing to the
contrary, if this Agreement is terminated by CCSI due to a failure of SIGMACOM
to perform the conditions precedent to the Closing hereunder, SIGMACOM shall
immediately refund to CCSI all amounts paid to SIGMACOM, including, without
limitation, the Earnest Money.
31. ENTIRE AGREEMENT; AMENDMENT. This Agreement, together with the
Exhibits, Schedules and attachments hereto, contains the entire understanding
between the parties hereto with respect to the subject matter hereof and no
prior or collateral promises or conditions in connection with or with respect to
the subject matter hereof not incorporated herein shall be binding upon the
parties. No modification, extension, renewal, rescission, termination or waiver
of any of the provisions contained herein or any future representation, promise
or condition in connection with the subject matter hereof, shall be binding upon
either of the parties hereto unless made in writing and duly executed by both
the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives on the day and year first above
written.
CONVERGENT COMMUNICATIONS SERVICES, INC.,
a Colorado corporation
By: /s/ Keith V. Burge
----------------------------------------
Keith V. Burge, President and COO
SIGMACOM CORPORATION, a Colorado corporation
By: /s/ Craig E. Lassen
----------------------------------------
Craig E. Lassen, President
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made this 1st day of
February, 1998 by and between CONVERGENT COMMUNICATIONS SERVICES, INC., a
Colorado corporation ("CCSI") whose address is 67 Inverness Drive East, Suite
110, Englewood, Colorado 80112, and PEAK COMM, INC. D/B/A TELEPHONE
COMMUNICATIONS COMPANY, a Colorado corporation ("PEAK COMM"), whose address is
9033 East Easter Place, Suite 104, Englewood, Colorado 80112 (hereinafter
collectively referred to as "the parties").
RECITALS
A. CCSI desires to buy certain of PEAK COMM's Identified Assets (as
defined herein) and PEAK COMM desires to sell certain of PEAK COMM's Identified
Assets to CCSI;
B. CCSI has also agreed to assume certain specific obligations of PEAK
COMM associated with the Identified Assets;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, both parties agree as follows:
1. IDENTIFICATION AND TRANSFER OF ASSETS.
1.1 IDENTIFICATION OF ASSETS TO BE TRANSFERRED TO CCSI. The assets
described in EXHIBIT 1.1 shall collectively constitute the "Identified Assets."
1.2 ASSUMPTION OF CERTAIN LIABILITIES. Except for the NNC Note (as
defined in Section 2.4) and those trade liabilities set forth on EXHIBIT 1.2
(the "Assumed Liabilities"), which are hereby expressly assumed by CCSI, CCSI
shall assume no other liabilities and obligations relating to the Identified
Assets. PEAK COMM agrees to hold CCSI harmless from any other liabilities or
obligations incurred by PEAK COMM, or accruing with respect to the Identified
Assets, and all other assets of PEAK COMM, with respect to any period prior to
and including the Closing Date and from liabilities or obligations with respect
to all other assets of PEAK COMM with respect to any period after the Closing
Date.
1.3 TRANSFER OF IDENTIFIED ASSETS. PEAK COMM shall take all actions
reasonably requested by CCSI to transfer the Identified Assets to CCSI
including, but not limited to, the execution of a bill of sale and assignment in
the form attached hereto as EXHIBIT 1.3 ("Bill of Sale"), and all other bills of
sale, assignment and transfer forms, amendments, applications to governmental
agencies, licenses, and reports reasonably required by CCSI of PEAK COMM to
effectuate the transfer of the Identified Assets.
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2. PURCHASE PRICE. The Purchase Price shall be equal to NINE HUNDRED
THIRTY-SIX THOUSAND SEVEN HUNDRED NINETY-SIX DOLLARS ($936,796) to be paid by
CCSI to PEAK COMM ("Purchase Price") on the Closing Date as follows:
2.1 CCSI NOTE. CCSI will issue PEAK COMM a promissory note, in
substantially the form attached hereto as EXHIBIT 2.1 ("CCSI Note") in an amount
equal to Two Hundred Thousand Dollars ($200,000).
2.2 SECURITY FOR CCSI NOTE. Subject to NNC's approval, and as
security for the payment of the CCSI Note, CCSI shall grant PEAK COMM a security
interest in the Identified Assets. The security interest shall be subordinated
to NNC's security interest, if any, and shall be evidenced by a security
agreement in substantially the form of EXHIBIT 2.2 attached hereto.
2.3 CASH PAYMENT. CCSI will pay PEAK COMM Three Hundred Seventy-Five
Thousand Dollars ($375,000) by wire transfer at the Closing. The parties
acknowledge that CCSI has paid PEAK COMM Twenty-Five ($25,000) as an earnest
money deposit on January 13, 1998 ("Earnest Money"). The Earnest Money shall be
applied toward the Purchase Price on the Closing and shall be in addition to the
$375,000 cash payment.
2.4 CONVERGENT STOCK. CCSI's parent company, namely Convergent
Communications, Inc., a Colorado corporation ("Convergent") will deliver a
treasury request to Convergent's transfer agent directing the issuance of Ten
Thousand (10,000) shares of Convergent's no par value voting common stock
("Convergent Stock") to PEAK COMM at the Closing. The parties agree that the
value of each share of Convergent Stock shall be $5.00 for a total value of
$50,000. In order to evidence such transfer and issuance of the Convergent
Stock, CCSI shall cause Convergent to deliver a copy of the treasury request
issued to Convergent's transfer agent to PEAK COMM at the Closing. The share
certificate evidencing the Convergent Stock will be delivered to PEAK COMM by
Convergent's transfer agent within thirty (30) days of the date of Closing.
2.5 ASSUMPTION OF NNC NOTE. Pursuant to the Assumption Agreement
attached hereto as EXHIBIT 2.5, on the Closing Date, CCSI will assume that
certain Payment and Security Agreement dated as of December 31, 1996 ("NNC
Note") between PEAK COMM and National Network Corporation ("NNC"), subject to
NNC's approval. CCSI will pay the remaining balance of the NNC Note in equal
installments until paid in full, and in no event later than December 31, 1998.
In addition, at the Closing CCSI will pay PEAK COMM the difference between (a)
the remaining principal balance of the NNC Note at the Closing Date and (b) the
remaining principal balance of the NNC Note as of February 1, 1998.
3. CLOSING DATE DOCUMENTATION. In addition to the other documents
required hereunder, as a predicate to the closing of the transactions hereunder,
PEAK COMM and CCSI shall supply each other, as applicable, with the following on
or before the Closing Date:
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3.1 TRANSFER DOCUMENTS. Transfer Documents, in form and substance
reasonably satisfactory to CCSI and PEAK COMM, to effect the transfer of the
Identified Assets to CCSI pursuant to the terms of this Agreement.
3.2 CONSENTS. Any and all consents, in a form and substance
reasonably satisfactory to CCSI and PEAK COMM, from any person or entity not a
party to this Agreement whose consent is necessary or desirable for the
execution and performance of this Agreement by CCSI and PEAK COMM.
3.3 COMPLIANCE CERTIFICATES.
3.3.1 PEAK COMM COMPLIANCE CERTIFICATE. All corporate and other
proceedings, including approval by the directors and shareholders of PEAK COMM,
required to be taken by or on the part of PEAK COMM to authorize PEAK COMM to
execute, deliver and carry out this Agreement shall have been duly and properly
taken. CCSI shall have received a certificate of authorized individuals of PEAK
COMM in the form of EXHIBIT 3.3.1, dated as of the Closing, certifying to the
fulfillment of the conditions specified in this Agreement.
3.3.2 CCSI COMPLIANCE CERTIFICATE. All corporate and other
proceedings, including approval by the directors of CCSI, required to be taken
by or on the part of CCSI to authorize CCSI to execute, deliver and carry out
this Agreement shall have been duly and properly taken. PEAK COMM shall have
received a certificate of authorized individuals of CCSI in the form of EXHIBIT
3.3.2, dated as of the Closing, certifying to the fulfillment of the conditions
specified in this Agreement.
3.4 SWENSON AGREEMENT. CCSI and W. Jeff Swenson ("Swenson") will
enter into a non-compete and non-contravention agreement, in substantially the
same form as EXHIBIT 3.4, attached hereto ("Swenson Agreement") whereby Swenson
would agree not to compete with CCSI, nor to interfere with the vendors,
suppliers, employees or customers that are related to the Identified Assets in
accordance with the terms and conditions stated in the Swenson Agreement.
3.5 OPINION OF COUNSEL FOR PEAK COMM. CCSI shall have been furnished
with an opinion of PEAK COMM's counsel, dated the date of the Closing, in
substantially the form of EXHIBIT 3.5 attached hereto.
3.6 CARRIER AGREEMENT. CCSI and National Network Corporation will
enter into a new carrier services agreement ("Carrier Agreement") on terms and
conditions acceptable to CCSI for the provision of services for the Identified
Assets. PEAK COMM shall assist CCSI in obtaining an acceptable Carrier
Agreement.
3.6 RISK OF LOSS AND ALLOCATION OF COSTS AT CLOSING.
3.6.1 RISK OF LOSS. Prior to Closing, all risk of any loss or
damage to the Identified Assets being sold or transferred hereunder shall be
borne by PEAK COMM.
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3.6.2 ALLOCATION OF COSTS AT CLOSING. All expenses of operating
the Identified Assets through and including the Closing Date shall be the sole
responsibility of PEAK COMM. Personal property taxes, lease costs, utilities
and other like obligations for the calendar month in which Closing occurs, shall
be prorated between PEAK COMM and CCSI as of February 1, 1998. PEAK COMM shall
be responsible for prorated expenses associated with the Identified Assets prior
to, but not including, February 1, 1998. CCSI shall be responsible for prorated
expenses associated with the Identified Assets from February 1, 1998.
3.6.3 INCOME AND EXPENSE. Except to the extent sold to CCSI as
part of the Identified Assets, including, without limitation, any accounts
receivable of PEAK COMM shown in EXHIBIT 1.1, PEAK COMM shall retain all rights
to income earned prior to, but not including February 1, 1998 and CCSI shall be
entitled to all income earned by operation of the Identified Assets from
February 1, 1998. PEAK COMM shall accrue all corresponding expenses related to
the income accrued by PEAK COMM hereunder, all in accordance with generally
accepted accounting principles.
4. REPRESENTATIONS OF PEAK COMM. As material representations to induce
CCSI to enter into this transaction, PEAK COMM represents to CCSI as follows:
4.1 OWNERSHIP. The Identified Assets transferred pursuant hereto are
owned by PEAK COMM, free and clear of all liens, encumbrances, agreements and
claims with or of third parties, except as identified on EXHIBIT 4.1.
4.2 CORPORATE STATUS AND AUTHORITY. PEAK COMM is a corporation duly
incorporated and existing in good standing under the laws of the state of its
incorporation and is fully authorized to carry on its business as it is now
being conducted and to enter into the transactions herein set forth. PEAK COMM
is duly qualified to transact business as a foreign corporation and is in good
standing in each of the jurisdictions requiring such qualification whether by
reason of the ownership or leasing of its properties or the conduct or nature of
its business. Attached hereto as EXHIBIT 4.2 is a complete listing of all of
the states in which any portion of the Identified Assets is located. All
corporate, director, and stockholder approvals required have been secured to the
extent required. No consents, approvals, or filings from or with any person or
entity other than those delivered to CCSI herewith are necessary for the
execution, delivery and performance by PEAK COMM of this Agreement and the
transactions contemplated hereby. PEAK COMM has all requisite power and
authority to execute this Agreement and carry out all the actions required of it
herein. This Agreement is the legal, valid and binding agreement of PEAK COMM
enforceable against PEAK COMM in accordance with its terms.
4.3 PENDING CLAIMS. To its best knowledge, PEAK COMM is not
presently subject to any claim which would materially and adversely affect the
Identified Assets such as: litigation; disclosed or undisclosed claims or
liabilities; or pending governmental investigations or complaints of any kind or
description. The Identified Assets are subject to no contracts, claims or liens
other than as set forth in EXHIBIT 4.3.
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4.4 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and
performance of and compliance with this Agreement, or any agreement or
instrument contemplated hereby, by PEAK COMM will not result in any violation of
its Certificate of Incorporation or Bylaws or be in material conflict with or
constitute a default in any material respect under any term of any agreement,
instrument, judgment, decree, or, to the knowledge of PEAK COMM, any order,
statute, rule or governmental regulation applicable to PEAK COMM, or to the
knowledge of PEAK COMM, result in the creation of any lien, charge or
encumbrance of any kind or nature on the Identified Assets.
4.5 UNDISCLOSED LIABILITIES. To its best knowledge, PEAK COMM does
not have, with respect to its current operation, any material and undisclosed
liabilities or obligations of any nature affecting the Identified Assets.
4.6 ENVIRONMENTAL MATTERS. To the best knowledge of PEAK COMM, PEAK
COMM has duly complied with, and the operation of its business, equipment and
other assets in the facilities owned or leased by PEAK COMM and its subsidiaries
are in compliance with the provisions of all applicable federal, state and local
environmental, health and safety laws, statutes, ordinance, rules and
regulations of any governmental or quasi governmental authority relating to (i)
error omissions, (ii) discharges to surface water or ground water, (iii) solid
or liquid waste disposal, (iv) the use, storage, generation, handling,
transport, discharge, release or disposal of toxic or hazardous substances or
waste, (v) the emission of non-ionizing electromagnetic radiation, or (vi) other
environmental, health or safety matters, including, without limitation, the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Authorization Act of 1986; the
Occupational Safety and Health Act; the Resource Conservation and Recovery Act
of 1976, as amended; the Federal Water Pollution Control Act of 1970; the Safe
Drinking Water Act of 1974; the Toxic Substances Control Act of 1976; the
Emergency Planning and Community Right to Know Act of 1986, as amended; and the
Clean Air Act, as amended (collectively "Environmental and Health Laws") or the
Federal Communications Act, as amended ("FCC Laws"). To the best knowledge of
PEAK COMM, there are no investigations, administrative proceedings, judicial
actions, orders, claims or notices which are pending, anticipated or threatened
against PEAK COMM, relating to violations of the Environmental and Health Laws
and the FCC Laws. PEAK COMM has not received a notice of, and does not know or
have any reason to suspect, any facts which might constitute a violation of any
Environmental or Health Laws which relate to the use, ownership or occupancy of
any property or facilities used by PEAK COMM in connection with the operation of
its business or any activity of PEAK COMM's business which would result in a
violation or threaten violation of any Environmental or Health Laws and the FCC
Laws.
4.7 TAX LIENS. To PEAK COMM's best knowledge there are no tax liens
on any of the Identified Assets. PEAK COMM has duly filed all required federal,
state and local tax returns and reports (including, without limitation, returns
for estimated tax), and all returns and reports for any other governmental units
or taxing authorities having jurisdiction with respect to any taxes required to
be paid by PEAK COMM, except where extensions have been applied for and granted,
and where such extensions have not expired; all such returns and all such
reports show the correct and proper amounts due, and all taxes shown on such
returns and reports and all
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assessments received by PEAK COMM have been paid to the extent that such taxes
or any estimates thereon have become due. From the date of this Agreement until
the Closing, PEAK COMM shall pay all taxes as and when the same become due and
payable.
4.8 LIQUIDATION. PEAK COMM has not adopted any plan of liquidation
or dissolution affecting the Identified Assets.
4.9 ACCURACY OF DOCUMENTS AND INFORMATION. The copies of all
instruments, agreements, other documents and written information set forth as,
or referenced in, Exhibits and attachments to this Agreement or specifically
required to be furnished pursuant to this Agreement to CCSI by PEAK COMM are and
will be complete and correct in all material respects. To PEAK COMM's best
knowledge, there have been no material changes, and will be no material changes
as of the Closing Date, in the information set forth in the Exhibits and
attachments between the date of the Exhibits and attachments and the date of
this Agreement. No representations or warranties made by PEAK COMM in this
Agreement, nor any document, written information, statement, financial
statement, certificate, Exhibit or attachment furnished to CCSI pursuant to the
requirements of this Agreement intentionally contains any untrue statement of a
material fact, or omits to state a material fact necessary to make the
statements or facts contained therein not misleading. There is no fact which
materially and adversely affects the Identified Assets known to PEAK COMM which
has not been expressly and fully set forth in this Agreement or the Exhibits and
attachments hereto.
4.10 DISCLOSURE. To PEAK COMM's best knowledge, no representation or
warranty whether contained in this Agreement or in any certificates provided to
CCSI pursuant to this Agreement contains or will contain any materially untrue
statement or omits, or will omit, to state a material fact necessary to make any
such statement(s) not misleading.
4.11 STOCK REPRESENTATIONS. PEAK COMM (i) intends to acquire the
shares of Convergent Stock solely for the purpose of investment and not for the
resale and distribution thereof, and has no present intention to offer, sell,
pledge, hypothecate, assign or otherwise dispose of the same except in
accordance with this Section 4.11; (ii) understands and acknowledges that the
sale of such shares of Convergent Stock will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), the Convergent Stock
being acquired pursuant to this Agreement constitute "restricted securities" as
that term is defined under Rule 144 promulgated under the Securities Act and may
not be sold except pursuant to a registration statement under the Securities Act
or pursuant to an exemption available under federal and applicable state
Securities laws, and such shares may be required to be held indefinitely unless
the shares are subsequently registered under the Securities Act or an exemption
from such registration is available, (iii) agrees that it will not offer, sell,
pledge, hypothecate, transfer, assign or otherwise dispose of any such shares of
Convergent Stock unless such shares and such offer, pledge, hypothecation,
transfer, assignment or other disposition shall be registered or exempt from
registration under the Securities Act and shall comply with all applicable
federal and state securities laws, and (iv) agrees and acknowledges that the
stock certificates representing the shares of Convergent Stock will contain a
legend restricting the transferability of the shares as provided herein and that
stop order instructions may be imposed by Convergent's transfer agent
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restricting the transferability of the Convergent Stock.
4.12 NNC NOTE. PEAK COMM represents and warrants that the principal
amount of the NNC Note is no greater than $286,796 as of February 1, 1998.
4.13 PURCHASE PRICE ALLOCATION. PEAK COMM represents, warrants and
covenants to CCSI to report the transaction contemplated by this Agreement as a
sale and purchase of the Identified Assets in the specific amounts described on
EXHIBIT 4.13 attached hereto for all purposes including federal, state and local
tax purposes, and shall not take any position to the contrary in any tax return
or proceeding before any taxing authority. PEAK COMM and CCSI agree to complete
EXHIBIT 4.13 on or before Closing. PEAK COMM shall cooperate fully with CCSI,
shall execute any documents reasonably requested by CCSI, and shall furnish
appropriate information and testimony, upon request, with respect to any
liability asserted by taxing authorities, all without payment of further
consideration; provided such tax liability relates to the Identified Assets or
Assumed Liabilities as conducted by PEAK COMM prior to Closing.
4.14 BROKERS AND FINDERS. Neither PEAK COMM nor any affiliate nor
any officer or director thereof has engaged any finder or broker in connection
with the transactions contemplated hereunder.
4.15 ACCURACY OF REPRESENTATIONS. In the event that any of the
foregoing representations or warranties should be inaccurate as of the Closing
Date, PEAK COMM shall have thirty (30) days after written notice from CCSI in
which to cure such inaccuracy.
5. PEAK COMM'S EMPLOYEES AND CUSTOMERS. CCSI is not a successor business
to PEAK COMM nor any operation of PEAK COMM. CCSI shall not be liable for any
obligations which PEAK COMM has on any contracts including employment contracts,
existing or future workers compensation claims, employment discrimination
claims, unfair labor practice claims, or compensation claims except those
obligations, if any, specifically identified on EXHIBIT 1.1, EXHIBIT 1.2 or
elsewhere in this Agreement and any obligations of which CCSI hereby
specifically assumes in writing. CCSI is purchasing the Identified Assets only,
and it is not taking over any employment contracts for any employees or any
obligations under agreements entered into by PEAK COMM in its own right and CCSI
shall not be liable for any sums owed to customers by PEAK COMM.
6. REPRESENTATIONS OF CCSI. As material representations to induce PEAK
COMM to enter into this transactions, CCSI represents to PEAK COMM as follows:
6.1 CORPORATE STATUS AND AUTHORITY. CCSI is a corporation duly
organized and existing in good standing under the laws of the state of its
incorporation and is fully authorized to carry on its business as it is now
being conducted and to enter into the transactions herein set forth. CCSI is
duly qualified to transact business as a foreign corporation and is in good
standing in each of the jurisdictions requiring such qualification whether by
reason of the ownership or leasing of its properties or the conduct or nature of
its business. All corporate
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approvals required have been secured. No consents, approvals, or filings from
or with any person or entity other than those delivered to PEAK COMM herewith
are necessary for the execution, delivery and performance by CCSI of this
Agreement and the transactions contemplated hereby. CCSI has all requisite
power and authority to execute this Agreement and carry out all the actions
required of it herein. This Agreement is the legal, valid and binding agreement
of CCSI enforceable against CCSI in accordance with its terms.
6.2 DISCLOSURE. No representation or warranty whether contained in
this Agreement or in any certificates provided to PEAK COMM pursuant to this
Agreement contains or will contain any materially untrue statement or omits, or
will omit, to state a material fact necessary to make any such statement(s) not
misleading.
6.3 CONSENTS. CCSI shall have delivered to PEAK COMM copies of all
consents from any person or entity not a party to this Agreement whose consent
is necessary or desirable for the execution and performance of this Agreement by
CCSI, prior to the Closing Date.
6.4 PURCHASE PRICE ALLOCATION. CCSI represents, warrants and
covenants to PEAK COMM to report the transaction contemplated by this Agreement
as a sale and purchase of the Identified Assets in the specific amounts
described on EXHIBIT 4.13 attached hereto for all purposes including federal,
state and local tax purposes, and shall not take any position to the contrary in
any tax return or proceeding before any taxing authority. CCSI and PEAK COMM
agree to complete EXHIBIT 4.13 on or before Closing. CCSI shall cooperate fully
with PEAK COMM, shall execute any documents reasonably requested by PEAK COMM,
and shall furnish appropriate information and testimony, upon request, with
respect to any liability asserted by taxing authorities, all without payment of
further consideration; provided such tax liability relates to the Identified
Assets or Assumed Liabilities as conducted by CCSI after Closing.
6.5 BROKERS AND FINDERS. Neither CCSI nor any affiliate nor any
officer or director thereof has engaged any finder or broker in connection with
the transactions contemplated hereunder.
6.6 RELIANCE ON REPRESENTATIONS AND WARRANTIES. PEAK COMM shall not
be deemed to have made to CCSI any representation or warranty other than those
expressly made by PEAK COMM pursuant to this Agreement. Without limiting the
generality of the foregoing, and except as expressly set forth in
representations and warranties made by PEAK COMM pursuant to this Agreement,
PEAK COMM makes no representation or warranty to CCSI with respect to any
projections, estimates or budgets heretofore delivered to or made available to
CCSI of future revenues, expenses or expenditures or future results of
operations. CCSI acknowledges that it has not relied on any representations or
warranties regarding PEAK COMM, the Identified Assets or the Assumed Liabilities
except those set forth in this Agreement.
7. OBLIGATIONS PRIOR TO THE CLOSING DATE. The following conditions and
obligations shall be satisfactorily performed prior to the Closing Date.
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7.1 NO OBSTRUCTIVE PROCEEDING. As of the Closing Date, no action or
proceeding shall have been instituted against, and no order, decree or judgment
of any court, agency, commission or governmental authority shall be subsisting
against PEAK COMM or CCSI that which renders or could render it unlawful to
effect the transactions contemplated hereunder in accordance with the terms
hereof.
7.2 GOVERNMENTAL AGENCY APPROVALS. Any governmental agencies whose
approval is required prior to the consummation of the transactions contemplated
by this Agreement, including, without limitation, the Colorado Public Utilities
Commission, shall have approved such sale on the terms contemplated by this
Agreement.
7.3 NOTICES TO CUSTOMERS. PEAK COMM, with the cooperation of CCSI and
at PEAK COMM's sole expense, shall have provided any notice(s) to its customers,
if any, required by its contracts, federal or state laws, rules or regulations,
if any, with respect to the transfer of the Identified Assets to CCSI. The
content of such notice(s) shall be approved by CCSI.
7.4 PERFORMANCE. Both parties shall have executed and delivered to
the other party this Agreement and the other documents required hereby and shall
have performed and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or complied with by the
parties prior to the Closing Date.
7.5 NO ACTION TO PREVENT COMPLETION. There shall not have been
instituted and be continuing or threatened any claim, action or proceeding that
would materially adversely affect the Identified Assets, nor shall there have
been instituted and be continuing or threatened any claim, action or proceeding
by or before any court or other governmental body to restrain, prohibit or
invalidate, or to obtain damages in respect of, the transactions contemplated by
this Agreement or which might affect the rights of CCSI.
8. CONDUCT OF BUSINESS AND CERTAIN COVENANTS. Prior to the Closing Date,
PEAK COMM agrees that, with respect only to the Identified Assets, unless
otherwise specifically provided for in this Agreement or unless otherwise
consented to in writing by CCSI:
8.1 ORDINARY COURSE. PEAK COMM shall conduct its business in the
ordinary course.
8.2 CERTAIN CHANGES. PEAK COMM shall not: (i) grant any security
interest to or in connection with the Identified Assets; (ii) make or offer to
make any disposition, including any sale or transfer, of any of the Identified
Assets; (iii) make any change in any method of accounting, billing, rates, rate
structure, tariffs, payment of fees and expenses related in any way to the
Identified Assets; and, (iv) enter into any material contract, agreement, or
commitment relating to the Identified Assets.
9. CLOSING DATE. Closing will occur within three (3) business days after
the completion of due diligence and the receipt of any and all necessary board,
shareholder,
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governmental or other approvals, but not later than April 30, 1998, unless
extended by mutual agreement of the parties, and will take place at the offices
of CCSI.
10. NOTICES. Notices required or allowed hereunder shall be deemed
given when hand delivered or when deposited in the United States mail, postage
prepaid, return receipt requested, to the parties at the following addresses:
If to CCSI: Convergent Communications Services, Inc.
67 Inverness Drive East, Suite 110
Englewood, Colorado 80112
Attn.: Legal Department
If to PEAK COMM: Peak Comm, Inc.
9033 East Easter Place, Suite 104
Englewood, Colorado 80112
Attn.: President
or to such other addresses as may from time to time be supplied.
11. INDEMNITY.
11.1 PEAK COMM'S INDEMNIFICATION. Notwithstanding the Closing and
regardless of any investigation at any time made by or on behalf of CCSI or of
any information CCSI may have in respect thereof, PEAK COMM will indemnify,
defend and save and hold CCSI harmless from and against any costs, expenses,
damages, liabilities, losses or deficiencies, including, without limitation,
reasonable attorneys' fees and other costs and expenses incident to any suit,
action or proceeding (collectively "Losses") suffered or incurred by CCSI
arising out of or resulting from, and will pay CCSI on demand the full amount of
any such amounts which CCSI may pay or may become obligated to pay in respect
of:
(a) any material inaccuracy in any representation or document
delivered under or pursuant to this Agreement or the material breach of any
warranty made by PEAK COMM in or pursuant to this Agreement;
(b) any misrepresentations in or omission from any Exhibit,
Schedule, or other attachment to this Agreement;
(c) any failure by PEAK COMM duly to perform or observe any
material term, provision, covenant, or agreement in this Agreement to be
performed or observed on the part of PEAK COMM ; or
(d) any action, suit, investigation, proceeding, demand,
assessment, audit, judgment and claim, including any employment-related claim
relating to the time period on or prior to Closing (collectively "Claims"), even
though such Claims may not be filed or come to light until after the Closing
Date.
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(e) acts or omissions in connection with business activities
conducted or to be conducted by PEAK COMM, including, without limitation, the
sale of goods or provision of services prior to the Closing Date.
CCSI hereby covenants and agrees to immediately provide to PEAK COMM any
and all notifications or other correspondence it receives related to matters
which may affect this indemnity and hereby agrees to allow PEAK COMM to defend
any and all actions affecting this indemnity and shall not settle any action or
dispute affecting this indemnity without obtaining the prior written consent of
PEAK COMM. However, failure to provide any such notifications or other
correspondence in a timely manner will not relieve PEAK COMM of its obligation
to indemnify CCSI under this Section 11.1. If CCSI becomes unsatisfied with
the conduct of the defense of the Claims, CCSI may defend against, and consent
to the entry of any judgment or enter into any settlement with respect to such
Claims in any manner it may deem to be appropriate and PEAK COMM shall reimburse
CCSI promptly for the acts of defending against such Claims and will otherwise
remain responsible for any Loss which CCSI may suffer from, arising out of,
relating to or caused by such Claims to the full extent provided in this
Section.
All statements of fact contained in any written statement, certificate,
schedule or other document delivered to CCSI by or on behalf of PEAK COMM
pursuant to Article 4 of this Agreement shall be deemed representations and
warranties by PEAK COMM hereunder.
11.2 CCSI'S INDEMNIFICATION. CCSI agrees that notwithstanding the
Closing and regardless of any investigation at any time made by or on behalf of
PEAK COMM or any information PEAK COMM may have in respect thereof, CCSI will
indemnify, defend and save and hold PEAK COMM harmless from and against any
Losses suffered or incurred by PEAK COMM arising out of or resulting from, and
will pay PEAK COMM on demand the full amount of any such amounts which PEAK COMM
may pay or may become obligated to pay in respect of:
(a) any material inaccuracy in any representation or the
breach of any warranty made by CCSI in or pursuant to this Agreement;
(b) any failure by CCSI duly to perform or observe any item,
provision, covenant or agreement in this Agreement to be performed or observed
on the part of CCSI, as applicable;
(c) any action, suit, investigation, proceeding, demand,
assessment, audit, judgment and claim resulting from the operation of the
Identified Assets and discharge of the Assumed Liabilities by CCSI after
Closing; or
(d) acts or omissions in connection with business activities
conducted or to be conducted by CCSI, including, without limitation, the sale of
goods or provision of services after the Closing Date.
11.3 LIMITATION ON INDEMNITY.
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11.3.1 GENERALLY. Notwithstanding any provision herein to the
contrary, except as set forth in Sections 4.14 and 6.5 hereof relating to
brokers and finders and 11.3.2 below, neither CCSI nor PEAK COMM, shall be
required to indemnify the other for any misrepresentation, breach of warranty or
failure to fulfill any covenant or agreement herein except to the extent that
the aggregate amount which PEAK COMM or CCSI, respectively would otherwise (but
for this provision) be liable on account thereof exceeds in the aggregate the
sum of five thousand dollars ($5,000) (the "Threshold Amount") and then only to
the extent of such excess; provided, however, for purposes of calculating
whether the Threshold Amount has been reached, any specific materiality
provision contained in the representations and warranties shall be disregarded.
The obligation of either party to indemnify the other party, as provided
hereunder, shall not exceed the aggregate amount equal to the Purchase Price
received by PEAK COMM.
11.3.2 KNOWLEDGEABLE MISREPRESENTATION. The limitation on
indemnity set forth herein shall not be applicable with respect to any failure
of a representation or warranty or an omission which makes any representation or
warranty set forth in this Agreement, or in any Schedule, Exhibit or any other
attachment to this Agreement inaccurate or misleading and such failure is a
result of fraud, gross negligence or willful or wanton disregard by PEAK COMM as
to the truth and accuracy of the matters stated therein of which PEAK COMM had
any knowledge ("Knowledgeable Misrepresentation"). In this case, and
notwithstanding the provisions of Section 11.3.1 above, the obligation to
indemnify PEAK COMM shall not exceed the aggregate amount equal to the Purchase
Price plus the total amount of the Assumed Liabilities assumed or paid by CCSI.
11.3.3 TERMINATION OF OBLIGATION. The obligation of either party
to indemnify the other hereunder shall terminate one (1) year after the Closing
Date except as to matters as to which notice of a claim has been given to the
appropriate party prior to the expiration of such one (1) year period.
12. NO THIRD PARTY BENEFICIARIES. This Agreement shall be for and inure
to the benefit of CCSI and PEAK COMM and there shall be no third party
beneficiaries hereto. Specifically excluded from any beneficial status
hereunder are PEAK COMM's creditors, employees, customers and suppliers.
13. GOVERNING LAW AND FORUM. This Agreement shall be construed under the
laws of the state of Colorado and any action to enforce, construe or modify
this Agreement shall be brought in an appropriate court of competent
jurisdiction in Colorado.
14. BINDING NATURE. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
assigns. This Agreement shall not be assigned by either party without the
express written consent of the other party.
15. PARAGRAPH HEADINGS. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
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16. TIME OF THE ESSENCE. Time is of the essence of this Agreement and the
obligations of the parties hereunder.
17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, indemnifications and agreements of CCSI and PEAK COMM provided
herein shall survive the Closing for a period of one (1) year following the
Closing Date.
18. WAIVER. The failure of either of the parties hereto to enforce any
provision of this Agreement shall not be construed to be a waiver of such
provision or of the right thereafter to enforce the same, and no waiver of any
breach shall be construed as an agreement to waive any subsequent breach of the
same or any other provisions.
19. EXPENSES. Except as expressly provided herein, each party will pay
their own expenses, including fees of their respective attorneys, accountants
and consultants in connection with this transaction.
20. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
21. CONFIDENTIALITY. PEAK COMM and CCSI agree to not disclose the terms
and conditions of this Agreement except (i) as may be required to fulfill
obligations hereunder; (ii) as may be required by law, regulation, custom or
judicial or administrative proceeding; or, (iii) as and to the extent such
information becomes known to the general public through no fault of either party
in tangible, demonstrable form. Both parties shall take reasonable precautions
to insure that their respective employers, employees and agents also treat such
information in a confidential manner. The obligations of confidentiality shall
survive the consummation of the transactions herein set forth.
22. TAXES. CCSI shall be responsible for and shall pay all federal, state
and municipal taxes or other charges, if any, on the sale of the Identified
Assets except income taxes payable by PEAK COMM on the Purchase Price.
23. SEVERABILITY. It is agreed and understood that should any of the
provisions of this Agreement be determined by any court of competent
jurisdiction to be invalid or void for any reason, then the parties consent that
this Agreement shall be amended retroactive to the date of its execution to
include all terms and conditions other than those found by the court to be
invalid or void in order to give effect to the parties intent.
24. PUBLIC ANNOUNCEMENT. Each party acknowledges and agrees that either
may make a public announcement of the transactions contemplated by this
Agreement any time after the date of execution of this Agreement provided that
the other party approves the form and substance of any such public announcement
prior to its release, which approval shall not be unreasonably withheld.
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25. FORCE MAJEURE. This Agreement and the obligations of the parties
hereunder shall not be impaired or invalidated and a party shall not be in
breach hereof if such party is unable to fulfill any of its obligations
hereunder or is delayed in doing so by reason of strike, labor troubles, acts of
God or any other cause beyond the reasonable control of such party.
26. ATTACHMENTS. All Exhibits and attachments to this Agreement are made
a part of this Agreement by this reference. Any information disclosed in an
Exhibit or attachment shall be deemed to be disclosed and incorporated into any
other Exhibit or attachment where such disclosure would be appropriate.
27. ADDITIONAL DOCUMENTATION. PEAK COMM shall from time to time,
subsequent to Closing, at CCSI's request and without further consideration,
execute and deliver such other instruments of conveyance, assignment and
transfer and take such other action as CCSI reasonably may require in order more
effectively to effectuate the purchase of the Identified Assets.
28. ARBITRATION. Notwithstanding anything to the contrary herein, in the
event that there is any dispute arising pursuant to or in any way related to
this Agreement or the transactions contemplated hereby, the parties shall first
attempt to resolve the dispute between each other. The party claiming the
dispute shall provide written notification to the other party detailing the
nature and facts of the dispute. The parties shall attempt to resolve the
dispute within thirty (30) days, or such other longer period of time as the
parties may mutually agree. In the event that the parties fail to resolve the
dispute within the thirty (30) day period, or such other longer period as shall
have been agreed upon by the parties, the dispute shall be settled by
arbitration at a mutually agreed upon location in Denver, Colorado; provided,
however, that nothing in this Section shall restrict the right of any party to
apply to a court of competent jurisdiction for emergency relief pending final
determination of a claim by arbitration in accordance with this Section; and
further provided, that in the event the dispute involves an amount of money to
be paid to a party, the arbitration shall only be commenced to the extent of the
disputed amount. All arbitration shall be conducted in accordance with the
rules and regulations of the American Arbitration Association, in force at the
time of any such dispute. Each party shall pay its own expenses associated with
such arbitration, provided that the prevailing party in any arbitration shall be
entitled to reimbursement of reasonable attorneys' fees and expenses (including,
without limitation, arbitration expenses) relating to such arbitration. The
decision of the arbitrators, based upon written findings of fact and conclusions
of law, shall be binding upon the parties; and judgment in accordance with that
decision may be entered in any court having jurisdiction thereof. In no event
shall the arbitrators be authorized to grant any punitive, incidental or
consequential damages of any nature or kind whatsoever.
29. TERMINATION.
29.1 This Agreement may be terminated, and the transactions
contemplated hereby abandoned (i) by the mutual consent of CCSI and PEAK COMM;
(ii) by CCSI or PEAK COMM at any time after April 30, 1998 (or such later date
as shall have been agreed to in writing by the parties) if the conditions and
obligations set forth in this Agreement shall not have
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been fulfilled (or waived by the party entitled to the benefit thereof) by such
date, with no further liability on the part of any party hereto; provided,
however, that no party shall be released from liability hereunder if any such
condition is not fulfilled by reason of the breach by such party of its
obligations hereunder.
29.2 Notwithstanding anything contained in the foregoing to the
contrary, if this Agreement is terminated by CCSI due to a failure of PEAK COMM
to perform the conditions precedent to the Closing hereunder, PEAK COMM shall
immediately refund to CCSI all amounts paid to PEAK COMM, including, without
limitation, the Earnest Money.
30. ENTIRE AGREEMENT; AMENDMENT. This Agreement, together with the
Exhibits, Schedules and attachments hereto, contains the entire understanding
between the parties hereto with respect to the subject matter hereof and no
prior or collateral promises or conditions in connection with or with respect to
the subject matter hereof not incorporated herein shall be binding upon the
parties. No modification, extension, renewal, rescission, termination or waiver
of any of the provisions contained herein or any future representation, promise
or condition in connection with the subject matter hereof, shall be binding upon
either of the parties hereto unless made in writing and duly executed by both
the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives on the day and year first above
written.
CONVERGENT COMMUNICATIONS SERVICES, INC.,
a Colorado corporation
By: /s/ John R. Evans
-------------------------------------------
John R. Evans, Chief Executive Officer
PEAK COMM, INC. d/b/a TELEPHONE COMMUNICATIONS
COMPANY, a Colorado corporation
By: /s/ W. Jeff Swenson
-------------------------------------------
W. Jeff Swenson, President
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made this 13th day of
March 1998, by and among CONVERGENT COMMUNICATIONS SERVICES, INC., a Colorado
corporation ("Purchaser"), CONVERGENT COMMUNICATIONS, INC., a Colorado
corporation ("Guarantor"), COMMUNICATION SERVICES OF COLORADO, INC., a Wyoming
corporation ("Company") and DONNA SIPES, an individual resident of the State of
Colorado ("Sipes").
RECITALS
A. Company provides various telecommunications services, including long
distance resale;
B. Purchaser desires to acquire the business of the Company by merging
the Company with and into Purchaser in accordance with the terms and conditions
of this Agreement, and as a result of the Merger of the Company with and into
Purchaser, as the Surviving Corporation, the assets and certain liabilities of
the Company will be merged with and into the Purchaser.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1. CERTAIN DEFINITIONS. As used herein, the following terms shall have
the following meanings unless the context otherwise requires:
1.1 "AGREEMENT" shall mean this Agreement and Plan of Merger.
1.2 "ASSUMED ASSETS" shall have the meaning set forth in Section
4.1(l).
1.3 "BANK DEBT" shall mean that portion of the Funded Debt
identified as Bank Debt on SCHEDULE 2.6(a) attached hereto.
1.4 "CLOSING" shall mean the consummation of the transactions
contemplated by this Agreement.
1.5 "CLOSING DATE" shall mean the date on which the Closing occurs
pursuant to Section 2.3(a).
1.6 "COMMON STOCK" shall mean the voting common stock, no par
value per share, of the Company.
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1.7 "CONSIDERATION" shall mean a total amount of $1,005,000 less
(i) the Earnest Money, (ii) Transactional Costs in excess of $5,000, (iii)
Escrowed Funds, if any, and (iv) any amount of Funded Debt in excess of zero
dollars ("Funded Debt Threshold") as of the Closing Date.
1.8 "DISCLOSURE SCHEDULE" shall mean the Schedule attached to this
Agreement at execution as contemplated in Section 4.1 hereof and which shall not
be modified or changed in any respect after the date hereof without the prior
written consent of Purchaser.
1.9 "DISSENTING SHARE" shall have the same meaning as defined in
Section 2.5(d)(i) hereof.
1.10 "EARNEST MONEY" shall mean the $25,000 cash previously
advanced by the Purchaser to Sipes, the sole shareholder of the Company,
pursuant to that certain letter of intent between Purchaser and Company dated
February 3, 1998.
1.11 "EFFECTIVE TIME" shall mean the time when the Merger of the
Company with and into Purchaser becomes effective under applicable law.
1.12 "ESCROW FUND" shall mean the portion of the total
Consideration set aside to pay the full amount of the appraised value of any
Dissenting Shares in accordance with Section 2.5(e) hereof.
1.13 "FUNDED DEBT" shall mean the indebtedness and other
obligations of the Company, including principal, accrued interest and other
amounts payable in connection therewith, identified on SCHEDULE 2.6(a), and all
other indebtedness for borrowed money incurred by the Company after the date
hereof and prior to the Closing Date subject to Section 5.1(a)(xviii) hereof.
Such term shall not include the trade payables incurred by the Company in the
ordinary course of business, except as specifically identified on SCHEDULE
2.6(a).
1.14 "MERGER" shall have the same meaning as set forth in Section
2.1(a) hereof.
1.15 "MERGER CONSIDERATION" shall mean the Consideration but shall
not include any cash paid by Purchaser to pay any portion of the Funded Debt as
provided in Sections 2.6(a) hereof, if any.
1.16 "PERMITTED ENCUMBRANCES" shall mean the following liens,
charges and other encumbrances of a similar nature with respect to the
properties and assets of the Company;
(i) liens for current state or local property taxes not
yet due and payable or subject to penalties;
(ii) zoning ordinances, building laws, restrictions and
regulations imposed by governmental authorities, if any, none of which is
materially violated by existing buildings and uses by the Company;
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(iii) any assessment for local benefits levied by any
governmental authority and not now a lien upon all or any portion of any real
property; provided, however, neither the Company knows or has any reason to know
of any such assessment;
(iv) liens of carriers, warehousemen, mechanics and
material men, and other like liens in existence less than 120 days from the date
of creation thereof, all of which shall be satisfied and released on or prior to
the Closing Date;
(v) any mortgage, deeds of trust or other encumbrances on
leasehold properties which the Company is leasing from the third party which is
the owner of the property and leased by the Company subject to any such
encumbrance; and
(vi) such imperfections of title, liens, easements or
encumbrances, if any, which are not material in character, amount or extent and
do not, severely or in the aggregate, materially detract from the value or
materially or adversely interfere with the present use of the property subject
thereto or affected thereby or otherwise materially impair the business and
operations of the Company.
1.17 "PERSON" shall mean an individual, partnership, corporation,
limited liability company, trust, unincorporated organization, association, or
joint venture or a government, agency, political subdivision, or instrumentality
thereof.
1.18 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
1.19 "STOCK" shall mean the Common Stock together with all other
equity securities of the Company.
1.20 "SURVIVING CORPORATION" shall mean Purchaser as the Surviving
Corporation after the Merger as provided in Section 2.1(a) hereof.
1.21 "TRANSACTIONAL COSTS" shall mean those costs and expenses
which relate, directly and indirectly, to the negotiation, revision, amendment,
execution, implementation and Closing of this Agreement (and the transactions
contemplated hereunder) by or on behalf of the Company which shall be borne by
the Company as provided in Section 6.17 hereof. The costs and expenses included
as Transactional Costs shall consist of attorneys', accountants' and other
advisors' fees and disbursements incurred by the Company in connection with the
Merger.
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ARTICLE II
2.1 THE MERGER AND RELATED MATTERS.
(a) MERGER. At the Effective Time and subject to and upon the
terms and conditions of this Agreement and Colorado and Wyoming law, the Company
shall merge (the "Merger") with and into the Purchaser, the separate corporate
existence of the Company shall cease and Purchaser shall continue as the
Surviving Corporation. The Merger will have the effect set forth in the
Colorado Business Corporation Act. The Surviving Corporation may, at any time
after the Effective Time, take any action, including executing and delivering
any certificates, instruments and documents as shall be reasonably determined by
the Board of Directors of the Surviving Corporation to be necessary and
appropriate, in the name and on behalf of either the Company or Purchaser in
order to carry out and effectuate the transactions contemplated by this
Agreement.
(b) SURVIVING CORPORATION. The Company shall be merged with and
into Purchaser, with Purchaser as the Surviving Corporation, and the separate
existence of the Company shall cease. As a result of the Merger the
stockholders of the Company immediately prior to the Effective Time shall cease
to hold any Stock but will instead have the rights specified in Section 2.5
hereof and all rights, privileges, powers, franchises and interest of the
Company and all of its properties, whether real, personal or mixed, all debts
due on whatever account and every other interest of the Company, whether
tangible or intangible shall be deemed to vest in the Surviving Corporation
without further act or deed, and all claims, demands, property and every other
interest shall be as of the Effective Time the property of the Surviving
Corporation to the same extent as previously owned or held by the Company.
(c) ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The
Articles of Incorporation of the Purchaser in effect at and as of the Effective
Time shall remain the Articles of Incorporation of the Surviving Corporation
until thereafter amended as provided by law.
(d) BYLAWS OF SURVIVING CORPORATION. The Bylaws of Purchaser as
in effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by law.
(e) DIRECTORS AND OFFICERS. The number of directors of the
Surviving Corporation and the persons serving as Directors of the Surviving
Corporation shall be the same number of directors and the same persons serving
on the Board of Directors of Purchaser immediately prior to the Effective Time
and they shall continue to hold office until their successors have been duly
nominated, elected or appointed as provided under the Surviving Corporation's
Bylaws as may subsequently be amended in accordance with the provisions thereof.
The officers of Purchaser as constituted immediately prior to the Effective Time
shall hold the same offices in the Surviving Corporation following the Effective
Time, until such time as their successors have been duly appointed and
qualified.
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(f) EFFECT OF MERGER. The Merger, from and after the Effective
Time, shall have all the effects provided for a merger under Colorado law and
Wyoming law, and Colorado law shall govern the Surviving Corporation.
(g) SALE OF ASSET ALTERNATIVE. In the event that the Merger is
not effective for any reason, including, without limitation, as a result of the
Company's failure to comply with the Wyoming Business Corporation Act or the
Colorado Business Corporation Act at any time since the Company's first
inception, then at the Closing, and without further action of the parties, Sipes
and the Company shall be deemed to have conveyed, sold and transferred all
right, title and interest in and to the Assumed Assets, free and clear of all
claims, liens and encumbrances of any kind or nature (the "Asset Sale"). The
parties hereto agree that as between themselves, the Merger shall be effective
and that for the Merger to not be effective, an action must be commenced by a
third party, or a determination must be made by the Secretary of State of
Wyoming or Colorado or by an appropriate Court that the Merger is not effective.
Purchaser shall not assume any liabilities of Sipes or the Company other than
those listed in SCHEDULE 2.6(d)-2.
(h) POWER OF ATTORNEY. In the event that the parties are deemed
to have consummated the Asset Sale, each of Sipes and the Company hereby
constitutes and appoints Purchaser, its successors and assigns, the true and
lawful attorney of each of Sipes and the Company, with full power of
substitution, in the name of Purchaser, or in the name of Sipes or the Company,
but for the benefit and at the expense of Purchaser:
(i) to collect, demand and receive the Assumed Assets
hereby sold and transferred to Buyer;
(ii) to institute and prosecute any and all actions, suits
or proceedings which Purchaser may deem proper in order to collect, assert or
enforce any claim, right or title of any kind in or to the Assumed Assets sold
and transferred to Purchaser, to defend or compromise any and all actions, suits
or proceedings in respect of any of the Assumed Assets, and to do all such acts
and things in relation thereto as Purchaser shall deem advisable;
(iii) to take any and all reasonable actions designed to
vest more fully in Purchaser the Assumed Assets sold and transferred to
Purchaser, and in order to provide for Purchaser the benefit, use, enjoyment and
possession of the Assumed Assets. Each of Sipes and the Company acknowledges
that the foregoing powers are coupled with an interest and shall be irrevocable
by them in any manner or for any reason. Purchaser shall be entitled to retain
for its own account any amounts collected pursuant to the foregoing powers,
including any amounts payable as interest with respect thereto.
2.2 APPROVAL BY COMPANY STOCKHOLDERS. The Company, acting through its
Board of Directors, shall duly call, give notice of, convene and hold a special
meeting of the stockholders of the Company (the "Special Meeting") to consider
and vote upon the approval and adoption of this Agreement and the Merger
contemplated hereby, or shall seek the requisite written consent of its
stockholders, all in accordance with Wyoming law and its Articles
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of Incorporation and Bylaws. The Company shall hold the Special Meeting or
obtain such written consent as soon as practicable after the date hereof.
Subject to its fiduciary obligations, the Board of Directors of the Company will
recommend that the stockholders of the Company vote to adopt this Agreement and
approve the Merger at the Special Meeting and will use its best efforts to
solicit from the stockholders of the Company proxies in favor of the Merger and
will take all other action necessary or, in the opinion of Purchaser, advisable
to secure the vote or consent of the stockholders of the Company required by the
Colorado Business Corporation Act to effect the Merger. If this Agreement and
the Merger are approved and adopted by written consent of less than all of the
stockholders of the Company, the Company shall give prompt notice of such
approval and adoption in accordance with Wyoming law to those stockholders who
did not consent.
2.3 CLOSING
(a) CLOSING DATE AND LOCATION. The Closing shall take place at
10:00 a.m. (Denver time) at the offices of Purchaser, 67 Inverness Drive East,
Suite 110, Englewood, Colorado, on the second business day immediately following
the later to occur of (i) the Special Meeting approving the Merger if such a
meeting is held, (ii) the period required by Colorado law and Wyoming law after
the giving of notice to the stockholders of the Company who did not consent, if
the Merger is approved by written consent of less than all stockholders of the
Company, or (iii) the date on which all notice periods have run or consents have
been received for notices to be given or consents to be received under Sections
3.1(g) and 3.2 (g) hereof, or at such other time or place as is mutually agreed
by the parties hereto. The Closing shall be effective as of the Effective Time.
(b) OBLIGATIONS OF THE COMPANY. At the Closing, the Company shall
deliver, or use its best efforts to cause to be delivered, to Purchaser the
following documents:
(i) stock certificates representing the shares of Common
Stock as well as stock certificates representing all of the other issued and
outstanding Stock of the Company as of the Closing Date, which stock
certificates will be accompanied by stock powers duly completed and executed in
blank by the holders thereof;
(ii) a certificate of good standing from the States of
Colorado and Wyoming for the Company certified by the appropriate official of
each such state, dated as of the date not more than five (5) days prior to the
Closing Date certifying that the Company is duly qualified and in good standing
and has filed all franchise tax returns due up to the date of such certificate,
that all taxes shown on such return to be due have been paid in full, and that
there are no outstanding franchise tax claims or assessments against the Company
as of the date of such certificate;
(iii) the combined Officers' Certificate of the Company
pursuant to Sections 3.1(d) and (e) hereof;
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(iv) the opinion of Jeffrey H. Katz, P.C. as counsel for
the Company pursuant to Section 3.1(f) hereof;
(v) the consents and waivers, if any, pursuant to Section
3.1(g) hereof;
(vi) the executed Employment Agreement pursuant to Section
2.7 hereof;
(vii) the resignation letters from the officers and
directors of the Company pursuant to Section 3.1(k) hereof;
(viii) the books and records referred to in Section 3.1(m)
hereof;
(ix) Articles of Merger in the form of EXHIBIT 2.3(b)(ix),
attached hereto;
(x) documentation (including, without limitation, duly
executed UCC-3 termination statements) satisfactory in form and substance to
Purchaser as requested by Purchaser to release all encumbrances securing all
Funded Debt to be paid on the Closing Date, including Bank Debt (to the extent
available as of the Closing Date and otherwise by no later than ten (10) days
after the Closing Date).
(xi) a Schedule identifying all Stockholders of the Company
owning all of the issued and outstanding shares of the Company's Stock, which
Schedule shall set forth the name, address and social security number or
employer identification number (to the extent available to the Company) of each
stockholder of the Company and the number of shares of each class and series of
stock owned by each such stockholder;
(xii) such other documents or instruments of further
assurance as shall be necessary and appropriate by Purchaser;
(xiii) executed Indemnification Agreements pursuant to
Section 3.1(p).
(c) OBLIGATIONS OF PURCHASER . Purchaser shall deliver to the
Company and the stockholders of the Company the following documents on the
Closing Date:
(i) the Combined Officer's Certificate of Purchaser
pursuant to Sections 3.2(d) and (3) hereof;
(ii) the opinion of Martin E. Freidel as counsel for
Purchaser pursuant to Section 3.2(f) hereof;
(iii) the consents and waivers, if any, pursuant to Section
3.2(g); and
(iv) the Employment Agreement pursuant to Section 2.7;
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(v) the Merger Consideration as provided in Section 2.5
payable directly by Purchaser to those stockholders of the Company who have
delivered their stock certificates for surrender and cancellation as provided in
Section 2.3(b)(i) hereof.
(d) EXHIBITS AND SCHEDULES. In the event that the parties execute
this Agreement prior to completion of all of the Exhibits and Schedules to be
attached to this Agreement, the parties shall use their reasonable efforts to
complete all such Exhibits and Schedules and attach them to this Agreement
within fifteen (15) days of the date of this Agreement, but in no event later
than the Closing Date; provided, that, no party shall be obligated to consummate
the transactions contemplated by this Agreement until such time as the Exhibits
and Schedules are completed and attached to each parties satisfaction.
2.4 CONSUMMATION OF THE TRANSACTIONS. At the Closing, Purchaser and the
Company will each carry out the procedures specified under the applicable
provisions of Colorado and Wyoming law, to the end that the Merger shall become
effective. The Merger shall be consummated by filing Articles of Merger with
the Secretaries of State of Colorado and Wyoming in each case in such form as
required by, and executed in accordance with the relevant provisions of the
applicable state law.
2.5 COMPANY'S CAPITAL STOCK
(a) CONVERSION OF THE STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of Purchaser, the Company or the
holders of any of their securities, the outstanding Common Stock of the Company
shall be converted into the right to receive (a) $41.1176 ($450,000 divided by
10,200 (which is the cash component of the Consideration less the Earnest
Money)) less _____ (which are adjustments pursuant to Section 1.6(ii) through
(v)) in cash per share of Common Stock held by such stockholder from the
Consideration; and (b) a promissory note ("Purchaser Note") in the amount of
$51.9608 ($530,000 divided by 10,200). Each Purchaser Note shall be in
substantially the form of EXHIBIT 2.5(a). Each holder of a certificate
representing any Common Stock (except for Dissenting Shares) shall, after the
Effective Time, cease to have any rights with respect to such Common Stock,
except the right to receive the Merger Consideration for such Common Stock upon
the surrender of such certificate in accordance with Section 2.6(c) hereof.
(b) NO SUBSEQUENT TRANSFERS; LOST, STOLEN OR DESTROYED
CERTIFICATES. After the Effective Time, there shall be no transfers on the
stock transfer books of the Company of shares of Common Stock or Dissenting
Shares that were registered as outstanding immediately prior to the Effective
Time. If any registered certificate for Common Stock shall have been lost,
stolen or destroyed, the Surviving Corporation, upon the making of an affidavit
of that fact by the Person claiming such certificate to be lost, stolen or
destroyed and subject to the following sentence, shall pay the appropriate
Merger Consideration for the shares of Common Stock represented by such
certificate in accordance with this Section 2.5 and Section 2.6 hereof to the
persons legally entitled thereto. The Surviving Corporation, in its sole
discretion and as a condition precedent to the delivery of the Merger
Consideration in exchange for the shares of
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Common Stock represented by such certificate, may require the owner of such
lost, stolen or destroyed certificate to provide a bond or other security in
such sum as it reasonably may direct as indemnity against any claim that may be
made against the Surviving Corporation with respect to the certificate alleged
to have been so lost, stolen or destroyed.
(c) CONVERSION, RETENTION AND TRANSFER OF STOCK. Each stock
certificate representing the Common Stock and Dissenting Shares shall, after the
Effective Time, cease to have any rights except the right to receive the Merger
Consideration as provided in Section 2.5(a) hereof (or in the case of Dissenting
Shares, the right to receive amounts under Section 2.5(d)) upon the surrender of
such certificates accompanied by stock powers duly completed and executed in
blank and any other documents required to be delivered in connection therewith.
Until surrendered as contemplated by the preceding sentences each such
certificate shall be deemed for all purposes to represent only the right to
receive upon such surrender the Merger Consideration payable in respect thereof
as contemplated by this Agreement. As a consequence of the Merger and without
any action on the part of the parties to this Agreement, each of the issued and
outstanding shares of the Company's Common Stock shall be cancelled and retired
in exchange for the Merger Consideration (or in the case of Dissenting Shares,
the right to receive amounts under Section 2.5(d)). Each share of common stock,
no par value, of Purchaser issued and outstanding immediately prior to the
Effective Time shall remain outstanding. Each such share of Purchaser shall
continue as one share of the capital stock of the Surviving Corporation, and
each certificate evidencing ownership of any such shares shall continue to
evidence the same number of shares of the Surviving Corporation.
(d) DISSENTING SHARES.
(i) Notwithstanding any provision of this Agreement to the
contrary, any shares of Common Stock held by a holder who has demanded and
perfected his right for appraisal of such shares in accordance with Iowa law and
who, as of the Effective Time, has not effectively withdrawn or lost such right
to appraisal ("Dissenting Shares"), shall not be converted into or represent the
right to receive the Merger Consideration pursuant to Section 2.5(a), but the
holder thereof shall be entitled only to such rights as are granted by Colorado
law.
(ii) Notwithstanding Section 2.5(d)(i), if any holder of
shares of Common Stock who demands an appraisal of such shares under Colorado
law shall effectively withdraw or lose (through failure to perfect or otherwise)
his right to appraisal, then, as of the later of the Effective Time or the
occurrence of such event, such holder's shares shall no longer be Dissenting
Shares and shall automatically be converted into and represent only the right to
receive the Merger Consideration applicable to such shares as provided in this
Section 2.5, without interest, upon surrender of the certificate or certificates
representing such shares, in accordance with Section 2.5(a) hereof.
(iii) The Company shall give Purchaser notice of any written
demand for appraisal of any shares of Common Stock received prior to the
Effective Time and any withdrawal of such demands. Amounts payable by the
Surviving Corporation to holders of Dissenting Shares shall be paid from the
Escrow Fund.
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(e) ESCROW FUND. In the event that there are any Dissenting
Shares then a portion of the Cash Consideration shall be held in a non-interest
bearing escrow fund ("Escrow Fund"). Payment to the holders of the Dissenting
Shares shall be made solely from the Escrow Fund. The Consideration available to
holders of non-Dissenting Shares shall be reduced by the total amount paid, or
payable, to the holders of Dissenting Shares.
2.6 OTHER PAYMENTS MADE IN CONNECTION WITH THE MERGER.
(a) REPAYMENT OF DEBT. Prior to the Closing, the Company will
repay the principal amount of the Bank Debt, including accrued and unpaid
interest thereon. The Funded Debt, including the Bank Debt, is more
particularly described in SCHEDULE 2.6(a) attached hereto. To the extent that
any Funded Debt or Bank Debt is not repaid by the Company prior to the Closing,
then if the actual amount of the Funded Debt, is less than the Funded Debt
Threshold, the extent of Purchaser's obligations to repay such Funded Debt shall
be limited to the actual amount of payment required to satisfy any such
obligations, including the benefit of any settlement or compromise of any such
indebtedness. In addition, SCHEDULE 2.6(a) shall be amended to list all of the
Company's debt as of the Closing Date comprising the total amount of the Funded
Debt, including any amounts in excess of the Funded Debt Threshold. SCHEDULE
2.6(a) shall include in addition to a detailed description of the indebtedness
comprising the Funded Debt and all accrued and unpaid interest thereon and all
other amounts then owed under the loan agreements, notes and other documents
pursuant to which such funds were borrowed and sets forth the names and
addresses of the obligees of such debt, the maturity date and the terms of
repayment of such debt. Funded Debt other than the Bank Debt shall be paid
when due or on such earlier date as Purchaser may elect.
(b) REPAYMENT OF BALANCE OF FUNDED DEBT. The remaining balance of
the Funded Debt to the extent it exceeds the Funded Debt Threshold will be paid
from the Consideration and to the extent of any such payment will reduce the
total amount of Consideration available for distribution as part of the Merger
Consideration payable to the holders of the Common Stock as provided in Section
2.5(a) hereof.
(c) MERGER CONSIDERATION. Purchaser shall pay to each stockholder
of Company the Merger Consideration upon surrender by such stockholder to
Purchaser of the certificates representing such stockholder's shares.
(d) TRADE PAYABLES. Effective as of the Closing Date and in
connection with the Merger, Purchaser will become obligated for the trade
payables of the Company that are listed on SCHEDULE 2.6(d)-1 attached hereto
or that are incurred in the ordinary course of business of each such
corporation. A new SCHEDULE 2.6(d)-2, shall be delivered at Closing, which
shall include (i) all trade payables of the Company as of the Closing Date,
and (ii) all Transactional Costs. As contemplated by Section 1.6, the total
amount of cash available for distribution as part of the Merger Consideration
will be reduced by the amount of the Transactional Costs.
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2.7 EMPLOYMENT AGREEMENT . Sipes will receive an employment agreement
with Purchaser, in the form of EXHIBIT 2.7 ("Employment Agreement").
2.8 GUARANTY AND SECURITY INTEREST.
(a) The Purchaser Notes will be secured by the Assumed Assets.
Purchaser will execute a Security Agreement in substantially the same form as
EXHIBIT 2.8(a).
(b) The Purchaser Notes will also be guaranteed by Guarantor.
Guarantor will execute a Guaranty in substantially the same form as EXHIBIT
2.8(b).
ARTICLE III
CONDITIONS PRECEDENT
3.1 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. The obligations of
Purchaser to consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions, all or any of which may be waived, in whole or part, by
Purchaser:
(a) REPRESENTATIONS TRUE AT CLOSING. The representations and
warranties made by the Company in this Agreement or the attachments hereto shall
be true and correct in all material respects on the Closing Date with the same
force and effect as though such representations and warranties had been made on
and as of such time, except for changes previously disclosed to Purchaser or
contemplated by this Agreement.
(b) COVENANTS. The Company shall have duly performed in all
material respects all of the covenants, acts, obligations, conditions,
agreements and undertakings to be performed by it on or prior to the Closing
Date pursuant to the terms of this Agreement.
(c) ABSENCE OF ADVERSE CHANGES. The Company shall not have
suffered any material adverse change in its financial condition, business,
property or assets since the Financial Statement Date (as herein defined).
(d) SECRETARY'S CERTIFICATES. Purchaser shall have received a
certificate of good standing from the Secretary of State of each of the states
in which the Company is operating, or in which it is necessary or desirable to
be qualified to do business, stating that the Company is qualified to do
business and is in good standing and a certificate of the Secretary or Assistant
Secretary of the Company certifying: (i) the Company's Articles of Incorporation
and Bylaws; (ii) the incumbency of all officers of the Company having authority
to execute and deliver this Agreement and the agreements and documents
contemplated hereby; and (iii) resolutions of the Company's Board of Directors
and stockholders approving the execution, delivery and performance of this
Agreement.
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(e) OFFICER'S CERTIFICATE. Purchaser shall have received a
certificate from the President or a Vice President of the Company as to the
matters set forth in Sections 3.1(a), 3.1(b) and 3.1(c).
(f) OPINION OF COMPANY COUNSEL. An opinion of counsel for the
Company shall have been delivered to Purchaser dated as of the Closing Date,
substantially in the form and substance of the opinion attached as EXHIBIT
3.1(f), which shall include matters related to FCC and state utility commission
compliance of the Company.
(g) CONSENTS AND WAIVERS. The Company shall have obtained and
Purchaser shall have received a true and correct copy of the consents and
waivers described SCHEDULE 3.1(g) hereof, or otherwise required for the
execution of this Agreement and the consummation of the transactions
contemplated hereby.
(h) APPROVALS. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby shall have been
approved by all regulatory authorities, if any, whose approvals are required by
contractual requirements or by law.
(i) NO LITIGATION OR OTHER PROCEEDINGS. No action, proceeding,
investigation, regulation or legislation shall have been instituted, threatened
or proposed before any court, governmental agency or legislative body to enjoin,
restrain, prohibit or obtain substantial damages in respect of, or which is
related to, or arises out of, this Agreement or the consummation of the
transactions contemplated hereby. No suit, action or other proceeding shall be
pending before any court or governmental agency, or threatened against or
affecting the Company which, if adversely determined, would have a material
adverse effect on the value of the business, assets or property of the Company.
(j) EMPLOYMENT AGREEMENT. The Employment Agreement shall have
been executed and delivered.
(k) RESIGNATIONS OF OFFICERS AND DIRECTORS. Purchaser shall have
received the resignation of each officer and director of the Company.
(l) STOCKHOLDER APPROVAL; DISSENTERS RIGHTS. The stockholders of
the Company shall have approved the Merger and other transactions contemplated
by this Agreement in accordance with the Colorado Business Corporation Act and
the Company's Articles of Incorporation, and the total amount of the Merger
Consideration that would have been payable to the holders of shares that are
Dissenting Shares at the Closing (had they not sought appraisal for their
shares) shall not exceed $1,000.
(m) CORPORATE RECORDS. Purchaser shall have received the Stock
Books, Minute Books and Corporate Seal (if any) of the Company and any other
subsidiary in which the Company may have an interest.
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(n) NO LIEN, INDEBTEDNESS. Except as set forth in SCHEDULE 2.6(a)
attached hereto, the Company shall not be subject to any indebtedness nor shall
any of their properties or assets be subject to liens or encumbrances of any
kind, other than (i) indebtedness and liens for current taxes, wages and
operating expenses in the normal course of business, payment of which at the
time of Closing shall not yet be due; (ii) indebtedness reflected in the
Financial Statements or any loans advanced to the Company subsequent to the
Financial Statement Date that are approved by Purchaser; (iii) accounts payable
incurred in the ordinary course of business subsequent to the Financial
Statement Date; and (iv) Permitted Encumbrances.
(o) NO ATTACHMENT. None of the assets or properties of the
Company shall have been attached or levied upon or placed in the hands of a
receiver or assignee for the benefit of creditors. No petition or similar
instrument shall have been filed with respect to the Company under any
bankruptcy or insolvency law, and no injunction or restraining orders shall have
been instituted against the Company that would have a material adverse effect on
the Company.
(p) INDEMNIFICATION AGREEMENTS. Sipes shall have executed and
delivered to Purchaser an Indemnification Agreement in the form of EXHIBIT
3.1(p) ("Indemnification Agreement").
3.2 CONDITIONS PRECEDENT TO COMPANY'S OBLIGATIONS. The obligations of
the Company to consummate the transactions contemplated by this Agreement shall
be subject to the satisfaction, on or before the Closing Date, of each of the
following conditions, all or any of which may be waived, in whole or part, by
the Company:
(a) REPRESENTATIONS TRUE AT CLOSING. The representations and
warranties made by Purchaser in this Agreement or the attachments hereto shall
be true and correct in all material respects on the Closing Date with the same
force and effect as though such representations and warranties had been made on
and as of such time, except for changes contemplated by this Agreement.
(b) COVENANTS. Purchaser shall have duly performed in all
material respects all of the covenants, acts and undertakings to be performed by
it on or prior to the Closing Date pursuant to the terms of this Agreement.
(c) ABSENCE OF ADVERSE CHANGE. Purchaser shall not have suffered
any material adverse change in its financial condition, business, property or
assets since the date of this Agreement.
(d) SECRETARY'S CERTIFICATE. The Company shall have received a
certificate of the Secretary, Assistant Secretary or other officer of Purchaser
certifying (i) Purchaser's articles of incorporation and bylaws; (ii) the
incumbency of all officers of Purchaser having authority to execute and deliver
this Agreement and the agreements and documents contemplated hereby; and (iii)
resolutions of Purchaser's board of directors approving the execution, delivery
and performance of this Agreement.
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(e) OFFICER'S CERTIFICATE. The Company shall have received a
certificate from the President or a Vice President of Purchaser as to the
matters set forth in Sections 3.2(a), 3.2(b) and 3.2(c).
(f) OPINION OF PURCHASER COUNSEL. An opinion of counsel for
Purchaser shall have been delivered to the Company dated as of the Closing Date,
substantially in the form and substance of the opinion attached as EXHIBIT
3.2(f).
(g) CONSENTS AND WAIVERS. Purchaser shall have obtained and the
Company shall have received a true and correct copy of the consents and waivers
described in SCHEDULE 3.2(g) hereof or otherwise required for the execution of
this Agreement and the consummation of the transactions contemplated hereby;
provided that Purchaser shall pay the costs associated with obtaining the
transfer of the Company's certificate of public convenience and necessity to
provide resold operator services.
(h) APPROVALS. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby shall have been
approved by all regulatory authorities, if any, whose approvals are required by
law.
(i) NO LITIGATION OR OTHER PROCEEDINGS. No action, proceeding,
investigation, regulation or legislation shall have been instituted, threatened
or proposed before any court, governmental agency or legislative body to enjoin,
restrain, prohibit or obtain substantial damages in respect of, or which is
related to, or arises out of, this Agreement or consummation of the transactions
contemplated hereby.
(j) STOCKHOLDER APPROVAL; DISSENTER'S RIGHTS. The stockholders of
the Company shall have approved the Merger and other transactions contemplated
by this Agreement in accordance with the Colorado Business Corporation Act and
the Company's Articles of Incorporation, and the total amount of the Merger
Consideration that would have been payable to the holders of shares that are
Dissenting Shares at the closing had they not sought appraisal for their shares
shall not exceed $1,000.
(k) EMPLOYMENT AGREEMENT. Purchaser shall have executed the
Employment Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company makes
the representations and warranties set forth below, except as set forth in the
Disclosure Schedule. Each exception to the representations and warranties set
forth in the Disclosure Schedule shall reference by Section number the
representation and/or warranty to which it applies.
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(a) ORGANIZATION AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Wyoming, and is duly qualified to do business as a foreign
corporation in good standing in each jurisdiction in which the properties owned,
leased or operated by it, or the nature of its activities or proposed activities
makes such qualification necessary, except in such jurisdictions where the
failure to be so qualified or in good standing would not have a material adverse
effect on the business, results of operations or financial condition of the
Company taken as a whole. The Company has all required corporate power and
authority to own properties and to carry on its business as now conducted. The
Company has furnished to Purchaser accurate and complete copies of the Articles
of Incorporation and Bylaws as in effect on the date hereof. Attached hereto as
SCHEDULE 4.1(a) is a list of all of the states in which the Company is qualified
to do business as a foreign corporation or in which qualification is necessary
or desirable to carry on the business and operations of the Company as presently
conducted. The Company has no other subsidiaries or affiliates.
(b) CORPORATE AUTHORIZATION. The Company has all power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of the Company and as such all
corporate action necessary for the approval or ratification of this Agreement
has been taken and no other corporate proceedings on the part of the Company is
necessary to authorize the execution and delivery of this Agreement or to
consummate the transactions so contemplated (subject to the approval and
adoption of this Agreement and the transactions contemplated hereby by the
stockholders of the Company required in accordance with the Colorado Business
Corporation Act, and the Articles of Incorporation and Bylaws of the Company).
(c) BINDING EFFECT. This Agreement constitutes a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except to the extent that the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and by principles
of equity regarding the availability of remedies.
(d) CONSENTS. Except as set forth in SCHEDULE 3.1(g) and/or the
Disclosure Schedule, there are no consents, authorizations, approvals (other
than stockholder approval as set forth in Section 2.2 hereof), governmental,
judicial, administrative or other, under any Contract, lease, License, Permit,
indenture, promissory note, agreement, mortgage or any other instrument to which
the Company is a party or is bound or to which its assets are subject or under
any statute, rule, regulation, judgment, decree or order of any court, agency or
other authority to which jurisdiction the Company is subject, which are required
for the execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
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(e) CAPITALIZATION.
(i) The authorized capital stock of the Company consists
of 50,000 shares of Common Stock, of which 10,200 shares are issued and
outstanding. SCHEDULE 4.1(e)(i) attached hereto includes a complete and correct
list of the present stockholders of record of the Company, showing the number of
shares of Stock owned by each such stockholder as well as the other information
to be set forth therein. All of the issued and outstanding Stock of the Company
has been duly authorized, is validly issued, fully paid and nonassessable. All
indebtedness of the Company for money borrowed as of the date hereof is
reflected on SCHEDULE 2.6(a) attached hereto. SCHEDULES 4.1(e)(i) and 2.6(a)
shall be updated by the Company on the Closing Date and as often as is necessary
for such schedules to remain true and accurate.
(ii) SCHEDULE 4.1(e)(ii) attached hereto includes a
complete and correct list of the Company's outstanding options to purchase its
capital stock ("Outstanding Options") and the Company's outstanding warrants to
purchase its capital stock ("Outstanding Warrants"), in each case showing the
date of issuance, the expiration date, the exercise price, the holders thereof
and the number of shares of capital stock subject thereto. The Company has
furnished to Purchaser accurate and complete copies of the Outstanding Options
and Outstanding Warrants. The copies of the Outstanding Options and Outstanding
Warrants represent the terms, conditions, provisions, agreements, obligations
and undertakings of the Company with respect to all Outstanding Options and
Outstanding Warrants. Except for the Outstanding Options and the Outstanding
Warrants, the Company does not have outstanding any stock or other securities
which are, in either case, convertible into or exchangeable for any shares of
its Stock, any warrants, options, purchase rights, subscription rights or other
contract rights or commitments or appreciation, phantom stock, profit
participation or similar rights to purchase or acquire any shares of its Stock
or any stock or securities convertible into or exchangeable for any of the Stock
of the Company and is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock. No
stockholder of the Company has any preemptive or other purchase rights with
respect to the issue or sale of any Stock. The Company's stock transfer records
accurately reflect all issuances and transfers of Stock and other securities and
the minutes of meetings of incorporators, directors and stockholders completely
and correctly reflect all of their respective actions in all material respects.
(f) FINANCIAL STATEMENTS. As soon as possible, and in any event
prior to the Closing Date, the Company shall furnish Purchaser with the
following financial statements:
(i) an unaudited balance sheet of the Company for the
fiscal years ended December 31, 1996 and December 31, 1997, and the related
statements of income and retained earnings and changes in financial position of
the Company for such periods; and
(ii) an unaudited balance sheet of the Company as at
February 28, 1998 ("Financial Statement Date"), and the related statements of
income and retained earnings of the Company for the two (2) month period then
ended.
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Such financial statements, including any related schedules and notes
thereto (the "Financial Statements"), have been prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied
throughout the period or periods in question (except as specifically disclosed
therein) and show all liabilities, direct or contingent, of the Company required
to be shown in accordance with GAAP consistently applied throughout the period
or periods in question (except as specifically disclosed therein) and fairly
present the financial position and the results of the Company for the periods
indicated therein.
(g) NO ADVERSE CHANGE IN FINANCIAL CONDITION. Since the Financial
Statement Date, there has not been (i) any event, condition or fact that has
resulted or may reasonably be expected to result in any material adverse change
in the financial condition, business, sales, income, properties, assets or
liabilities of the Company shown on the Financial Statements; or (ii) any
material adverse change with respect to any Contract to which the Company is a
party or any event, circumstance, fact or other occurrence which may result in
any material adverse change to the condition (financial or otherwise), results
of operations, business, sales, income, properties or assets of the Company; or
(iii) any material damage, destruction or loss to the properties, assets or
business of the Company, whether or not covered by insurance, as the result of
any fire, explosion, accident, casualty, labor disturbance or interruption,
requisition or other taking of property by governmental body or agency, flood,
embargo, or act of God or the public enemy, or cessation, interruption or
diminution of operations, whether or not covered by insurance, which has
materially and adversely affected or impaired or which could reasonably be
expected to materially or adversely affect or impair the conduct of the
operations or business of the Company; or (iv) any labor trouble other than
routine grievances (including without limitation any negotiation, or request for
negotiation, for any representation or any labor contract) or to the Company's
knowledge any event or condition of any character which has materially and
adversely affected or which may be reasonably expected to materially and
adversely affect or impair the conduct of the Company's operations or business;
or (v) any declaration, setting aside, or payment of, any dividend or any
distribution, in respect of the Common Stock; or (vi) any redemption, purchase
or other acquisition by the Company of any shares of the Common Stock; or (vii)
any significant loss of customers of the Company.
(h) ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the
extent reflected or reserved against in the Financial Statements, the Company
does not have any liabilities, debts or obligations, whether absolute, accrued,
contingent, unliquidated or otherwise and whether due or to become due
(including without limitation any liability for breach of contract, breach of
warranty, torts, infringements, claims or lawsuits), arising out of any
transaction entered into on or prior to the Financial Statement Date, other than
contractual obligations incurred in the ordinary course of business not required
to be disclosed in accordance with GAAP.
(i) TITLE TO PROPERTIES; LIENS. SCHEDULE 4.1(i) attached hereto
sets forth, as of the date hereof, an accurate and complete list of all leases
and purchases and ownership by the Company of all real properties, license
agreements and all leases and purchases and ownership of all personal properties
(covering properties with a purchase price as of the date hereof greater than
$1,000) to which the Company is a party (whether as purchaser, lessor, lessee,
licensor or licensee) collectively the "Leases and Licenses". The Company, as
lessee or licensee, has entered
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into all such Leases and Licenses which the Company reasonably believes may be
necessary for the conduct of its business and operations as now conducted. The
Company has furnished to Purchaser accurate and complete copies of all such
Leases and Licenses. The Company has title to each of the leasehold and other
interests created by the Leases and Licenses free and clear of all security
interest, claims, liens and encumbrances of any nature, other than Permitted
Encumbrances. To the best of the knowledge of the Company, each such Lease and
License is in full force and effect. Each Lease and License constitutes the
legal, valid and binding obligation of the Company, to the knowledge of the
Company, enforceable against the Company in accordance with its respective terms
accept as may be limited by bankruptcy, insolvency, reorganization, readjustment
of debt, moratorium, general principles of equity or other laws of general
application related to or affecting the enforcement of creditors rights
generally. The Company has not received notice, or does not have any reason to
know, of any claim of default under any such Lease or License. All Leases are
fully effective and afford the Company, peaceful and undisturbed possession of
the property which is the subject matter of each such Lease. All of the
Contracts, agreements, Permits, authorizations and other intangible assets of a
similar nature of the Company are valid and binding obligations of the parties
thereto, and the Company does not have any knowledge of an intention of or basis
(other than the terms thereof) for any termination of any such intangible assets
by any party.
(j) MARKETABLE TITLE. Except for Permitted Encumbrances (as
defined herein) or as set forth on SCHEDULE 4.1(j) attached hereto, the Company
has good and marketable title to all of its assets and property as set forth in
the SCHEDULE 4.1(i) attached hereto, free and clear of all mortgages, liens,
pledges, charges, claims (real or assertive) or encumbrances of any nature
whatsoever.
(k) CONDITION OF TANGIBLE ASSETS. All material tangible portions
of the assets and properties owned by the Company, including all real properties
or leasehold interest in real property and structures thereon, are to the best
of the Company's knowledge, in good condition and repair, subject only to
ordinary wear and tear in light of their respective ages and there respective
uses for which they are currently used. The uses of the tangible properties and
assets conform and comply in all material respects with all rules, regulations
and standards applicable to the Company or its assets or properties, imposed by
applicable federal, state or local laws or regulations.
(l) ALL ASSETS. The properties and assets of the Company as of
the date hereof and the Closing Date include (i) all properties and assets
whether or not reflected on the balance sheet included in the Financial
Statements, including Licenses, Permits, Leases, Contracts, customer lists,
goodwill and any other tangible or intangible assets as disclosed in the
Schedules attached to this Agreement, and (ii) assets and properties acquired by
the Company after the Financial Statement Date up to and including the Closing
Date as set forth in SCHEDULE 4.1(l) which will be updated immediately prior to
Closing, other than such properties and assets as shall have been transferred or
otherwise disposed of by the Company in the ordinary course of business as shall
be disclosed in SCHEDULE 4.1(l) (collectively, the "Assumed Assets").
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(m) CERTAIN TAX MATTERS. The Company has prepared and duly filed
(and to the best of its knowledge has done so accurately and correctly) all
federal, state, county and local income, franchise, use, real property and
personal property tax returns and reports required to be filed as of the date
hereof with respect to the Company and has duly paid, withheld or reserved for
all taxes, penalties and other governmental charges required to be paid that
have been assessed or levied against or upon the Company or any of its
properties, assets, income, franchises, licenses or sales, including without
limitation, income, gross receipt, property taxes or to the extent that they
relate to periods on or prior to the Financial Statement Date are reflected as a
liability on the Financial Statements, or if not paid, is contesting such amount
in good faith by appropriate proceedings. In the event the Company is
contesting such amounts in good faith, the Company has established or reserved
accounts sufficient to satisfy the assessment or levy being contested which
reserve accounts shall automatically transfer to the Surviving Corporation as a
result of the Merger. The Company does not know and has no reason to know of any
proposal by any taxing authority for additional taxes or assessments against or
upon the Company. To the best of the knowledge of Company all monies required
to be held by the Company from employees for income taxes, social security and
unemployment insurance taxes, have been collected or withheld or either paid to
the respective governmental agencies or set aside in cash for such purpose. The
Company has not entered into any agreement for the extension of time or the
assessment of any tax or tax delinquency, nor has the Company received any
outstanding or unresolved notices from the Internal Revenue Service or any
taxing authority of any proposed examination or any proposed deficiency or
assessment or of any tax returns or tax liabilities due and payable. The
Company is not a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code. The Company has delivered to
Purchaser an accurate, correct and complete copy of each return or statement
filed by on behalf of or including the Company for federal income tax purposes
or state and local income or franchise tax purposes for the last three (3) tax
years of the Company. All material elections with respect to the taxes
affecting the Company as of the date hereof are set forth in SCHEDULE 4.1(m)
attached hereto. After the date hereof, no written election will be made by the
Company without the Purchaser's express written consent.
(n) FINANCIAL DISCLOSURE. The Company has made available to the
Purchaser all information known to the Company with respect to (i) accounts,
borrowings resolutions and deposit boxes maintained by the Company at any bank
or any financial institution and the account numbers and the names and addresses
of all the persons authorized to effect transactions in such accounts and
pursuant to such resolutions and with access to such boxes, and (ii) the names
of all persons, firms, associations, corporations or business organizations
holding general or special powers of attorney from the Company. A summary of
the terms of any such powers of attorney is set forth on SCHEDULE 4.1(n)
attached hereto.
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(o) INSURANCE. SCHEDULE 4.1(o) attached hereto sets forth, as of
the date hereof, an accurate and complete list and brief description of the
terms of all policies of insurance carried by the Company and designating the
Company as the insured thereunder. The description of each policy consists of a
description of the subject property, the insurance coverage, the deductibles and
the additional insurance. The Company has furnished to Purchaser an accurate
and complete copy of all such insurance polices. No insurance carrier has
refused any application for insurance by the Company or any other person on
behalf of the Company on any of its properties or assets.
(p) PATENTS, TRADE SECRETS, ETC. SCHEDULE 4.1(p) attached hereto
sets forth, as of the date hereof, an accurate and complete list of all letters
patent, patents applications, trade marks, service marks, trade names, brands,
logos, copyrights and licenses, both domestic and foreign, and rights with
respect to the foregoing, whether or not registerable with any governmental
authority, now owned or used by the Company. In addition, SCHEDULE 4.1(p)
attached hereto includes a separate list of all products, prototypes and
research work which is currently being undertaken by the Company to develop
products as well as drawings, schematics, engineering specifications, reports
and other similar instruments and documents used in the connection with the
development of such product to be owned or used in connection with the business
of the Company (collectively "Development Products"). The Company has not
received notice, or otherwise has no reason to know, of any claim or threatened
infringement of the rights of others with respect to any patents, trademarks,
service marks, trade names, brands, logos, copyrights and licenses used or owned
by the Company, the loss of which would have a material adverse effect upon the
business, operations, assets or financial condition of the Company. The Company
possess all patents, patent rights or licenses, trademarks, trademark rights and
copyrights that are required to conduct its business as now conducted. To the
best of the Company's knowledge, the Company owns all trade secrets and all
other rights to all Development Products which are being developed by the
Company, which may or may not be patented or patentable. The Company has no
knowledge that it is infringing upon or otherwise violating the rights of any
third party with respect to any patent, trademark, trade name, service mark or
copyright. The Company has the right to use, free and clear of claims or rights
of others, all trade secrets, customer lists and manufacturing or other
processes required for, used or to be used in, or incident to its business as
now conducted, and to the best knowledge of the Company and its executive
officers, after due inquiry, no current or former employee of the Company is or
was a party to any confidentiality agreement and/or agreement not to compete
which restricts or forbids or restricted or forbade at any time during such
employee's employment by the Company, such employee's performance of the
Company's business, as the case may be, or any activity that the employee has
been hired to perform. To the best knowledge of the Company, the Company is not
now using, and has not in the past used without appropriate authorization, any
confidential information or trade secrets of any third party. The Company has
not received any notice alleging such conduct.
(q) NO CONFLICTS. The execution, delivery and performance of this
Agreement, and the performance of the transactions contemplated hereby and the
compliance with the respective terms hereof by the Company, do not and will not
(i) conflict with or result in a breach of the terms, conditions or provisions
of, (ii) constitute a default under, (iii) result in the creation of any lien,
security interest, charge or encumbrance upon the Company's capital stock or
assets,
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(iv) give any third party the right to accelerate any obligation under, or (v)
result in a violation of (A) the Articles of Incorporation or Bylaws of the
Company or any other organization or governing instrument of the Company, (B)
any Contract, Lease, indenture, promissory note, agreement, mortgage or other
instrument to which the Company is a party or is bound or to which its assets
are subject or affected, or (C) any law, License, Permit, statute, rule,
regulation, judgment, decree or order of any Court, agency or other authority to
which jurisdiction the Company is subject.
(r) LITIGATION, ETC. There are no actions, suits, proceedings,
arbitration proceedings, orders, investigations or claims pending or threatened
against or affecting the Company or any of its properties at law or in equity,
or before or by any governmental or other department, commission, board, bureau,
agency or instrumentality; there are no governmental inquiries (including
inquiries as to the qualification of the Company to hold or receive any License
or Permit) pending; and, to the best of the Company's knowledge, there is no
basis for any of the foregoing.
(s) PERMITS. The Company has all franchises, permits, licenses,
governmental authorizations, zoning variances, rights of way, easements and
other authorizations, rights and privileges (collectively "Permits") necessary
to permit it to own its properties and to conduct its business as now conducted.
All such Permits are listed and described in SCHEDULE 4.1(s) attached hereto.
All such Permits are in full force and effect and no revocation, cancellation or
withdrawal thereof has been effective or to the best knowledge of the Company
threatened. Except as disclosed in SCHEDULE 4.1(s) attached hereto, the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereunder will not result in the termination of,
or change in, any such Permits.
(t) NO VIOLATION OF LAWS OR REGULATIONS. To the best knowledge of
the Company, the Company has materially complied with, and is not in any
material respect in default under or in violation of, any laws, ordinances,
requirements, regulations or orders applicable to its business and properties,
including without limitation the rules and regulations of the Federal
Communications Commissions ("FCC") or any state public utilities commission
having jurisdiction over the business and operations of the Company, nor is the
Company in violation of or in default under any order, writ, injunction,
judgment or decree of any court, arbitrator, or federal, state or local
department official, commission, authority, port, bureau, agency or other
instrumentality issued or pending against the Company which might adversely
affect the ability of the Company to execute, deliver and perform its
obligations under this Agreement or to consummate the transactions contemplated
hereby or which challenges or seeks to prevent, enjoin, alter or materially
delay any such transactions. The Company has not received notice or otherwise
has no reason to know, of any claim, default or violation with respect to any of
the foregoing. There have been no illegal payments, kickbacks, bribes or
political contributions made by the Company to any Person in the United States
or any foreign country or political subdivision. The Company does not have any
license or authorization from the FCC or any state public utility commission and
the Company is not required to obtain or have in effect any such permits or
licenses with the FCC or state public utility commission.
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(u) CONTRACTS. SCHEDULE 4.1(u) attached hereto sets forth, as of
the date hereof and as of the Closing Date, an accurate and complete list of the
following:
(i) except for the Leases and Licenses, all agreements,
contracts, arrangements, commitments, understandings or obligations, oral or
written of the Company which are to be performed in whole or in part on or after
the date hereof and which require or may require the payment of Company in an
amount, or under which the Company is required or may be required to provide
goods or services of a value, greater than one thousand dollars ($1,000) during
any period of twelve (12) consecutive months;
(ii) any agreement to which the Company is a party or by
which the properties or assets of the Company are bound which limits the freedom
of the Company to compete in any line of business or with any Persons; and
(iii) all other agreements, contracts, arrangements,
commitments, understandings or obligations, oral or written (other than oral
contracts of employment) between the Company on the one part or any officer or
director of the Company on the other part or in which any of such persons or
entities has any financial interest, direct or indirect (including without
limitation any agreements affecting the properties or assets of the Company and
agreements to make loans). The Company has furnished Purchaser a copy of each
agreement, contract, arrangement, commitment or obligation set forth in SCHEDULE
4.1(u) attached hereto. Collectively, the contracts, agreements, arrangements,
commitments or obligations described in this Section 4.1(u) and listed in
SCHEDULE 4.1(u) are referred to herein as the "Contracts". Each such Contract
is in full force and effect and to the best of the Company's knowledge the
Company has performed in all material respects all of the obligations under each
Contract required to be performed by it, and no such contract is in default, nor
has any event occurred, which with the passage of time or the giving of notice
or both, will result in the occurrence of a default under any such Contract or
in the receipt of any claim of default with respect to any Contract to which the
Company is a party or is otherwise bound or to which its assets are subject.
The Company has no present expectation or intention of not fully
performing in all material respects all such obligations; the Company has no
knowledge of any breach or anticipated breach by other parties of any Contract
or commitment to which it is a party or is otherwise bound; and the Company is
not a party or otherwise bound to any materially adverse or burdensome Contract
or commitment.
(v) CERTAIN CONTRACTS AND COMMITMENTS. Except for the Outstanding
Options and the Outstanding Warrants, the Company is not a party to, or
otherwise bound by, nor has the Company ever established, had in effect,
obligated to fund or make contributions to any written or oral plan, program or
arrangement relating to a pension, profit sharing, retirement savings, thrift,
deferred compensation, stock option, stock purchase, group insurance, accident,
sickness, medical, dental, disability or other plan providing for deferred or
other compensation to employees. Except as set forth in SCHEDULE 4.1(v)
attached hereto, the Company is not obligated to fund any vacation pay,
severance pay, incentive compensation, consulting agreement, bonus or other
employee benefits or fringe benefits either currently or as to any time in the
past (including
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health insurance, life insurance or other benefit plans maintained for retirees
or former employees) whether or not such plan, program and arrangement
constitute "employee benefit plans" within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and
whether or not any such plan, program or arrangement are in the nature of formal
or informal understandings. All such plans, programs and arrangements referred
to in this Section 4.1(v) are collectively referred to herein as "Benefit
Plans".
(w) EMPLOYEES AND LABOR. The Company is not aware that any
executive or key employee, or any group of employees of the Company has any
plans to terminate his, her or their employment with the Company, or that any
executive or key employee is subject to any agreement, obligation or other legal
hindrance that impedes or might impede such executive or key employee from
devoting his or her full business time to the affairs of the Company. The
Company has complied in all material respects with all laws relating to wages,
hours, equal opportunity, collective bargaining and the payment of social
security and other taxes, and the Company has no material labor relations
problems. Except as reflected on the Financial Statements, the Company is not
indebted to any officer, director or employee whether by loan, advance or
otherwise, other than for out-of-pocket expenses incurred in the ordinary course
of business, nor is any officer, director, employee or shareholder so indebted
to the Company. SCHEDULE 4.1(w) attached hereto describes the respective
salaries as in effect on the date hereof for the employees who constitute the
sole officers and employees of the Company. The Company is not a party to any
agreement, contract, arrangement, plan, commitment or understanding which has
resulted or would result, upon the consummation of the transactions contemplated
under this Agreement or otherwise, separately or in the aggregate, in the
payment of any "excess parachute payment" within the meaning of Section 280G of
the Code. The Company is not a party to any Benefit Plan, or any Contract,
whether collective bargaining agreements or other arrangements with any labor
union or any employment or consulting contracts not terminable at will without
penalty to which the Company is a party.
(x) ERISA. The Company has fulfilled its obligations under the
minimum funding standards of ERISA and the Code with respect to each Pension
Plan (as defined in Section 4001 of ERISA), and is in compliance in all material
respects with the provisions of ERISA and the Code. The Company has not
incurred any liability to the Pension Benefit Guaranty Corporation ("PBGC")
(other than annual premiums due to the PBGC) or a Pension Plan under Title IV of
ERISA. SCHEDULE 4.1(x) attached hereto lists each employee Benefit Plan covered
by ERISA maintained or contributed to by the Company at any time since January
1, 1990. The Company is not subject to any obligations or liabilities under
COBRA or any other employee Benefit Plan existing prior to, but not on or after,
January 1, 1990.
(y) ENVIRONMENTAL MATTERS. To the best knowledge of the Company,
the Company has duly complied with, and the operation of its businesses,
equipment and other assets in the facilities owned or leased by the Company are
in compliance with the provisions of all applicable federal, state and local
environmental, health and safety laws, statutes, ordinances, rules and
regulations of any governmental or a quasi governmental authority relating to
(i) errors or omissions, (ii) discharges to surface water or ground water, (iii)
solid or liquid waste disposal, (iv) the use, storage, generation, handling,
transport, discharge, release or disposal of toxic or
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hazardous substances or waste, (v) the emission of non-ionizing electromagnetic
radiation or (vi) other environmental, health or safety matters, including
without limitation, the Comprehensive Environmental Response Compensation and
Liability Act of 1980 as amended by the Superfund Amendments and Authorization
Act of 1986; the Occupational Safety and Health Act; the Resource Conservation
Recovery Act of 1976; the Federal Water Pollution Control Act of 1970; the Safe
Drinking Water Act of 1974; the Toxic Substances Control Act of 1976; the
Emergency Planning Community Right to Know Act of 1986, as amended; and the
Clean Air Act, as amended, (collectively "Environmental and Health Laws") or the
Federal Communications Act, as amended, ("FCC Law"). To the best knowledge of
Company, there are no investigations, administrative proceedings, judicial
actions, orders, claims or notices which are pending, anticipated or threatened
against the Company, relating to violations of the Environmental and Health Laws
and the FCC Law. The Company has not received a notice of, and does not know or
have any reason to suspect, any facts which constitute a violation of any
Environmental and Health Laws or the FCC Law which relate to the use, ownership
or occupancy of any property or facilities used by the Company in connection
with the operation of its business or any activity of the business of the
Company which would result in a violation or threatened violation of any
Environmental or Health Laws or the FCC Law.
(z) ACCOUNTS RECEIVABLE. All of the accounts receivable of the
Company constitute valid receivables, have been incurred in the ordinary course
of business consistent with past practices and, to the knowledge of the Company,
are collectable in the ordinary course of business, except for the reserve for
bad debts or doubtful accounts as reflected in the Financial Statements and are
not subject to any setoffs or counterclaims. To the Company's knowledge, no
part of such accounts receivable is contingent upon the performance by the
Company of any obligation, and no agreements for deduction or discounts have
been made with respect to any part of such receivables. The Company shall
deliver a SCHEDULE 4.1(z) at the Closing listing all of the accounts receivable
of the Company as of the Closing Date.
(aa) PAYABLES. The list of itemized accounts payable of the
Company as shown in SCHEDULE 2.6(d)-1 attached hereto and such payables to be
shown in SCHEDULE 2.6(d)-1 to be updated with SCHEDULE 2.6(d)-2 at the Closing
will represent a complete list of the accounts payable of the Company to its
creditors other than those not posted to the Company's accounting records that
were incurred in the ordinary course of business. Except as set forth in
SCHEDULE 2.6(d)-1 attached hereto none of the accounts payable as so listed are
currently in default.
(bb) DIRECTORS AND OFFICERS. The SCHEDULE 4.1(bb) attached hereto
is a correct and complete list as of the date hereof showing the names of each
of the Officers and Directors of the Company, each of whom has been duly elected
or appointed.
(cc) INVENTORY. The inventories of finished goods, work in process
and raw materials of the Company, including, without limitation, those set forth
on the Company's balance sheet as of the Financial Statement Date, other than
inventory sold in the ordinary course of business sold through the Closing Date
(collectively, the "Inventory"), are of a quality usable or saleable in the
normal course of the Company's business. The value of the Inventory as carried
on the Company's books and records reflect the normal inventory valuation policy
used by the
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Company and is in accordance with generally accepted accounting principles,
consistently applied, stating the value of the Inventory at the lower of cost or
market on a specific identification basis.
(dd) FULL DISCLOSURE. None of the written information provided by
the Company to Purchaser in connection with the negotiation of this Agreement
contains any intentionally misleading statement of a material fact. There is no
fact which the Company has not disclosed to Purchaser in writing which
materially affects or which will materially affect adversely the Company's
business, sales, income, properties, assets, liabilities, activities, customers,
or the ability of the Company to perform under this Agreement.
4.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER AND GUARANTOR.
Purchaser and Guarantor represent and warrant to the Company as follows:
(a) ORGANIZATION AND CORPORATE POWER OF PURCHASER AND GUARANTOR.
Each of Guarantor and Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and is duly qualified to do business as a foreign corporation in
good standing in each jurisdiction in which the properties owned, leased or
operated by it, or the nature of its activities or proposed activities makes
such qualification necessary, except in such jurisdictions where the failure to
be so qualified or in good standing would not have a material adverse effect on
the business, results of operations or financial condition of the Guarantor or
Purchaser, as the case may be, and its subsidiaries taken as a whole. Each of
Guarantor and Purchaser has all required corporate power and authority to own
its property and to carry on its business as now conducted.
(b) CORPORATE AUTHORIZATION. Each of Guarantor and Purchaser has
full power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement, and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all corporate action on the part of
each of Guarantor and Purchaser, and no other corporate proceedings on the part
of either of Guarantor or Purchaser are necessary to authorize the execution and
delivery of this Agreement or to consummate the transactions so contemplated.
(c) BINDING EFFECT. This Agreement constitutes the legal, valid
and binding agreement of each of Guarantor and Purchaser enforceable against
Guarantor and Purchaser in accordance with its terms, except to the extent that
the enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditor's
rights generally and by principles of equity regarding the availability of
remedies.
(d) NO CONFLICTS. The execution, delivery and performance of this
Agreement, and the performance of the transactions contemplated hereby and the
compliance with the respective terms hereof by each of Guarantor and Purchaser,
do not and will not (i) conflict with or result in a breach of the terms,
conditions or provisions of, (ii) constitute a default under, (iii) result in
the creation of any lien, security interest, charge or encumbrance upon
Guarantor's or Purchaser's capital stock or assets pursuant to, (iv) give any
third party the right to accelerate any obligation under, (v) result in a
violation of, or (vi) require any authorization, consent, approval,
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exemption or other action by or notice to any court or administrative or
governmental body or any other Person pursuant to (A) the Articles of
Incorporation or Bylaws of Guarantor or Purchaser or any other organization or
governing instrument of Guarantor or Purchaser, (B) any Contract, Lease,
indenture, promissory note, agreement, mortgage or other instrument to which
Guarantor or Purchaser is a party or is bound or to which their assets are
subject or affected, or (C) any law, License, Permit, statute, rule, regulation,
judgment, decree or order of any Court, agency or other authority to which
Guarantor or Purchaser is subject.
ARTICLE V
COVENANTS OF THE COMPANY
5.1 COVENANTS OF THE COMPANY. The Company covenants and agrees that:
(a) CONDUCT OF THE COMPANY. From the date hereof until the
Effective Time, the Company will conduct its business in the ordinary course
consistent with past practice and will use its best efforts to preserve intact
its business organization and relationships with third parties and to keep
available the services of its present officers and employees. Without limiting
the generality of the foregoing, from the date hereof until the Effective Time
and without the written consent of Purchaser:
(i) The Company will not declare, set aside or pay any
dividend or other distribution with respect to any shares of Stock of the
Company;
(ii) The Company will not amend or alter any material term
of any outstanding Stock;
(iii) The Company will not (A) issue or sell any securities
convertible into or exchangeable for debt securities of the Company; or (B)
issue or sell any options, warrants or other rights to acquire from the Company,
directly or indirectly, any debt securities of the Company or any securities
convertible into or exchangeable for any such debt securities;
(iv) The Company will not create, assume or incur any lien
on any material asset of the Company that will not be discharged at the Closing;
(v) Except as set forth in SCHEDULE 5.1(a)(v) attached
hereto and except for the issuance of shares pursuant to the exercise of the
Outstanding Options or the Outstanding Warrants, the Company will not (A) issue
or sell any additional Stock or (B) redeem, repurchase or otherwise acquire any
additional Stock;
(vi) The Company will not relinquish any material contract
or other material right of the Company, make any payment (direct or indirect) of
any liability of the Company before the same becomes due in accordance with its
terms or make any change in its operations that is in any such case material to
the Company, its business, prospects and financial condition taken as a whole;
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(vii) The Company will not adopt any change in any method of
accounting or accounting practice used by the Company other than by reason of a
concurrent change in GAAP and upon the recommendation of the Company's
independent public accountants;
(viii) Except for the agreements referenced in SCHEDULE
5.1(a)(viii), which the Company may amend with the prior written consent of
Purchaser (which will not be unreasonably withheld), the Company will not (A)
grant or make any severance or termination payments to any officer, director or
employee of the Company, except pursuant to written agreements in effect on the
date hereof, (B) enter into any employment, deferred compensation or other
similar agreement (or enter into any amendment to any such existing agreement)
with any officer, director or employee of the Company, (C) without the consent
of Purchaser pay any officer, director, or employee compensation which is in
excess of the current compensation level of each employee, officer or director,
except for standard periodic increases to non-management employees consistent
with past practices in terms of timing and amount; (D) materially accelerate or
increase benefits payable under any existing severance or termination pay
policies or employment agreements, or (E) accelerate, vest, pay or provide for
any increase in compensation, bonus, or other benefits payable to officers,
directors or employees of the Company except for normal increases to
non-managerial employees consistent with past practice, to the extent required
under existing employment and labor agreements.
(ix) The Company will not amend its Articles of
Incorporation or Bylaws or change its corporate name or permit the use thereof
by any other Person;
(x) Subject to the fiduciary duties of its Board of
Directors, the Company will not merge or consolidate with any Person, acquire
any stock or other ownership interest in any Person, or the assets of any
business as an entity, or liquidate, dissolve or otherwise reorganize or seek
protection from creditors;
(xi) Subject to the fiduciary duties of its Board of
Directors, the Company will not intentionally take any action, the taking of
which, would reasonably be expected to cause any of the representations and
warranties in Section 4.1 hereof to be inaccurate in any material respect at or
as of any time prior to the Effective Time;
(xii) Except for the sale of inventory and the disposition
of obsolete or defective equipment or other assets in the ordinary course of
business, the Company will not sell, transfer, mortgage, or otherwise dispose
of, or encumber, or agree to sell, transfer, mortgage or otherwise dispose of or
encumber, any assets or properties, real, personal or mixed; provided, that
Sipes shall be allowed to retain the personal items listed in SCHEDULE
5.1(a)(xii);
(xiii) Subject to the fiduciary duties of its Board of
Directors, the Company will not (A) enter into any other agreements, commitments
or contracts (including without limitation joint venture agreements or material
license agreements) which, individually or in the aggregate, are material to the
Company, except agreements, commitments or contracts for the purchase, sale or
lease of goods or services, consistent with past practice or (B) otherwise
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make any material change in any existing material agreement, commitment or
arrangement, except in the ordinary course of business;
(xiv) The Company will not make any investment of a capital
nature either by purchase of stock or securities, contributions to capital,
property transfers or otherwise, or by the purchase of any property or assets of
any other Person, except the purchase of fixed assets as permitted by Section
5.1(a)(xv) hereof;
(xv) The Company will not purchase any fixed assets which,
singly or in the aggregate have an installed purchase price greater than $1,000;
(xvi) The Company will not distribute or otherwise circulate
any notices, directives or other communications directed to all or groups of
customers, vendors, employees, distributors or others associated with its
business without consulting with Purchaser and giving Purchaser reasonable
opportunity to comment thereon;
(xvii) The Company will not make any changes in management
without prior written consent of Purchaser;
(xviii) The Company will not increase the amount of any
indebtedness outstanding under any loan agreement, mortgage or borrowing
arrangement in existence on the date hereof or obtain any additional loans or
incur any additional indebtedness, unless the Company first advises Purchaser
and receives Purchaser's consent thereto (which consent shall not be
unreasonably withheld);
(xix) The Company shall pay when due in accordance with past
practices all of its accounts payable and trade obligations;
(xx) The Company shall use its best efforts to maintain its
facilities, assets and properties in good operating repair, order and condition,
reasonable wear and tear excepted, and notify Purchaser promptly upon any loss
of, damage to, or destruction of any of its facilities, properties or assets;
(xxi) The Company shall maintain in full force and effect
all insurance coverage of the types and in the amounts set forth in the
Schedules attached hereto and apply the proceeds received under any insurance
policy or as a result of, damage to, or destruction of any of its facilities,
properties or assets to the repair or replacement of such facilities, properties
or assets;
(xxii) The Company shall maintain in full force and effect
all Licenses and Permits, and shall use its best efforts to maintain in full
force and effect all Leases and Contracts, for or related to the operation of
the Company's business and in all respects and in all places as such business is
now conducted;
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(xxiii) The Company shall use its best efforts to preserve its
business organizations intact, to keep available the services of its present
employees and to preserve the good will of its customers and others having
business relations with the Company;
(xxiv) The Company shall promptly advise Purchaser in writing
of the commencement of, and any known threat to commence, any suit, claim,
action, arbitration, legal or administrative proceedings, governmental
investigation or tax audit against the Company;
(xxv) The Company shall deliver to Purchaser as soon as
available monthly financial statements ("Monthly Financial Statements") of the
Company commencing with the month of January, 1998, and for each calendar month
thereafter prior to the Closing Date;
(xxvi) Promptly following the execution of this Agreement,
the Company shall have notified any Person having Outstanding Options of the
matters contemplated by the Company's outstanding stock option plans, and any
Person having Outstanding Warrants of the matters as to which notice is required
to be given in accordance with their respective notice provisions. The Company
shall use its best efforts to obtain from the holders of the Outstanding
Warrants and Outstanding Options listed in SCHEDULE 5.1(a)(xxvi) attached hereto
a written agreement as to the termination and cancellation of their Outstanding
Warrants and Outstanding Options.
(xxvii) The Company shall pay all payroll withholding expenses
with respect to the exercise, prior to the Closing Date, of any Outstanding
Options or Outstanding Warrants outstanding as of the date hereof and all other
expenses and costs incurred by the Company in the ordinary course of business as
such expenses and costs shall become due and payable.
(xxviii) The Company shall not incur any liability or be
obligated to fund any vacation pay, severance pay, incentive, compensation,
consulting agreement, bonus or other employee benefit or fringe benefit. The
Company shall not incur any additional accounts payable between the date hereof
and the Closing Date other than in the ordinary course of business without
Purchaser's express written consent.
(xxix) The Company shall not agree or commit to do any of the
matters specified in Section 5.1(a)(i) through 5.1(a)(xviii) and Section
5.1(a)(xxviii) hereof and the Company will take action and perform the matters
set forth in Sections 5.1(a)(xix) through 5.1(a)(xxvii) hereof.
(b) ACCESS TO INFORMATION. The Company will give Purchaser, its
counsel, financial advisors, auditors and other authorized representatives full
access to the offices, properties, books and records of the Company and will
promptly furnish to Purchaser, its counsel, financial advisors, auditors and
authorized representatives such financial and operating data and other
information as such persons may reasonably request and will instruct the
officers, directors, employees, counsel and financial advisors of the Company to
discuss the business operations, affairs and assets of such corporations and
otherwise fully cooperate with the other party in its
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investigation of the business of the Company. No investigation pursuant to this
Section 5.1(b) will affect any representation or warranty given by the Company
to Purchaser hereunder.
(c) NOTICE OF CERTAIN EVENTS. The Company will promptly notify
Purchaser of:
(i) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement;
(iii) any actions, suits, claims, investigations or
proceedings commenced or, to the best of the Company's knowledge, threatened
against, relating to or involving or otherwise affecting the Company which
relate to the consummation of the transactions contemplated by this Agreement or
which, if pending on the date of this Agreement, would have been required to
have been disclosed in the Disclosure Schedule; and
(iv) any other event or change of fact or circumstance
causing any representation contained in Section 4.1 of this Agreement to be, as
of the date of such event or change, incorrect or misleading in any material
respect.
(d) CONSENTS, APPROVALS AND FILINGS. Subject to the terms and
conditions herein provided and without being required to waive any conditions
herein, the Company will use its best efforts to obtain as promptly as possible
all necessary approvals, authorizations, consents, clearances or orders
("Consents") of governmental and regulatory authorities required in order for
the Company to perform its obligations hereunder. The receipt of such Consents
shall be a condition of Closing.
(e) BEST EFFORTS. The Company shall use its best efforts (i) to
cause to be fulfilled and satisfied all of the conditions to the Merger to be
fulfilled and satisfied by the Company, and (ii) to cause to be performed all of
the matters required of it at or prior to the Effective Time.
(f) EXCLUSIVITY. In order to induce Purchaser to enter into this
Agreement, the Company agrees that subject to the fiduciary duties of the Board
of Directors of the Company, the Company will not, prior to the Closing Date,
take any further action to solicit, initiate or encourage any offer or
indication of interest from any Person other than Purchaser relating to the
merger, consolidation or sale of the Company or its Stock or properties and
assets of the Company, including without limitation, any such further action
through any investment banker, broker, finder or other intermediary previously
engaged or which may be engaged for the purpose of soliciting, initiating or
encouraging such offer or indication of interest.
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5.2 COVENANTS OF PURCHASER. Purchaser covenants and agrees that:
(a) BEST EFFORTS. Subject to the terms and conditions herein
provided and without being required to waive any conditions herein, Purchaser
shall use its best efforts to (i) cause to be fulfilled and satisfied all of the
conditions to the Merger to be fulfilled and satisfied by it, and (ii) cause to
be performed all of the matters required of it at or prior to the Effective
Time.
(b) CONSENTS, APPROVALS AND FILINGS. Purchaser will use its best
efforts to obtain as promptly as possible all necessary approvals,
authorizations, consents, licenses, clearances or orders of governmental and
regulatory authorities required in order for Purchaser to perform its
obligations hereunder.
(c) ADVICE OF CHANGES. Purchaser will promptly advise the Company
orally and in writing of (i) any event occurring subsequent to the date of this
Agreement which would render any representation or warranty of Purchaser
contained in this Agreement, if made on or as of the date of such event or the
Effective Time, untrue, inaccurate or incomplete in any material respect and
(ii) any material adverse change in the financial condition, assets, liabilities
(whether absolute, accrued, contingent or otherwise), operating profits,
business or prospects of Purchaser.
ARTICLE VI
MISCELLANEOUS
6.1 SURVIVAL OF REPRESENTATIONS. Except as may be provided in the
Indemnification Agreement the representations, warranties, covenants, and
agreements of the Company and Purchaser made herein or any certificate delivered
by the Company or Purchaser pursuant to Sections 4.1 and 4.2 hereof, as the case
may be, shall survive without limitation the execution hereof and thereof and
the delivery of the Merger Consideration and shall remain in full force and
effect for a period of three (3) years after the Closing Date.
6.2 INCORPORATION BY REFERENCE. Except for the Disclosure Schedule and
Schedule 2.6(a) which will be attached as of the date of execution of this
Agreement, the Schedules, Exhibits and Attachments contemplated under this
Agreement shall be appended to this Agreement within five (5) days business
after the execution of this Agreement by the parties hereto. All Schedules,
Exhibits and Attachments to this Agreement and all documents delivered pursuant
to or referred to in this Agreement are incorporated herein by reference and
made a part hereof. Such Exhibits, Schedules and Attachments may be appended
hereto, amended or modified by a party provided that the other party ("Receiving
Party") has been furnished with a copy of the proposed amendment or modification
to such Schedule, Exhibit or Attachment; provided, however, that if any such
Schedule, Exhibit, Attachment or amendment thereto shall materially adversely
affect the economics, financial or business considerations of the transactions
contemplated under this Agreement as determined by the Receiving Party, such
Receiving Party may terminate this Agreement in accordance with Section
6.16(a)(vii) hereof. The Schedules, Exhibits and Attachments to this Agreement
shall not be deemed to be part of the Plan of Merger.
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6.3 PARTIES IN INTEREST. All covenants, agreements, representations,
warranties and undertakings in this Agreement made by and on behalf of any of
the parties hereto shall bind and inure to the benefit of their respective
successors and assigns and the term "Purchaser" herein shall apply to the
successors and assigns of Purchaser.
6.4 AMENDMENTS AND WAIVERS. This Agreement may be amended, or
compliance with any terms, covenants, agreement, condition or provision set
forth herein may be waived (either generally or in a particular instance and
either retroactively or prospectively) if agreed to in writing by the Company
and Purchaser upon the approval of their respective Boards of Directors at any
time prior to filing the Articles of Merger with the Secretaries of State of
Colorado and Wyoming.
6.5 GOVERNING LAW; SEVERABILITY. This Agreement, together with the
rights and obligations of the parties hereunder, shall be governed by, construed
and enforced in accordance with the laws of the State of Colorado without giving
effect to the conflict of laws provisions thereof. If any provision of this
Agreement or the application of any such provision to any party shall be held by
a court of competent jurisdiction to be contrary to law, the remaining
provisions of this Agreement shall remain in full force and effect.
6.6 NOTICES. All notices, requests, consents and demands shall be in
writing and shall be deemed to have been sufficiently given, upon receipt, if
sent, postage prepaid, by registered or certified mail, return receipt
requested, to the Company at 7500 East Arapahoe Road, Suite 155, Englewood,
Colorado 80112, Attn: President, with a copy to Jeffrey H. Katz, P.C., 7430 East
Caley, Suite 300, Englewood, Colorado 80111; to the Purchaser at 67 Inverness
Drive East, Suite 110, Englewood, Colorado 80112, Attn: Legal Department, or to
such other address as may from time to time be furnished in writing to the other
parties hereto.
6.7 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
6.8 CAPTIONS. The captions and headings of this Agreement are for
convenience only and are not to be construed as defining or limiting the scope
or intent of any of the provisions hereof.
6.9 COMPLETE AGREEMENT. This document, and the Exhibits and Schedules
hereto, embodies the complete agreement and understanding between and among the
parties hereto with respect to the subject matter hereof, and supersedes and
preempts any prior understandings, agreements, or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof.
6.10 ARBITRATION. Any and all disputes arising out of, under, in
connection with, or relating to this Agreement shall be finally settled by
arbitration in Denver, Colorado, or in such other place as the parties hereto
agree, in accordance with the rules then in effect of the American Arbitration
Association. The board of arbitrators shall be composed of three arbitrators,
being
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qualified to make evaluations of the kind under dispute. Such arbitrators shall
be selected in accordance with the procedures of the American Arbitration
Association and shall be reasonably acceptable to both Purchaser and the
stockholders of the Company. The arbitration award, based upon written findings
of fact and conclusions of law, shall be final and binding on the parties. Each
party will pay its own expenses associated with such arbitration, provided that
the prevailing party in any arbitration shall be entitled to reimbursement of
reasonable attorney's fees and expenses (including, without limitation,
arbitration expenses) relating to such arbitration. Any arbitration award may
be enforced in any court having jurisdiction over the party against which
enforcement is sought.
6.11 INDEMNIFICATION BY COMPANY STOCKHOLDERS. Sipes will indemnify
Purchaser and Convergent pursuant to the Indemnification Agreement.
6.12 PURCHASER'S INDEMNIFICATION. Purchaser agrees that notwithstanding
the Closing and regardless of any investigation of any item made by or on behalf
of the Company or any information the stockholders of the Company may have in
respect thereof, the Purchaser will indemnify and save and hold the stockholders
of the Company harmless from and against any Losses suffered or incurred by the
stockholders of the Company arising out of or resulting from, and will pay the
stockholders of the Company on demand the full amount of any such amounts which
the stockholders of the Company may pay or become obligated to pay in respect
of:
(i) any material inaccuracy in any representation or the
breach of any warranty made by Purchaser in or pursuant to this Agreement;
(ii) any failure by Purchaser of its duty to perform or
observe any item, provision, covenant or agreement in this Agreement to be
performed or observed on the part of Purchaser; or
(iii) any claim for damages arising after the Closing Date
for any act or omission of Purchaser occurring after the Closing Date.
6.13 LIMITATION OF INDEMNITY. Except as provided in the Indemnification
Agreement as it relates to the indemnification by Sipes of the Purchaser and
Convergent, and except as set forth in Section 6.14 hereof relating to brokers
and finders, neither Purchaser and Convergent, on the one hand, nor the
Indemnifying Stockholders on the other hand, shall be required to indemnify the
other for any misrepresentation, breach of warranty or failure to fulfill any
covenant or agreement herein except to the extent that the aggregate amount
which the Indemnifying Stockholders, on the one hand, or Purchaser and
Convergent, on the other hand, respectively would otherwise (but for this
provision) be liable on account thereof exceeds in the aggregate the sum of five
thousand dollars ($5,000) (the "Threshold Amount") and then only to the extent
of such excess; provided, however, for purposes of calculating whether the
Threshold Amount has been reached, any specific materiality provision contained
in the representations and warranties shall be disregarded. Except as provided
in the Indemnification Agreement the obligations of the Indemnifying
Stockholders to indemnify Purchaser and Convergent under Section 6.11 shall
terminate two years after the Closing Date except as to matters as to which
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notice of a Claim has been given to the Indemnifying Stockholders under Section
6.11 prior to the expiration of such two year period.
6.14 BROKERAGE COMMISSIONS. Each party to this Agreement warrants to the
other that it has not engaged or utilized the services of any broker or finder
in connection with the transaction contemplated by this Agreement, and no
commissions are payable with respect to the transactions contemplated by this
Agreement. Each such party hereto agrees to indemnify and hold the other
harmless from and against any liability for any claims of any broker or finder
claiming by, through, or under such party.
6.15 PUBLICITY. Prior to the Closing Date, all notices to third parties
and all other publicity relating to the transactions contemplated by this
Agreement shall be jointly planned, coordinated and approved by the Company and
Purchaser.
6.16 TERMINATION.
(a) TERMINATION. This Agreement may be terminated, and the Merger
contemplated by this Agreement may be abandoned, at any time prior to the
Effective Time, notwithstanding the adoption of this Agreement and the approval
of the Merger by the stockholders of the Company:
(i) By mutual written consent duly authorized by the Board
of Directors of Purchaser and by the Board of Directors of the Company;
(ii) By either Purchaser or the Company if the Merger has
not been consummated by April 30, 1998, except that the right to terminate this
Agreement under this Section 6.16(a)(ii) will not be available to any party
whose willful failure to perform any material obligation or to fulfill any
material condition under this Agreement has been the proximate cause of, or
resulted in, the failure of the Effective Time to occur on or before that date;
(iii) By either Purchaser or the Company if a court of
competent jurisdiction or an administrative, governmental, or regulatory
authority has issued a final nonappealable order, decree, or ruling, or taken
any other action, having the effect of permanently restraining, enjoining, or
otherwise prohibiting the Merger;
(iv) By Purchaser if (A) Purchaser is not in material
breach of its obligations under this Agreement and (B) there has been (1) a
material breach by the Company of any of its representations and warranties
under this Agreement such that the conditions in Section 3.1(a) can not be
satisfied or (2) a material failure by the Company to perform any of its
obligations under this Agreement such that the conditions in Section 3.1(b) can
not be satisfied, and, in both case (1) and case (2), the breach or failure
cannot be cured by the Company within 30 calendar days following receipt by the
Company of notice of the breach;
(v) By the Company if (A) the Company is not in material
breach of its obligations under this Agreement and (B) there has been (1) a
material breach by Purchaser of any
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of its representations and warranties under this Agreement such that the
conditions in Section 3.2(a) will not be satisfied or (2) a material failure by
Purchaser to perform any of its obligations under this Agreement such that the
conditions in Section 3.2(b) will not be satisfied, and, in both case (1) and
case (2), the breach or failure cannot be cured by Purchaser within 30 calendar
days following receipt by Purchaser of notice of the breach;
(vi) By the Purchaser if the total value of the appraisal
rights of the Dissenting Shares as determined under the applicable provisions of
the Colorado Business Corporation Act exceeds the amount set forth in Section
3.1(l) hereof; and
(vii) By either of the Purchaser or the Company, such party
not then being in breach of the Agreement, if any Exhibit, Schedule or
Attachment appended hereto subsequent to the date of the Agreement or any
amendment to any Exhibit, Schedule or Attachment hereto made subsequent to the
date of the Agreement shall materially adversely affect the economics, financial
or business considerations of the transactions contemplated under this Agreement
as determined by the Receiving Party.
This Agreement may be terminated by the Board of Directors of either the
Company or Purchaser in accordance with the foregoing provisions notwithstanding
the approval of the Agreement by the stockholders of the Company or Purchaser.
(b) EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to Section 6.16(a)(i),(ii) (unless the failure to
consummate the transactions contemplated hereunder is caused by the acts or
omissions of Purchaser), (iii), (iv), (vi) and/or (vii) hereof, the Company
shall return the Earnest Money received from Purchaser. In the event of the
termination of this Agreement pursuant to Subsections 6.16(a)(ii) (if the
failure to consummate the transactions hereunder is caused by the acts or
omissions of Purchaser) or (v), the Company shall be entitled to retain the
Earnest Money received from Purchaser.
6.17 COSTS AND EXPENSES OF MERGER. The Company shall be
responsible for the payment of all Transactional Costs as provided in SCHEDULE
6.17 and Purchaser shall be responsible for the payment of their costs and
expenses, including, without limiting the generality thereof, the costs and
expenses of its attorneys, accountants and other consultants engaged by such
party in connection with the investigation or due diligence review of documents
of the other party, filing fees, recording and notification fees, travel,
entertainment and lodging expenses and any other expenses or costs relating to
the consummation of the transactions contemplated under this Agreement up to and
including the Closing Date. The amount of the Transactional Costs shall reduce
the total amount of the Cash Consideration in accordance with this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first set forth above.
CONVERGENT COMMUNICATIONS SERVICES, INC.
a Colorado corporation
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By:
----------------------------------------
John R. Evans, Chief Executive Officer
CONVERGENT COMMUNICATIONS, INC.
a Colorado corporation
By: /s/ John R. Evans
----------------------------------------
John R. Evans, Chief Executive Officer
COMMUNICATIONS SERVICES OF COLORADO, INC.
a Colorado corporation
By: /s/ Donna Sipes
----------------------------------------
Donna Sipes, President
DONNA SIPES
/s/ Donna Sipes
--------------------------------------------
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made this 27th day of April,
1998 by and between CONVERGENT COMMUNICATIONS SERVICES, INC., a Colorado
corporation ("CCSI") whose address is 67 Inverness Drive East, Suite 110,
Englewood, Colorado 80112, and NETWORK COMPUTER SOLUTIONS, LLC, a Colorado
limited liability company ("NCS"), whose address is 7860 East Berry Place, Suite
100, Greenwood Village, CO 80111 (hereinafter collectively referred to as "the
parties").
RECITALS
A. CCSI is desirous of buying certain of NCS' assets and NCS is desirous
of selling certain of NCS' assets to CCSI.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, both parties agree as follows:
1. IDENTIFICATION AND TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES.
1.1 IDENTIFICATION OF ASSETS TO BE TRANSFERRED TO CCSI. The assets
described in EXHIBIT 1.1 shall collectively constitute the "Identified Assets."
1.2 ASSUMPTION OF CERTAIN LIABILITIES. Except for those liabilities
set forth on EXHIBIT 1.2 (the "Assumed Liabilities"), which are hereby expressly
assumed by CCSI, CCSI shall assume no other liabilities and obligations relating
to the Identified Assets. NCS agrees to hold CCSI harmless from any other
liabilities or obligations incurred by NCS, or accruing with respect to the
Identified Assets, and all other assets of NCS, with respect to any period prior
to and including the Closing Date and from liabilities or obligations with
respect to all other assets of NCS with respect to any period after the Closing
Date.
1.3 TRANSFER OF IDENTIFIED ASSETS. NCS shall take all actions
reasonably requested by CCSI to transfer the Identified Assets to CCSI
including, but not limited to, the execution of a bill of sale and assignment in
the form attached hereto as EXHIBIT 1.3 ("Bill of Sale"), and all other bills of
sale, assignment and transfer forms, amendments, applications to governmental
agencies, licenses, and reports reasonably required by CCSI of NCS to effectuate
the transfer of the Identified Assets.
1.4 RECONCILIATION OF OBLIGATIONS. All obligations regarding the
Identified Assets and the Assumed Liabilities shall be determined as of March
15, 1998 ("Reconciliation Date"). The parties agree to cooperate in the
preparation of a reconciliation schedule ("Reconciliation Schedule") showing the
obligations and benefits accruing to each party as of the Reconciliation Date.
The Reconciliation Schedule shall be delivered at the Closing.
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2. CONSIDERATION. The consideration ("Consideration") for the purchase
and sale of the Identified Assets shall be paid by CCSI to NCS on the Closing
Date as follows:
2.1 EARNEST MONEY. CCSI has paid NCS a deposit in the amount of
$10,000 on or about February 17, 1998, and an additional deposit in the amount
of $15,000 on or about March 27, 1998, receipt of which is hereby acknowledged
(collectively, the "Earnest Money).
2.2 CASH PAYMENT. CCSI will pay NCS $475,000 by wire transfer at the
Closing.
2.3 CONVERGENT STOCK. CCSI's parent company, namely Convergent
Communications, Inc., a Colorado corporation ("Convergent") will deliver a
treasury request to Convergent's transfer agent requesting the issuance of
100,000 shares of Convergent's no par value common stock ("Convergent Stock") to
NCS at the Closing.
3. CLOSING DATE DOCUMENTATION. In addition to the other documents
required hereunder, as a predicate to the closing of the transactions hereunder,
NCS shall supply CCSI with the following on or before the Closing Date.
3.1 TRANSFER DOCUMENTS. Transfer Documents, in form and substance
reasonably satisfactory to CCSI and NCS to effect the transfer of the Identified
Assets to CCSI pursuant to the terms of this Agreement.
3.2 CONSENTS. Any and all consents, in a form and substance
reasonably satisfactory to CCSI and NCS, from any person or entity not a party
to this Agreement whose consent is necessary or desirable for the execution and
performance of this Agreement by CCSI and NCS.
3.3 COMPLIANCE CERTIFICATE. All corporate and other proceedings,
including approval by the members and managers of NCS, required to be taken by
or on the part of NCS to authorize NCS to execute, deliver and carry out this
Agreement shall have been duly and properly taken. CCSI shall have received a
certificate of authorized individuals of NCS in the form of EXHIBIT 3.3, dated
as of the Closing, certifying to the fulfillment of the conditions specified in
this Agreement.
3.4 RECONCILIATION SCHEDULE. The Reconciliation Schedule pursuant to
Section 1.4 of this Agreement.
4. REPRESENTATIONS OF NCS. As material representations to induce CCSI to
enter into this transaction, NCS represents to CCSI as follows:
4.1 OWNERSHIP. Except as shown on EXHIBIT 4.1, the Identified Assets
transferred pursuant hereto are owned by NCS, free and clear of all liens,
encumbrances, agreements and claims with or of third parties.
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4.2 LIMITED LIABILITY COMPANY STATUS AND AUTHORITY. NCS is a limited
liability company duly organized and existing in good standing under the laws of
the state of its organization and is fully authorized to carry on its business
as it is now being conducted and to enter into the transactions herein set
forth. NCS is duly qualified to transact business as a foreign limited
liability company and is in good standing in each of the jurisdictions requiring
such qualification whether by reason of the ownership or leasing of its
properties or the conduct or nature of its business. All manager or member
approvals required have been secured to the extent required. Except as set
forth on EXHIBIT 4.2, no consents, approvals, or filings from or with any person
or entity other than those delivered to CCSI herewith are necessary for the
execution, delivery and performance by NCS of this Agreement and the
transactions contemplated hereby. NCS has all requisite power and authority to
execute this Agreement and carry out all the actions required of it herein.
This Agreement is the legal, valid and binding agreement of NCS enforceable
against NCS in accordance with its terms.
4.3 PENDING CLAIMS. NCS is not presently subject to any claim which
would materially and adversely affect the Identified Assets such as:
litigation; disclosed or undisclosed claims or liabilities; or pending
governmental investigations or complaints of any kind or description. The
Identified Assets are subject to no contracts, claims or liens other than as set
forth in EXHIBIT 4.3.
4.4 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and
performance of and compliance with this Agreement, or any agreement or
instrument contemplated hereby, by NCS will not result in any violation of its
Articles of Organization or Operating Agreement or be in material conflict with
or constitute a default in any material respect under any term of any agreement,
instrument, judgment, decree, or, to the knowledge of NCS, any order, statute,
rule or governmental regulation applicable to NCS, or result in the creation of
any lien, charge or encumbrance of any kind or nature on the Identified Assets.
4.5 UNDISCLOSED LIABILITIES. NCS does not have, with respect to its
current operation, any material and undisclosed liabilities or obligations of
any nature affecting the Identified Assets.
4.6 ENVIRONMENTAL AND REGULATORY MATTERS. To the best knowledge of
NCS, NCS has duly complied with, and the operation of its business, equipment
and other assets in the facilities owned or leased by NCS and its subsidiaries
are in compliance with the provisions of all applicable federal, state and local
environmental, health and safety laws, statutes, ordinance, rules and
regulations of any governmental or quasi governmental authority relating to (i)
discharges to surface water or ground water, (ii) solid or liquid waste
disposal, (iii) the use, storage, generation, handling, transport, discharge,
release or disposal of toxic or hazardous substances or waste, (iv) the emission
of non-ionizing electromagnetic radiation, or (v) other environmental, health or
safety matters, including, without limitation, the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Authorization Act of 1986; the Occupational Safety and Health
Act; the Resource Conservation and Recovery Act of 1976, as amended; the Federal
Water Pollution Control Act of 1970; the Safe Drinking Water Act of 1974; the
Toxic Substances Control Act of 1976; the Emergency
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Planning and Community Right to Know Act of 1986, as amended; and the Clean Air
Act, as amended (collectively "Environmental and Health Laws"), or any law, rule
or regulation of any state public utility commission, the Federal Communications
Commission or the Federal Communications Act, as amended (collectively
"Regulatory Laws"). To the best knowledge of NCS, there are no investigations,
administrative proceedings, judicial actions, orders, claims or notices which
are pending, anticipated or threatened against NCS, relating to violations of
the Environmental and Health Laws and the Regulatory Laws. NCS has not received
a notice of, and does not know or have any reason to suspect, any facts which
might constitute a violation of any Environmental or Health Laws which relate to
the use, ownership or occupancy of any property or facilities used by NCS in
connection with the operation of its business or any activity of NCS' business
which would result in a violation or threaten violation of any Environmental or
Health Laws or the Regulatory Laws.
4.7 TAX LIENS. There are no tax liens on any of the Identified
Assets. NCS has duly filed all federal, state and local tax returns and reports
(including, without limitation, returns for estimated tax), and all returns and
reports for any other governmental units or taxing authorities having
jurisdiction with respect to any taxes required to be paid by NCS, except where
extensions have been applied for and granted, and where such extensions have not
expired; all such returns and all such reports show the correct and proper
amounts due, and all taxes shown on such returns and reports and all assessments
received by NCS have been paid to the extent that such taxes or any estimates
thereon have become due. From the date of this Agreement until the Closing, NCS
shall pay all taxes as and when the same become due and payable.
4.8 LIQUIDATION. NCS has not adopted any plan of liquidation or
dissolution affecting the Identified Assets.
4.9 ACCURACY OF DOCUMENTS AND INFORMATION. The copies of all
instruments, agreements, other documents and written information set forth as,
or referenced in, Exhibits and attachments to this Agreement or specifically
required to be furnished pursuant to this Agreement to CCSI by NCS are and will
be complete and correct in all material respects. There have been no material
changes, and will be no material changes as of the Closing Date, in the
information set forth in the Exhibits and attachments between the date of the
Exhibits and attachments and the date of this Agreement. No representations or
warranties made by NCS in this Agreement, nor any document, written information,
statement, financial statement, certificate, Exhibit or attachment furnished to
CCSI pursuant to the requirements of this Agreement contains any untrue
statement of a material fact, or omits to state a material fact necessary to
make the statements or facts contained therein not misleading. There is no fact
which materially and adversely affects the Identified Assets known to NCS which
has not been expressly and fully set forth in this Agreement or the Exhibits and
attachments hereto.
4.10 DISCLOSURE. No representation or warranty whether contained in
this Agreement or in any certificates provided to CCSI pursuant to this
Agreement contains or will contain any materially untrue statement or omits, or
will omit, to state a material fact necessary to make any such statement(s) not
misleading.
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4.11 ACCURACY OF REPRESENTATIONS. In the event that any of the
foregoing representations or warranties should be inaccurate as of the Closing
Date, NCS shall have thirty (30) days after written notice from CCSI in which to
cure such inaccuracy.
5. NCS' EMPLOYEES AND CUSTOMERS. CCSI is not a successor business to NCS
nor any operation of NCS. CCSI shall not be liable for any obligations which
NCS has on any contracts including employment contracts, existing or future
workers compensation claims, employment discrimination claims, unfair labor
practice claims, or compensation claims except those obligations, if any,
specifically identified on EXHIBITS 1.1 and 1.2 and any obligations of which
CCSI hereby specifically assumes in writing. CCSI is purchasing the Identified
Assets and Assumed Liabilities only, and it is not taking over any employment
contracts for any employees or any obligations under agreements entered into by
NCS in its own right and CCSI shall not be liable for any sums owed to customers
by NCS.
6. REPRESENTATIONS OF CCSI. As material representations to induce NCS to
enter into this transactions, CCSI represents to NCS as follows:
6.1 CORPORATE STATUS AND AUTHORITY. CCSI is a corporation duly
organized and existing in good standing under the laws of the state of its
incorporation and is fully authorized to carry on its business as it is now
being conducted and to enter into the transactions herein set forth. CCSI is
duly qualified to transact business as a foreign corporation and is in good
standing in each of the jurisdictions requiring such qualification whether by
reason of the ownership or leasing of its properties or the conduct or nature of
its business. All corporate approvals required have been secured. No consents,
approvals, or filings from or with any person or entity other than those
delivered to NCS herewith are necessary for the execution, delivery and
performance by CCSI of this Agreement and the transactions contemplated hereby.
CCSI has all requisite power and authority to execute this Agreement and carry
out all the actions required of it herein. This Agreement is the legal, valid
and binding agreement of CCSI enforceable against CCSI in accordance with its
terms.
6.2 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and
performance of and compliance with this Agreement, or any agreement or
instrument contemplated hereby, by CCSI will not result in any violation of its
Certificate of Incorporation or Bylaws or be in material conflict with or
constitute a default in any material respect under any term of any agreement,
instrument, judgment, decree, or, to the knowledge of CCSI, any order, statute,
rule or governmental regulation applicable to CCSI.
6.3 DISCLOSURE. No representation or warranty whether contained in
this Agreement or in any certificates provided to NCS pursuant to this Agreement
contains or will contain any materially untrue statement or omits, or will omit,
to state a material fact necessary to make any such statement(s) not misleading.
7. OBLIGATIONS PRIOR TO THE CLOSING DATE. The following conditions and
obligations shall be satisfactorily performed prior to the Closing Date.
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7.1 GOVERNMENTAL AGENCY APPROVALS. Any governmental agencies whose
approval is required prior to the consummation of the transactions contemplated
by this Agreement shall have approved such sale on the terms contemplated by
this Agreement.
7.2 NOTICES TO CUSTOMERS AND SUPPLIERS. NCS, with the cooperation of
CCSI and at NCS' sole expense, shall have provided any notice(s) to its
customers, suppliers, vendors and others required by its contracts, federal or
state laws, rules or regulations, if any, with respect to the transfer of the
Identified Assets to CCSI. The content of such notice(s) shall be approved by
CCSI.
7.3 PERFORMANCE. Both parties shall have executed and delivered to
the other party this Agreement and the other documents required hereby and shall
have performed and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or complied with by the
parties prior to the Closing Date.
7.4 OPINION OF COUNSEL FOR NCS. CCSI shall have been furnished with
an opinion of NCS' counsel, dated the date of the Closing, in substantially the
form of EXHIBIT 7.4 attached hereto.
7.5 NO ACTION TO PREVENT COMPLETION. There shall not have been
instituted and be continuing or threatened any claim, action or proceeding that
would materially adversely affect the Identified Assets, nor shall there have
been instituted and be continuing or threatened any claim, action or proceeding
by or before any court or other governmental body to restrain, prohibit or
invalidate, or to obtain damages in respect of, the transactions contemplated by
this Agreement or which might materially and adversely affect the rights of
CCSI.
8. CONDUCT OF BUSINESS AND CERTAIN COVENANTS. Prior to the Closing Date,
NCS agrees that, with respect only to the Identified Assets, unless otherwise
specifically provided for in this Agreement or unless otherwise consented to in
writing by CCSI:
8.1 ORDINARY COURSE. NCS shall conduct its business in the ordinary
course.
8.2 CERTAIN CHANGES. NCS shall not: (i) grant any security
interest to or in connection with the Identified Assets; (ii) make or offer to
make any disposition, including any sale or transfer, of any of the Identified
Assets; (iii) make any change in any method of accounting, billing, rates, rate
structure, tariffs, payment of fees and expenses related in any way to the
Identified Assets; and, (iv) enter into any material contract, agreement, or
commitment relating to the Identified Assets.
9. CLOSING DATE AND NAME CHANGE.
9.1 CLOSING DATE. Closing will occur within three (3) business days
after the completion of due diligence and the receipt of any and all necessary
board, shareholder, governmental or other approvals, but not later than April
30, 1998, unless extended by mutual agreement of the parties, and will take
place at the offices of CCSI.
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9.2 NAME CHANGE. No later than June 15, 1998, NCS shall change its
name.
10. NOTICES. Notices required or allowed hereunder shall be deemed given
when hand delivered or when deposited in the United States mail, postage
prepaid, return receipt requested, to the parties at the following addresses:
If to CCSI: Convergent Communications Services, Inc.
67 Inverness Drive East, Suite 110
Englewood, Colorado 80112
Attn.: Legal Department
If to NCS: Network Computer Solutions, LLC
7860 East Berry Place, Suite 100
Greenwood Village, CO 80111
Attn.: Mr. John C. Herbers
or to such other addresses as may from time to time be supplied.
11. INDEMNITY.
11.1 NCS' INDEMNIFICATION. Notwithstanding the Closing and
regardless of any investigation at any time made by or on behalf of CCSI or of
any information CCSI may have in respect thereof, NCS will indemnify, defend and
save and hold CCSI harmless from and against any costs, expenses, damages,
liabilities, losses or deficiencies, including, without limitation, reasonable
attorneys' fees and other costs and expenses incident to any suit, action or
proceeding (collectively "Losses") suffered or incurred by CCSI arising out of
or resulting from, and will pay CCSI on demand the full amount of any such
amounts which CCSI may pay or may become obligated to pay in respect of:
(a) any material inaccuracy in any representation or document
delivered under or pursuant to this Agreement or the material breach of any
warranty made by NCS in or pursuant to this Agreement;
(b) any misrepresentations in or omission from any Exhibit,
schedule, or other attachment to this Agreement;
(c) any failure by NCS duly to perform or observe any term,
provision, covenant, or agreement in this Agreement to be performed or observed
on the part of NCS;
(d) acts or omissions in connection with business activities
conducted or to be conducted by NCS, including, without limitation, the sale of
goods or provision of services, prior to the Closing Date; or
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(e) any action, suit, investigation, proceeding, demand,
assessment, audit, judgment and claim, including any employment-related claim,
arising out of the foregoing (collectively "Claims"), even though such Claims
may not be filed or come to light until after the Closing Date.
CCSI hereby covenants and agrees to immediately provide to NCS any and
all notifications or other correspondence it receives related to matters which
may affect this indemnity and hereby agrees to allow NCS to defend any and all
actions affecting this indemnity and shall not settle any action or dispute
affecting this indemnity without obtaining the prior written consent of NCS.
However, failure to provide any such notifications or other correspondence in a
timely manner will not relieve NCS of its obligation to indemnify CCSI under
this Section 11.1. If CCSI becomes unsatisfied with the conduct of the defense
of the Claims, CCSI may defend against, and consent to the entry of any judgment
or enter into any settlement with respect to such Claims in any manner it may
deem to be appropriate and NCS shall reimburse CCSI promptly for the acts of
defending against such Claims and will otherwise remain responsible for any Loss
which CCSI may suffer from, arising out of, relating to or caused by such Claims
to the full extent provided in this Section.
All statements of fact contained in any written statement, certificate,
schedule or other document delivered to CCSI by or on behalf of NCS attached to
this Agreement shall be deemed representations and warranties by NCS hereunder.
11.2 CCSI'S INDEMNIFICATION. CCSI agrees that notwithstanding the
Closing and regardless of any investigation at any time made by or on behalf of
NCS or any information NCS may have in respect thereof, CCSI will indemnify,
defend and save and hold NCS harmless from and against any Losses suffered or
incurred by NCS arising out of or resulting from, and will pay NCS on demand the
full amount of any such amounts which NCS may pay or may become obligated to pay
in respect of:
(a) any material inaccuracy in any representation or the breach
of any warranty made by CCSI in or pursuant to this Agreement;
(b) any failure by CCSI duly to perform or observe any item,
provision, covenant or agreement in this Agreement to be performed or observed
on the part of CCSI, as applicable; or
(c) acts or omissions in connection with business activities
conducted or to be conducted by CCSI, including, without limitation, the sale of
goods or provision of services, following the Closing Date.
12. NO THIRD PARTY BENEFICIARIES. This Agreement shall be for and inure
to the benefit of CCSI and NCS and there shall be no third party beneficiaries
hereto. Specifically excluded from any beneficial status hereunder are NCS'
creditors, employees, customers and suppliers.
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13. GOVERNING LAW AND FORUM. This Agreement shall be construed under the
laws of the state of Colorado, without regard to its choice of law provisions
(except as to the applicable bulk sales laws, where it is agreed that to the
extent the parties' ability to so designate is restricted, the laws of the
applicable state shall apply) and any action to enforce, construe or modify this
Agreement shall be brought in an appropriate court of competent jurisdiction in
Colorado.
14. BINDING NATURE. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
assigns. This Agreement shall not be assigned by either party without the
express written consent of the other party.
15. PARAGRAPH HEADINGS. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
16. TIME OF THE ESSENCE. Time is of the essence of this Agreement and the
obligations of the parties hereunder.
17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, indemnifications and agreements of CCSI and NCS provided herein
shall survive the Closing for a period of two (2) years following the Closing
Date.
18. WAIVER. The failure of either of the parties hereto to enforce any
provision of this Agreement shall not be construed to be a waiver of such
provision or of the right thereafter to enforce the same, and no waiver of any
breach shall be construed as an agreement to waive any subsequent breach of the
same or any other provisions.
19. EXPENSES. Except as expressly provided herein, each party will pay
their own expenses, including fees of their respective attorneys, accountants
and consultants in connection with this transaction.
20. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
21. NO BROKERS OR AGENTS. NCS represents that it has not used the
services of any brokers or agents in the negotiation or consummation of this
Agreement such that any commissions or fees are due to any such broker or agent
based upon the transactions herein set forth. CCSI represents that it has not
used the services of any brokers or agents in the negotiation or consummation of
this Agreement such that any commissions or fees are due to any such broker or
agent based upon the transactions herein set forth. Should any such claim be
advanced by any such foregoing broker or agent, it is agreed that the
satisfaction of such claim shall be the sole responsibility of the party which
it is claimed utilized the services of such broker or agent.
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22. CONFIDENTIALITY. NCS and CCSI agree to not disclose the terms and
conditions of this Agreement except (i) as may be required to fulfill
obligations hereunder; (ii) as may be required by law, regulation, custom or
judicial or administrative proceeding; or, (iii) as and to the extent such
information becomes known to the general public through no fault of either party
in tangible, demonstrable form. Both parties shall take reasonable precautions
to insure that their respective employers, employees and agents also treat such
information in a confidential manner. The obligations of confidentiality shall
survive the consummation of the transactions herein set forth.
23. TAXES. CCSI shall be responsible for and shall pay all federal, state
and municipal taxes or other charges, if any, on the sale of the Identified
Assets except income taxes payable by NCS on the Consideration.
24. SEVERABILITY. It is agreed and understood that should any of the
provisions of this Agreement be determined by any court of competent
jurisdiction to be invalid or void for any reason, then the parties consent that
this Agreement shall be amended retroactive to the date of its execution to
include all terms and conditions other than those found by the court to be
invalid or void in order to give effect to the parties intent.
25. PUBLIC ANNOUNCEMENT. Each party acknowledges and agrees that either
may make a public announcement of the transactions contemplated by this
Agreement any time after the date of execution of this Agreement provided that
the other party approves the form and substance of any such public announcement
prior to its release, which approval shall not be unreasonably withheld or
delayed.
26. FORCE MAJEURE. This Agreement and the obligations of the parties
hereunder shall not be impaired or invalidated and a party shall not be in
breach hereof if such party is unable to fulfill any of its obligations
hereunder or is delayed in doing so by reason of strike, labor troubles, acts of
God or any other cause beyond the reasonable control of such party.
27. ATTACHMENTS. All Exhibits and attachments to this Agreement are made
a part of this Agreement by this reference. Any information disclosed in an
Exhibit or attachment shall be deemed to be disclosed and incorporated into any
other Exhibit or attachment where such disclosure would be appropriate.
28. ADDITIONAL DOCUMENTATION. NCS shall from time to time, subsequent to
Closing, at CCSI's request and without further consideration, execute and
deliver such other instruments of conveyance, assignment and transfer and take
such other action as CCSI reasonably may require in order more effectively to
effectuate the purchase of the Identified Assets.
29. ARBITRATION. Notwithstanding anything to the contrary herein, any
dispute arising pursuant to or in any way related to this Agreement or the
transactions contemplated hereby shall be settled by arbitration at a mutually
agreed upon location in Denver, Colorado; provided, however, that nothing in
this Section shall restrict the right of any party to apply to a court of
competent jurisdiction for emergency relief pending final determination of a
claim by arbitration in
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accordance with this Section. All arbitration shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
in force at the time of any such dispute. Each party shall pay its own expenses
associated with such arbitration, provided that the prevailing party in any
arbitration shall be entitled to reimbursement of reasonable attorneys' fees and
expenses (including, without limitation, arbitration expenses) relating to such
arbitration. The decision of the arbitrators, based upon written findings of
fact and conclusions of law, shall be binding upon the parties; and judgment in
accordance with that decision may be entered in any court having jurisdiction
thereof. In no event shall the arbitrators be authorized to grant any punitive,
incidental or consequential damages of any nature or kind whatsoever.
30. TERMINATION.
30.1 This Agreement may be terminated, and the transactions
contemplated hereby abandoned (i) by the mutual consent of CCSI and NCS; (ii) by
CCSI or NCS at any time after April 30, 1998 (or such later date as shall have
been agreed to in writing by the parties) if the conditions and obligations set
forth in this Agreement shall not have been fulfilled (or waived by the party
entitled to the benefit thereof) by such date, with no further liability on the
part of any party hereto; provided, however, that no party shall be released
from liability hereunder if any such condition is not fulfilled by reason of the
breach by such party of its obligations hereunder.
30.2 Notwithstanding anything contained in the foregoing to the
contrary, if this Agreement is terminated by CCSI due to a failure of NCS to
perform the conditions precedent to the Closing hereunder, NCS shall immediately
refund to CCSI all amounts paid to NCS, including, without limitation, the
Earnest Money.
31. ENTIRE AGREEMENT; AMENDMENT. This Agreement, together with the
Exhibits, schedules and attachments hereto, contains the entire understanding
between the parties hereto with respect to the subject matter hereof and no
prior or collateral promises or conditions in connection with or with respect to
the subject matter hereof not incorporated herein shall be binding upon the
parties. No modification, extension, renewal, rescission, termination or waiver
of any of the provisions contained herein or any future representation, promise
or condition in connection with the subject matter hereof, shall be binding upon
either of the parties hereto unless made in writing and duly executed by both
the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives on the day and year first above
written.
CONVERGENT COMMUNICATIONS SERVICES, INC.,
a Colorado corporation
By: /s/ John R. Evans
-------------------------------------------
John R. Evans, Chief Executive Officer
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<PAGE>
NETWORK COMPUTER SOLUTIONS, LLC,
a Colorado limited liability company
By: /s/ John Herbers
-------------------------------------------
John Herbers, Manager
12
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") made this 15th day of December,
1996, by and between CONVERGENT COMMUNICATIONS, INC., a Colorado corporation
whose address is 67 Inverness Drive East, Englewood, Colorado 80112 ("Employer"
or the "Company") and Keith V. Burge, an individual whose address is 16 Red Tail
Drive, Highlands Ranch, Colorado 80126 ("Employee").
R E C I T A L S
A. Employer desires to hire and employ Employee as President and Chief
Operating Officer of Employer or any of its affiliates in such capacity of equal
or greater responsibility, as provided herein; and
B. Employee desires to be employed by Employer as provided herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company agrees to employ Employee and Employee
hereby agrees to be employed by the Company and/or such of its subsidiaries and
affiliate corporations as determined by the Company on a full-time basis, for
the period and upon the terms and conditions hereinafter set forth.
2. CAPACITY AND DUTIES. Employee shall be employed as President and
Chief Operating Officer of Employer or any of its affiliates in such capacity of
equal or greater responsibility. During his employment, Employee shall perform
the duties and bear the responsibilities commensurate with his position and as
directed by the Chief Executive Officer of the Company and shall serve the
Company faithfully and to the best of his ability.
3. COMPENSATION AND BENEFITS.
3.1 The Company shall pay Employee during the Term of this
Agreement (or, if longer, during the term of Employee's employment with the
Company or any of its affiliates) an annual base salary, payable semi-monthly.
The annual base salary shall be One Hundred Thirty Thousand Dollars ($130,000.00
USD), adjustable for merit increases. In addition to a base salary, the
Employee is eligible for an incentive bonus up to 100% of base salary per year,
and an incentive stock option plan, both of which are at the discretion of the
Board of Directors. Throughout the Term of this Agreement (or, if longer,
during the term of Employee's employment with the Company or any of its
affiliates), the Company shall pay Employee a car allowance, payable
semi-monthly.
3.2 In addition to salary as provided above, the Company shall
provide Employee
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during the Term of this Agreement (or, if longer, during the term of Employee's
employment with the Company or any of its affiliates), with the benefits of such
insurance plans, hospitalization plans, stock plans, retirement plans, founder
benefits, health club membership, trade association membership, and other
employee fringe benefits (including sick leave and four (4) weeks vacation time)
as shall be generally provided to similar positions within the Company and for
which Employee may be eligible under the terms and conditions thereof. The
Company reserves the right to modify, delete or change its benefits at any time.
3.3 Throughout the Term of this Agreement, the Company shall
reimburse Employee for all reasonable out-of-pocket expenses incurred by
Employee in connection with the business of the Company and in performance of
his duties under this Agreement, upon presentation to the Company by Employee of
an itemized accounting of such expenses with reasonable supporting data.
4. TERM. The initial term of this Agreement shall commence on December
15, 1996 and shall terminate on December 15, 2001 ("Term") and shall continue
thereafter from year to year, unless and until either party terminates the
Agreement pursuant to Section 5 below. The applicable provisions of Sections 6,
7, 8, 9 and 10 shall remain in full force and effect as provided and for the
time periods specified in such Sections notwithstanding the termination of this
Agreement; all other obligations of either party to the other under this
Agreement shall terminate at the end of the Term.
5. TERMINATION.
5.1 If, during the Term of this Agreement, Employee dies or is
prevented from performing his duties by reason of illness or incapacity for one
hundred forty (140) days in any one hundred eighty (180) day period, the Company
may terminate this Agreement, upon thirty (30) days prior notice thereof to
Employee or his duly appointed legal representative.
5.2 The Company or the Employee may terminate this Agreement upon
at least thirty (30) days prior notice to Employee or the Company, respectively,
upon the happening of any of the following events:
5.2.1 The sale by the Company of substantially all of its
assets to a single purchaser or associated group of
purchasers who are not affiliates of the Company. For
the purposes of this Agreement, the term "affiliate"
means a person, firm or corporation that directly or
indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control
with the Company.
5.2.2 The sale, exchange or other disposition in one
transaction of eighty percent (80%) or more of the
outstanding voting stock of the Company to or with a
person, firm or corporation not then an affiliate
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of the Company.
5.2.3 The merger or consolidation of the Company in a
transaction not involving an affiliate of the Company in
which the shareholders of the Company receive less than
fifty percent (50%) of the outstanding voting stock of
the new continuing corporation.
5.2.4 A bona fide decision by the Company to terminate its
business and liquidate its assets (but only if such
liquidation is not part of a plan to carry on the
Company's business through its shareholders).
5.3 The Company may terminate this Agreement at any time for
gross negligence or substantial non-performance by Employee of any duty as an
executive officer of the Company which continues for a period of thirty (30)
days after written notice specifying such negligence or non-performance.
5.4 The Company may terminate this Agreement immediately upon the
intentional commission and conviction of a violation of any federal law, rule or
regulation, or any theft, fraud, embezzlement or similar crime involving the
commission of any felony, or for a material breach of any obligation or covenant
created by or under this Agreement.
5.5 Employer or Employee may terminate this Agreement without
cause upon at least thirty (30) days prior notice. Employee may also terminate
this Agreement if the Employer designates the Employee in a capacity of lessor
responsibility and Employee rejects such designation pursuant to Section 2
herein.
5.6 If this Agreement is terminated by the Company under
subsections 5.1, 5.2, 5.3 or 5.5 above, during the Term, or any renewal Term,
the Company shall continue to pay Employee's monthly base salary and bonus
compensation accrued, as shall be in effect on the termination date, for a
period of twenty-four (24) months following the date of termination
("Termination Fee"). In addition, all Employee stock options shall vest
immediately on date of termination and the exercise period shall be continued
through the exercise date specified in the option agreement. No Termination Fee
shall be paid to Employee in the event that this Agreement is terminated for any
other reason, including, without limitation, pursuant to subsection 5.4 herein.
6. COVENANT NOT TO COMPETE.
6.1 During the Term of this Agreement (or, if longer, during the
term of Employee's employment with the Company or any of its affiliates) and for
a period of twenty-four (24) months after termination of this Agreement (or, if
later, termination of Employee's employment with the Company or any of its
affiliates), Employee shall not, directly or indirectly, own, manage, operate,
control, be employed by, or participate in the ownership, management, operation
or control of a
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business that is engaged in the same business as the Company within any area or
at any location constituting, during the term of Employee's employment and/or at
the time Employee's employment is terminated, a Relevant Area. For the purposes
of this Section 6, including all subsections of this Section 6, the business in
which the Company is engaged is that business commonly known as the competitive
local exchange carrier (local telephone) business, and which services the
Company provides, whether or not the Company is authorized to provide and
actually provides such services during the term of Employee's employment
("Services"). The "Relevant Area" shall be defined for the purposes of this
Agreement as any area located within, or within fifty (50) miles of, the legal
boundaries or limits of any city within which the Company or any parent,
subsidiary or affiliate thereof is providing Services, has commenced the
acquisition of any authorizations, rights of way or facilities or has commenced
the construction of facilities for the purpose of providing Services, or the
Company has publicly announced or privately disclosed in writing to Employee
that it plans to provide Services.
6.2 During the Term of this Agreement (or, if longer, during the
term of Employee's employment with the Company or any of its affiliates) and for
a period of twenty-four (24) months after termination of this Agreement (or, if
longer, termination of Employee's employment with the Company or any of its
affiliates), Employee shall not (i) directly or indirectly cause or attempt to
cause any employee of the Company or any of its affiliates to leave the employ
of the Company or any affiliate, (ii) in any way interfere with the relationship
between the Company and any employee or between an affiliate and any employee of
the affiliate, (iii) directly or indirectly hire any employee of the Company or
any affiliate to work for any organization of which Employee is an officer,
director, employee, consultant, independent contractor or owner of an equity or
other financial interest, or (iv) interfere or attempt to interfere with any
transaction in which the Company or any of its affiliates was involved during
the Term of this Agreement or Employee's employment, which ever is longer.
6.3 EMPLOYEE AGREES THAT, BECAUSE OF THE NATURE AND SENSITIVITY OF
THE INFORMATION TO WHICH HE WILL BE PRIVY AND BECAUSE OF THE NATURE AND NATIONAL
AND INTERNATIONAL SCOPE OF THE COMPANY'S BUSINESS, THE RESTRICTIONS IN THIS
SECTION 6 ARE FAIR AND REASONABLE.
7. CONFIDENTIAL INFORMATION.
7.1 The relationship between the Company and Employee is one of
confidence and trust. This relationship and the rights granted and duties
imposed by this Section shall continue until a date two (2) years from the date
Employee's employment is terminated.
7.2 As used in this Agreement (i) "Confidential Information" means
information disclosed to or acquired by Employee about the Company's plans,
products, processes and services including the Services and any Relevant Area,
including information relating to research, development, inventions,
manufacturing, purchasing, accounting, engineering, marketing, merchandising,
selling, pricing and tariffed or contractual terms, customer lists and prospect
lists or other market information, with respect to any of the Company's then
current business activities; and (ii) "Inventions" means any inventions,
discoveries, concepts and ideas, whether patentable or not, including, without
limitation,
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<PAGE>
processes, methods, formulas, and techniques (as well as related improvements
and knowledge) that are based on or related to Confidential Information, that
pertain in any manner to the Company's then currently used technology, expertise
or business and that are made or conceived by Employee, either solely or jointly
with others, and while employed by the Company or within six (6) months
thereafter, whether or not made or conceived during working hours or with the
use of the Company's facilities, materials or personnel.
7.3 Employee agrees that he shall at no time during the term of
his employment or at any time for a period of two (2) years thereafter disclose
any Confidential Information, Inventions or component thereof to any person,
firm or corporation to any extent or for any reason or purpose or use any
Confidential Information or component thereof for any purpose other than the
conduct of the Company's business.
7.4 Any Confidential Information, Invention or component thereof
that is directly or indirectly originated, developed or perfected to any degree
by Employee during the term of his employment by the Company shall be and remain
the sole property of the Company and shall be deemed trade secrets of the
Company.
7.5 Upon termination of Employee's employment pursuant to any of
the provisions herein, Employee or his legal representative shall deliver to the
Company all originals and all duplicates and/or copies of all documents,
records, notebooks, and similar repositories of or containing Confidential
Information or subject matter then in his possession, whether prepared by him or
not.
7.6 EMPLOYEE AGREES THAT THE COVENANTS AND AGREEMENTS CONTAINED IN
THIS SECTION 7 ARE FAIR AND REASONABLE AND THAT NO WAIVER OR MODIFICATION OF
THIS SECTION OR ANY COVENANT OR CONDITION SET FORTH HEREIN SHALL BE VALID UNLESS
SET FORTH IN WRITING AND DULY EXECUTED BY THE PARTIES HERETO. EMPLOYEE AGREES
TO EXECUTE SUCH SEPARATE AND FURTHER CONFIDENTIALITY AGREEMENTS EMBODYING AND
ENLARGING UPON THE PROVISIONS OF THIS SECTION 7 AS THE COMPANY MAY REASONABLY
REQUEST.
8. INJUNCTIVE RELIEF. Upon a breach or threatened breach by Employee
of any of the provisions of Sections 6 and 7 of this Agreement, the Company
shall be entitled to an injunction restraining Employee from such breach without
a showing of damage as irreparable harm. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies for such breach or
threatened breach, including recovery of damages from Employee.
9. NO WAIVER. A waiver by the Company of a breach of any provision of
this Agreement by Employee shall not operate or be construed as a waiver of any
subsequent or other breach by Employee.
10. SEVERABILITY. It is the desire and intent of the parties that the
provisions of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision or portion
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<PAGE>
of this Agreement shall be adjudicated to be invalid or unenforceable, this
Agreement shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such Section in the particular jurisdiction in which
such adjudication is made.
11. NOTICES. All communications, requests, consents and other notices
provided for in this Agreement shall be in writing and shall be deemed given if
mailed by first class mail, postage prepaid, certified or return receipt
requested to the addresses set forth above, or last known address and received
by the intended party. If the mailing is returned to the sender due to an
incorrect address, the correct address must be obtained in order for the
communication to be received and completed.
12. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Colorado.
13. ASSIGNMENT. The Company may assign its rights and obligations under
this Agreement to any affiliate of the Company or, subject to the provisions of
Section 5, to any acquirer of substantially all of the business of the Company,
and all covenants and agreements hereunder shall inure to the benefit of and be
enforceable by or against any such assignee. Neither this Agreement nor any
rights or duties hereunder may be assigned or delegated by Employee.
14. AMENDMENTS. No provision of this Agreement shall be altered,
amended, revoked or waived except by an instrument in writing, signed by each
party to this Agreement.
15. BINDING EFFECT. Except as otherwise provided herein, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective legal representatives, heirs, successors and assigns.
16. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
17. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties and supersedes all prior understandings,
agreements or representations by or between the parties, whether written or
oral, which relate in any way to the subject matter hereof.
18. ARBITRATION. ANY DISPUTE ARISING OUT OF THIS AGREEMENT, THE
EMPLOYEE'S APPLICATION FOR EMPLOYMENT, THE EMPLOYEE'S RELATIONSHIP WITH THE
COMPANY, OR THE EMPLOYEE'S EMPLOYMENT OR SEPARATION FROM EMPLOYMENT SHALL BE
SUBJECT TO ARBITRATION PURSUANT TO THE COMPANY'S ARBITRATION PROCEDURES. THE
EMPLOYEE ACKNOWLEDGES THAT A COPY OF THE PROCEDURES HAS BEEN DELIVERED TO AND
READ BY THE EMPLOYEE PRIOR TO THE TIME HE/SHE EXECUTED THIS AGREEMENT. IT IS
UNDERSTOOD THAT ALL SECTIONS OF THE ARBITRATION PROCEDURES APPLY, EXCEPT THOSE
SECTIONS PERTAINING TO AT-WILL EMPLOYMENT, WHICH ARE SUPERSEDED BY THIS
EMPLOYMENT AGREEMENT.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CONVERGENT COMMUNICATIONS, INC.
By: /s/ John R. Evans
--------------------------------------
Title: Chief Executive Officer
------------------------------------
EMPLOYEE:
/s/ Keith V. Burge
------------------------------------------
(Signature)
Print Name and Date: Keith V. Burge
----------------------
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<PAGE>
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT ("Amendment") is made
this 13th day of April, 1998, by and between CONVERGENT COMMUNICATIONS, INC., a
Colorado corporation ("Employer" or the "Company") and KEITH B. BURGE
("EMPLOYEE").
A. The Parties have entered into that certain Employment Agreement
dated December 15, 1996 ("Agreement");
B. The Parties desire to amend and modify certain of the terms and
conditions of the Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and in the Agreement, the Parties agree as follows:
1. COMPENSATION AND BENEFITS. Section 3.1 of the Agreement shall be
amended to increase EMPLOYEE's annual base salary to One Hundred Eighty Thousand
Dollars ($180,000.00).
2. OTHER TERMS AND CONDITIONS. All other terms and conditions of the
Agreement shall remain in full force and effect, as if fully stated herein.
3. CAPITALIZED TERMS. Capitalized terms, and other defined terms,
shall have the same meaning as that accorded to them in the Agreement, unless
the context requires otherwise.
4. CONFLICT. If there are any conflicting terms or conditions between
the terms and conditions of this Amendment and the terms and conditions of the
Agreement, the terms and conditions of this Amendment shall control.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
to be executed by its duly authorized representative on the day and year first
above written.
CONVERGENT COMMUNICATIONS, INC., KEITH V. BURGE
a Colorado corporation
By /s/ John R. Evans /s/ Keith V. Burge
---------------------------------- -----------------------------------
Its: Chairman and Chief Executive Officer
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") made this 15th day of December,
1996, by and between CONVERGENT COMMUNICATIONS, INC., a Colorado corporation
whose address is 67 Inverness Drive East, Englewood, Colorado 80112 ("Employer"
or the "Company") and John R. Evans, an individual whose address is 4260 E. Plum
Court, Greenwood Village, Colorado 80121 ("Employee").
R E C I T A L S
A. Employer desires to hire and employ Employee as Chief Executive
Officer and Chairman of Employer or any of its affiliates in such capacity of
equal or greater responsibility, as provided herein; and
B. Employee desires to be employed by Employer as provided herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company agrees to employ Employee and Employee hereby
agrees to be employed by the Company and/or such of its subsidiaries and
affiliate corporations as determined by the Company on a full-time basis, for
the period and upon the terms and conditions hereinafter set forth.
2. CAPACITY AND DUTIES. Employee shall be employed as Chief Executive
Officer and Chairman of Employer or any of its affiliates in such capacity of
equal or greater responsibility. During his employment, Employee shall perform
the duties and bear the responsibilities commensurate with his position and as
directed by the Board of Directors of the Company and shall serve the Company
faithfully and to the best of his ability.
3. COMPENSATION AND BENEFITS.
3.1 The Company shall pay Employee during the Term of this Agreement
(or, if longer, during the term of Employee's employment with the Company or any
of its affiliates) an annual base salary, payable semi-monthly. The annual base
salary shall be One Hundred Fifty Thousand Dollars ($150,000.00 USD), adjustable
for merit increases. In addition to a base salary, the Employee is eligible for
an incentive bonus up to 100% of base salary per year, and an incentive stock
option plan, both of which are at the discretion of the Board of Directors.
Throughout the Term of this Agreement (or, if longer, during the term of
Employee's employment with the Company or any of its affiliates), the Company
shall pay Employee a car allowance, payable semi-monthly.
3.2 In addition to salary as provided above, the Company shall
provide Employee
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during the Term of this Agreement (or, if longer, during the term of Employee's
employment with the Company or any of its affiliates), with the benefits of such
insurance plans, hospitalization plans, stock plans, retirement plans, founder
benefits, health club membership, trade association membership and other
employee fringe benefits (including sick leave and four (4) weeks vacation time)
for which Employee may be eligible under the terms and conditions thereof. The
Company reserves the right to modify, delete or change its benefits at any time.
3.3 Throughout the Term of this Agreement, the Company shall
reimburse Employee for all reasonable out-of-pocket expenses incurred by
Employee in connection with the business of the Company and in performance of
his duties under this Agreement, upon presentation to the Company by Employee of
an itemized accounting of such expenses with reasonable supporting data.
4. TERM. The initial term of this Agreement shall commence on December
15, 1996 and shall terminate on December 15, 2001 ("Term") and shall continue
thereafter from year to year, unless and until either party terminates the
Agreement pursuant to Section 5 below. The applicable provisions of Sections 6,
7, 8, 9 and 10 shall remain in full force and effect as provided and for the
time periods specified in such Sections notwithstanding the termination of this
Agreement; all other obligations of either party to the other under this
Agreement shall terminate at the end of the Term.
5. TERMINATION.
5.1 If, during the Term of this Agreement, Employee dies or is
prevented from performing his duties by reason of illness or incapacity for one
hundred forty (140) days in any one hundred eighty (180) day period, the Company
may terminate this Agreement, upon thirty (30) days prior notice thereof to
Employee or his duly appointed legal representative.
5.2 The Company or the Employee may terminate this Agreement upon
at least thirty (30) days prior notice to Employee or the Company, respectively,
upon the happening of any of the following events:
5.2.1 The sale by the Company of substantially all of its
assets to a single purchaser or associated group of
purchasers who are not affiliates of the Company. For
the purposes of this Agreement, the term "affiliate"
means a person, firm or corporation that directly or
indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control
with the Company.
5.2.2 The sale, exchange or other disposition in one
transaction of eighty percent (80%) or more of the
outstanding voting stock of the Company to or with a
person, firm or corporation not then an affiliate of
the Company.
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5.2.3 The merger or consolidation of the Company in a
transaction not involving an affiliate of the Company
in which the shareholders of the Company receive less
than fifty percent (50%) of the outstanding voting
stock of the new continuing corporation.
5.2.4 A bona fide decision by the Company to terminate its
business and liquidate its assets (but only if such
liquidation is not part of a plan to carry on the
Company's business through its shareholders).
5.3 The Company may terminate this Agreement at any time for gross
negligence or substantial non-performance by Employee of any duty as an
executive officer of the Company which continues for a period of thirty (30)
days after written notice specifying such negligence or non-performance.
5.4 The Company may terminate this Agreement immediately upon the
intentional commission and conviction of a violation of any federal law, rule or
regulation, or any theft, fraud, embezzlement or similar crime involving the
commission of any felony, or for a material breach of any obligation or covenant
created by or under this Agreement.
5.5 Employer or Employee may terminate this Agreement without cause
upon at least thirty (30) days prior notice. Employee may also terminate this
Agreement if the Employer designates the Employee in a capacity of lessor
responsibility and Employee rejects such designation pursuant to Section 2
herein.
5.6 If this Agreement is terminated by the Company under
subsections 5.1, 5.2, 5.3 or 5.5 above, during the Term, or any renewal Term,
the Company shall continue to pay Employee's monthly base salary and bonus
compensation accrued, as shall be in effect on the termination date, for a
period of twenty-four (24) months following the date of termination
("Termination Fee"). In addition, all Employee stock options shall vest
immediately on date of termination and the exercise period shall be continued
through the exercise date specified in the option agreement. No Termination Fee
shall be paid to Employee in the event that this Agreement is terminated for any
other reason, including, without limitation, pursuant to subsection 5.4 herein.
6. COVENANT NOT TO COMPETE.
6.1 During the Term of this Agreement (or, if longer, during the
term of Employee's employment with the Company or any of its affiliates) and for
a period of twenty-four (24) months after termination of this Agreement (or, if
later, termination of Employee's employment with the Company or any of its
affiliates), Employee shall not, directly or indirectly, own, manage, operate,
control, be employed by, or participate in the ownership, management, operation
or control of a business that is engaged in the same business as the Company
within any area or at any location
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constituting, during the term of Employee's employment and/or at the time
Employee's employment is terminated, a Relevant Area. For the purposes of this
Section 6, including all subsections of this Section 6, the business in which
the Company is engaged in is the voice and data telecommunications business,
including local and long distance services, network integration, network
monitoring, customer premise equipment, and network equipment leasing, and which
other services the Company provides, whether or not the Company is authorized to
provide and actually provides such services during the term of Employee's
employment ("Services"). The "Relevant Area" shall be defined for the purposes
of this Agreement as any area located within, or within fifty (50) miles of, the
legal boundaries or limits of any city within which the Company or any parent,
subsidiary or affiliate thereof is providing Services, has commenced the
acquisition of any authorizations, rights of way or facilities or has commenced
the construction of facilities for the purpose of providing Services, or the
Company has publicly announced or privately disclosed in writing to Employee
that it plans to provide Services.
6.2 During the Term of this Agreement (or, if longer, during the
term of Employee's employment with the Company or any of its affiliates) and for
a period of twenty-four (24) months after termination of this Agreement (or, if
longer, termination of Employee's employment with the Company or any of its
affiliates), Employee shall not (i) directly or indirectly cause or attempt to
cause any employee of the Company or any of its affiliates to leave the employ
of the Company or any affiliate, (ii) in any way interfere with the relationship
between the Company and any employee or between an affiliate and any employee of
the affiliate, (iii) directly or indirectly hire any employee of the Company or
any affiliate to work for any organization of which Employee is an officer,
director, employee, consultant, independent contractor or owner of an equity or
other financial interest, or (iv) interfere or attempt to interfere with any
transaction in which the Company or any of its affiliates was involved during
the Term of this Agreement or Employee's employment, which ever is longer.
6.3 EMPLOYEE AGREES THAT, BECAUSE OF THE NATURE AND SENSITIVITY OF
THE INFORMATION TO WHICH HE WILL BE PRIVY AND BECAUSE OF THE NATURE AND NATIONAL
AND INTERNATIONAL SCOPE OF THE COMPANY'S BUSINESS, THE RESTRICTIONS IN THIS
SECTION 6 ARE FAIR AND REASONABLE.
7. CONFIDENTIAL INFORMATION.
7.1 The relationship between the Company and Employee is one of
confidence and trust. This relationship and the rights granted and duties
imposed by this Section shall continue until a date two (2) years from the date
Employee's employment is terminated.
7.2 As used in this Agreement (i) "Confidential Information" means
information disclosed to or acquired by Employee about the Company's plans,
products, processes and services including the Services and any Relevant Area,
including information relating to research, development, inventions,
manufacturing, purchasing, accounting, engineering, marketing, merchandising,
selling, pricing and tariffed or contractual terms, customer lists and prospect
lists or other market information, with respect to any of the Company's then
current business activities; and (ii) "Inventions" means any inventions,
discoveries, concepts and ideas, whether patentable or not, including, without
limitation,
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<PAGE>
processes, methods, formulas, and techniques (as well as related improvements
and knowledge) that are based on or related to Confidential Information, that
pertain in any manner to the Company's then currently used technology, expertise
or business and that are made or conceived by Employee, either solely or jointly
with others, and while employed by the Company or within six (6) months
thereafter, whether or not made or conceived during working hours or with the
use of the Company's facilities, materials or personnel.
7.3 Employee agrees that he shall at no time during the term of his
employment or at any time for a period of two (2) years thereafter disclose any
Confidential Information, Inventions or component thereof to any person, firm or
corporation to any extent or for any reason or purpose or use any Confidential
Information or component thereof for any purpose other than the conduct of the
Company's business.
7.4 Any Confidential Information, Invention or component thereof that
is directly or indirectly originated, developed or perfected to any degree by
Employee during the term of his employment by the Company shall be and remain
the sole property of the Company and shall be deemed trade secrets of the
Company.
7.5 Upon termination of Employee's employment pursuant to any of the
provisions herein, Employee or his legal representative shall deliver to the
Company all originals and all duplicates and/or copies of all documents,
records, notebooks, and similar repositories of or containing Confidential
Information or subject matter then in his possession, whether prepared by him or
not.
7.6 EMPLOYEE AGREES THAT THE COVENANTS AND AGREEMENTS CONTAINED IN
THIS SECTION 7 ARE FAIR AND REASONABLE AND THAT NO WAIVER OR MODIFICATION OF
THIS SECTION OR ANY COVENANT OR CONDITION SET FORTH HEREIN SHALL BE VALID UNLESS
SET FORTH IN WRITING AND DULY EXECUTED BY THE PARTIES HERETO. EMPLOYEE AGREES
TO EXECUTE SUCH SEPARATE AND FURTHER CONFIDENTIALITY AGREEMENTS EMBODYING AND
ENLARGING UPON THE PROVISIONS OF THIS SECTION 7 AS THE COMPANY MAY REASONABLY
REQUEST.
8. INJUNCTIVE RELIEF. Upon a breach or threatened breach by Employee of
any of the provisions of Sections 6 and 7 of this Agreement, the Company shall
be entitled to an injunction restraining Employee from such breach without a
showing of damage as irreparable harm. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies for such breach or
threatened breach, including recovery of damages from Employee.
9. NO WAIVER. A waiver by the Company of a breach of any provision of
this Agreement by Employee shall not operate or be construed as a waiver of any
subsequent or other breach by Employee.
10. SEVERABILITY. It is the desire and intent of the parties that the
provisions of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision or portion
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<PAGE>
of this Agreement shall be adjudicated to be invalid or unenforceable, this
Agreement shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such Section in the particular jurisdiction in which
such adjudication is made.
11. NOTICES. All communications, requests, consents and other notices
provided for in this Agreement shall be in writing and shall be deemed given if
mailed by first class mail, postage prepaid, certified or return receipt
requested to the addresses set forth above, or last known address and received
by the intended party. If the mailing is returned to the sender due to an
incorrect address, the correct address must be obtained in order for the
communication to be received and completed.
12. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Colorado.
13. ASSIGNMENT. The Company may assign its rights and obligations under
this Agreement to any affiliate of the Company or, subject to the provisions of
Section 5, to any acquirer of substantially all of the business of the Company,
and all covenants and agreements hereunder shall inure to the benefit of and be
enforceable by or against any such assignee. Neither this Agreement nor any
rights or duties hereunder may be assigned or delegated by Employee.
14. AMENDMENTS. No provision of this Agreement shall be altered, amended,
revoked or waived except by an instrument in writing, signed by each party to
this Agreement.
15. BINDING EFFECT. Except as otherwise provided herein, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective legal representatives, heirs, successors and assigns.
16. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
17. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
understanding of the parties and supersedes all prior understandings, agreements
or representations by or between the parties, whether written or oral, which
relate in any way to the subject matter hereof.
18. ARBITRATION. ANY DISPUTE ARISING OUT OF THIS AGREEMENT, THE
EMPLOYEE'S APPLICATION FOR EMPLOYMENT, THE EMPLOYEE'S RELATIONSHIP WITH THE
COMPANY, OR THE EMPLOYEE'S EMPLOYMENT OR SEPARATION FROM EMPLOYMENT SHALL BE
SUBJECT TO ARBITRATION PURSUANT TO THE COMPANY'S ARBITRATION PROCEDURES. THE
EMPLOYEE ACKNOWLEDGES THAT A COPY OF THE PROCEDURES HAS BEEN DELIVERED TO AND
READ BY THE EMPLOYEE PRIOR TO THE TIME HE/SHE EXECUTED THIS AGREEMENT. IT IS
UNDERSTOOD THAT ALL SECTIONS OF THE ARBITRATION PROCEDURES APPLY, EXCEPT THOSE
SECTIONS PERTAINING TO AT-WILL EMPLOYMENT, WHICH ARE SUPERSEDED BY THIS
EMPLOYMENT AGREEMENT.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CONVERGENT COMMUNICATIONS, INC.
By: /s/ Philip G. Allen
--------------------------------------------------
Title: Executive Vice President
-----------------------------------------------
EMPLOYEE:
/s/ John R. Evans
------------------------------------------------------
(Signature)
Print Name and Date: John R. Evans
----------------------------------
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<PAGE>
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT ("Amendment") is made this
13th day of April, 1998, by and between CONVERGENT COMMUNICATIONS, INC., a
Colorado corporation ("Employer" or the "Company") and JOHN R. EVANS
("EMPLOYEE").
A. The Parties have entered into that certain Employment Agreement dated
December 15, 1996 ("Agreement");
B. The Parties desire to amend and modify certain of the terms and
conditions of the Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and in the Agreement, the Parties agree as follows:
1. COMPENSATION AND BENEFITS. Section 3.1 of the Agreement shall be
amended to increase EMPLOYEE's annual base salary to Two Hundred Thousand
Dollars ($200,000.00).
2. OTHER TERMS AND CONDITIONS. All other terms and conditions of the
Agreement shall remain in full force and effect, as if fully stated herein.
3. CAPITALIZED TERMS. Capitalized terms, and other defined terms, shall
have the same meaning as that accorded to them in the Agreement, unless the
context requires otherwise.
4. CONFLICT. If there are any conflicting terms or conditions between
the terms and conditions of this Amendment and the terms and conditions of the
Agreement, the terms and conditions of this Amendment shall control.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
be executed by its duly authorized representative on the day and year first
above written.
CONVERGENT COMMUNICATIONS, INC., JOHN R. EVANS
a Colorado corporation
By /s/ Keith V. Burge /s/ John R. Evans
---------------------------------- --------------------------------
Its: President and Chief Operating Officer
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") made this 15th day of December,
1996, by and between CONVERGENT COMMUNICATIONS, INC., a Colorado corporation
whose address is 67 Inverness Drive East, Englewood, Colorado 80112 ("Employer"
or the "Company") and Philip G. Allen, an individual whose address is 3173 Elk
View Drive, Evergreen, Colorado 80439 ("Employee").
R E C I T A L S
A. Employer desires to hire and employ Employee as Executive Vice
President of Employer or any of its affiliates in such capacity of equal or
greater responsibility, as provided herein; and
B. Employee desires to be employed by Employer as provided herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company agrees to employ Employee and Employee
hereby agrees to be employed by the Company and/or such of its subsidiaries and
affiliate corporations as determined by the Company on a full-time basis, for
the period and upon the terms and conditions hereinafter set forth.
2. CAPACITY AND DUTIES. Employee shall be employed as Executive Vice
President of Employer or any of its affiliates in such capacity of equal or
greater responsibility. During his employment, Employee shall perform the
duties and bear the responsibilities commensurate with his position and as
directed by the Chief Executive Officer of the Company and shall serve the
Company faithfully and to the best of his ability.
3. COMPENSATION AND BENEFITS.
3.1 The Company shall pay Employee during the Term of this
Agreement (or, if longer, during the term of Employee's employment with the
Company or any of its affiliates) an annual base salary, payable semi-monthly.
The annual base salary shall be One Hundred Thousand Dollars ($100,000.00 USD),
adjustable for merit increases. In addition to a base salary, the Employee is
eligible for an incentive bonus up to 100% of base salary per year, and an
incentive stock option plan, both of which are at the discretion of the Board of
Directors. Throughout the Term of this Agreement (or, if longer, during the
term of Employee's employment with the Company or any of its affiliates), the
Company shall pay Employee a car allowance, payable semi-monthly.
3.2 In addition to salary as provided above, the Company shall
provide Employee
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<PAGE>
during the Term of this Agreement (or, if longer, during the term of Employee's
employment with the Company or any of its affiliates), with the benefits of such
insurance plans, hospitalization plans, stock plans, retirement plans, founder
benefits, health club membership, trade association membership, and other
employee fringe benefits (including sick leave and four (4) weeks vacation time)
as shall be generally provided to similar positions within the Company and for
which Employee may be eligible under the terms and conditions thereof. The
Company reserves the right to modify, delete or change its benefits at any time.
3.3 Throughout the Term of this Agreement, the Company shall
reimburse Employee for all reasonable out-of-pocket expenses incurred by
Employee in connection with the business of the Company and in performance of
his duties under this Agreement, upon presentation to the Company by Employee of
an itemized accounting of such expenses with reasonable supporting data.
4. TERM. The initial term of this Agreement shall commence on December
15, 1996 and shall terminate on December 15, 2001 ("Term") and shall continue
thereafter from year to year, unless and until either party terminates the
Agreement pursuant to Section 5 below. The applicable provisions of Sections 6,
7, 8, 9 and 10 shall remain in full force and effect as provided and for the
time periods specified in such Sections notwithstanding the termination of this
Agreement; all other obligations of either party to the other under this
Agreement shall terminate at the end of the Term.
5. TERMINATION.
5.1 If, during the Term of this Agreement, Employee dies or is
prevented from performing his duties by reason of illness or incapacity for one
hundred forty (140) days in any one hundred eighty (180) day period, the Company
may terminate this Agreement, upon thirty (30) days prior notice thereof to
Employee or his duly appointed legal representative.
5.2 The Company or the Employee may terminate this Agreement upon
at least thirty (30) days prior notice to Employee or the Company, respectively,
upon the happening of any of the following events:
5.2.1 The sale by the Company of substantially all of its
assets to a single purchaser or associated group of
purchasers who are not affiliates of the Company. For
the purposes of this Agreement, the term "affiliate"
means a person, firm or corporation that directly or
indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control
with the Company.
5.2.2 The sale, exchange or other disposition in one
transaction of eighty percent (80%) or more of the
outstanding voting stock of the Company to or with a
person, firm or corporation not then an affiliate
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<PAGE>
of the Company.
5.2.3 The merger or consolidation of the Company in a
transaction not involving an affiliate of the Company
in which the shareholders of the Company receive less
than fifty percent (50%) of the outstanding voting
stock of the new continuing corporation.
5.2.4 A bona fide decision by the Company to terminate its
business and liquidate its assets (but only if such
liquidation is not part of a plan to carry on the
Company's business through its shareholders).
5.3 The Company may terminate this Agreement at any time for
gross negligence or substantial non-performance by Employee of any duty as an
executive officer of the Company which continues for a period of thirty (30)
days after written notice specifying such negligence or non-performance.
5.4 The Company may terminate this Agreement immediately upon the
intentional commission and conviction of a violation of any federal law, rule or
regulation, or any theft, fraud, embezzlement or similar crime involving the
commission of any felony, or for a material breach of any obligation or covenant
created by or under this Agreement.
5.5 Employer or Employee may terminate this Agreement without
cause upon at least thirty (30) days prior notice. Employee may also terminate
this Agreement if the Employer designates the Employee in a capacity of lessor
responsibility and Employee rejects such designation pursuant to Section 2
herein.
5.6 If this Agreement is terminated by the Company under
subsections 5.1, 5.2, 5.3 or 5.5 above, during the Term, or any renewal Term,
the Company shall continue to pay Employee's monthly base salary and bonus
compensation accrued, as shall be in effect on the termination date, for a
period of twenty-four (24) months following the date of termination
("Termination Fee"). In addition, all Employee stock options shall vest
immediately on date of termination and the exercise period shall be continued
through the exercise date specified in the option agreement. No Termination Fee
shall be paid to Employee in the event that this Agreement is terminated for any
other reason, including, without limitation, pursuant to subsection 5.4 herein.
6. COVENANT NOT TO COMPETE.
6.1 During the Term of this Agreement (or, if longer, during the
term of Employee's employment with the Company or any of its affiliates) and for
a period of twenty-four (24) months after termination of this Agreement (or, if
later, termination of Employee's employment with the Company or any of its
affiliates), Employee shall not, directly or indirectly, own, manage, operate,
control, be employed by, or participate in the ownership, management, operation
or control of a
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<PAGE>
business that is engaged in the same business as the Company within any area or
at any location constituting, during the term of Employee's employment and/or at
the time Employee's employment is terminated, a Relevant Area. For the purposes
of this Section 6, including all subsections of this Section 6, the business in
which the Company is engaged is that business commonly known as the competitive
local exchange carrier (local telephone) business, and which services the
Company provides, whether or not the Company is authorized to provide and
actually provides such services during the term of Employee's employment
("Services"). The "Relevant Area" shall be defined for the purposes of this
Agreement as any area located within, or within fifty (50) miles of, the legal
boundaries or limits of any city within which the Company or any parent,
subsidiary or affiliate thereof is providing Services, has commenced the
acquisition of any authorizations, rights of way or facilities or has commenced
the construction of facilities for the purpose of providing Services, or the
Company has publicly announced or privately disclosed in writing to Employee
that it plans to provide Services.
6.2 During the Term of this Agreement (or, if longer, during the
term of Employee's employment with the Company or any of its affiliates) and for
a period of twenty-four (24) months after termination of this Agreement (or, if
longer, termination of Employee's employment with the Company or any of its
affiliates), Employee shall not (i) directly or indirectly cause or attempt to
cause any employee of the Company or any of its affiliates to leave the employ
of the Company or any affiliate, (ii) in any way interfere with the relationship
between the Company and any employee or between an affiliate and any employee of
the affiliate, (iii) directly or indirectly hire any employee of the Company or
any affiliate to work for any organization of which Employee is an officer,
director, employee, consultant, independent contractor or owner of an equity or
other financial interest, or (iv) interfere or attempt to interfere with any
transaction in which the Company or any of its affiliates was involved during
the Term of this Agreement or Employee's employment, which ever is longer.
6.3 EMPLOYEE AGREES THAT, BECAUSE OF THE NATURE AND SENSITIVITY OF
THE INFORMATION TO WHICH HE WILL BE PRIVY AND BECAUSE OF THE NATURE AND NATIONAL
AND INTERNATIONAL SCOPE OF THE COMPANY'S BUSINESS, THE RESTRICTIONS IN THIS
SECTION 6 ARE FAIR AND REASONABLE.
7. CONFIDENTIAL INFORMATION.
7.1 The relationship between the Company and Employee is one of
confidence and trust. This relationship and the rights granted and duties
imposed by this Section shall continue until a date two (2) years from the date
Employee's employment is terminated.
7.2 As used in this Agreement (i) "Confidential Information" means
information disclosed to or acquired by Employee about the Company's plans,
products, processes and services including the Services and any Relevant Area,
including information relating to research, development, inventions,
manufacturing, purchasing, accounting, engineering, marketing, merchandising,
selling, pricing and tariffed or contractual terms, customer lists and prospect
lists or other market information, with respect to any of the Company's then
current business activities; and (ii) "Inventions" means any inventions,
discoveries, concepts and ideas, whether patentable or not, including, without
limitation,
-4-
<PAGE>
processes, methods, formulas, and techniques (as well as related improvements
and knowledge) that are based on or related to Confidential Information, that
pertain in any manner to the Company's then currently used technology, expertise
or business and that are made or conceived by Employee, either solely or jointly
with others, and while employed by the Company or within six (6) months
thereafter, whether or not made or conceived during working hours or with the
use of the Company's facilities, materials or personnel.
7.3 Employee agrees that he shall at no time during the term of
his employment or at any time for a period of two (2) years thereafter disclose
any Confidential Information, Inventions or component thereof to any person,
firm or corporation to any extent or for any reason or purpose or use any
Confidential Information or component thereof for any purpose other than the
conduct of the Company's business.
7.4 Any Confidential Information, Invention or component thereof
that is directly or indirectly originated, developed or perfected to any degree
by Employee during the term of his employment by the Company shall be and remain
the sole property of the Company and shall be deemed trade secrets of the
Company.
7.5 Upon termination of Employee's employment pursuant to any of
the provisions herein, Employee or his legal representative shall deliver to the
Company all originals and all duplicates and/or copies of all documents,
records, notebooks, and similar repositories of or containing Confidential
Information or subject matter then in his possession, whether prepared by him or
not.
7.6 EMPLOYEE AGREES THAT THE COVENANTS AND AGREEMENTS CONTAINED IN
THIS SECTION 7 ARE FAIR AND REASONABLE AND THAT NO WAIVER OR MODIFICATION OF
THIS SECTION OR ANY COVENANT OR CONDITION SET FORTH HEREIN SHALL BE VALID UNLESS
SET FORTH IN WRITING AND DULY EXECUTED BY THE PARTIES HERETO. EMPLOYEE AGREES
TO EXECUTE SUCH SEPARATE AND FURTHER CONFIDENTIALITY AGREEMENTS EMBODYING AND
ENLARGING UPON THE PROVISIONS OF THIS SECTION 7 AS THE COMPANY MAY REASONABLY
REQUEST.
8. INJUNCTIVE RELIEF. Upon a breach or threatened breach by Employee
of any of the provisions of Sections 6 and 7 of this Agreement, the Company
shall be entitled to an injunction restraining Employee from such breach without
a showing of damage as irreparable harm. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies for such breach or
threatened breach, including recovery of damages from Employee.
9. NO WAIVER. A waiver by the Company of a breach of any provision of
this Agreement by Employee shall not operate or be construed as a waiver of any
subsequent or other breach by Employee.
10. SEVERABILITY. It is the desire and intent of the parties that the
provisions of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision or portion
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<PAGE>
of this Agreement shall be adjudicated to be invalid or unenforceable, this
Agreement shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such Section in the particular jurisdiction in which
such adjudication is made.
11. NOTICES. All communications, requests, consents and other notices
provided for in this Agreement shall be in writing and shall be deemed given if
mailed by first class mail, postage prepaid, certified or return receipt
requested to the addresses set forth above, or last known address and received
by the intended party. If the mailing is returned to the sender due to an
incorrect address, the correct address must be obtained in order for the
communication to be received and completed.
12. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Colorado.
13. ASSIGNMENT. The Company may assign its rights and obligations under
this Agreement to any affiliate of the Company or, subject to the provisions of
Section 5, to any acquirer of substantially all of the business of the Company,
and all covenants and agreements hereunder shall inure to the benefit of and be
enforceable by or against any such assignee. Neither this Agreement nor any
rights or duties hereunder may be assigned or delegated by Employee.
14. AMENDMENTS. No provision of this Agreement shall be altered,
amended, revoked or waived except by an instrument in writing, signed by each
party to this Agreement.
15. BINDING EFFECT. Except as otherwise provided herein, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective legal representatives, heirs, successors and assigns.
16. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
17. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties and supersedes all prior understandings,
agreements or representations by or between the parties, whether written or
oral, which relate in any way to the subject matter hereof.
18. ARBITRATION. ANY DISPUTE ARISING OUT OF THIS AGREEMENT, THE
EMPLOYEE'S APPLICATION FOR EMPLOYMENT, THE EMPLOYEE'S RELATIONSHIP WITH THE
COMPANY, OR THE EMPLOYEE'S EMPLOYMENT OR SEPARATION FROM EMPLOYMENT SHALL BE
SUBJECT TO ARBITRATION PURSUANT TO THE COMPANY'S ARBITRATION PROCEDURES. THE
EMPLOYEE ACKNOWLEDGES THAT A COPY OF THE PROCEDURES HAS BEEN DELIVERED TO AND
READ BY THE EMPLOYEE PRIOR TO THE TIME HE/SHE EXECUTED THIS AGREEMENT. IT IS
UNDERSTOOD THAT ALL SECTIONS OF THE ARBITRATION PROCEDURES APPLY, EXCEPT THOSE
SECTIONS PERTAINING TO AT-WILL EMPLOYMENT, WHICH ARE SUPERSEDED BY THIS
EMPLOYMENT AGREEMENT.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CONVERGENT COMMUNICATIONS, INC.
By:
------------------------------------
Title:
---------------------------------
EMPLOYEE:
----------------------------------------
(Signature)
Print Name and Date:
--------------------
Print Street Address:
-------------------
Print City, State & Zip:
----------------
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<PAGE>
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT ("Amendment") is made
this 13th day of April, 1998, by and between CONVERGENT COMMUNICATIONS, INC., a
Colorado corporation ("Employer" or the "Company") and PHILIP G. ALLEN
("EMPLOYEE").
A. The Parties have entered into that certain Employment Agreement
dated December 15, 1996 ("Agreement");
B. The Parties desire to amend and modify certain of the terms and
conditions of the Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and in the Agreement, the Parties agree as follows:
1. COMPENSATION AND BENEFITS.
1.1 Section 3.1 of the Agreement shall be amended to increase
EMPLOYEE's annual base salary to One Hundred Fifty Thousand Dollars
($150,000.00).
1.2 Section 3.1 of the Agreement shall be further amended to
reduce the amount of incentive bonus that the EMPLOYEE is eligible to receive to
50% of the EMPLOYEE's base salary.
2. OTHER TERMS AND CONDITIONS. All other terms and conditions of the
Agreement shall remain in full force and effect, as if fully stated herein.
3. CAPITALIZED TERMS. Capitalized terms, and other defined terms,
shall have the same meaning as that accorded to them in the Agreement, unless
the context requires otherwise.
4. CONFLICT. If there are any conflicting terms or conditions between
the terms and conditions of this Amendment and the terms and conditions of the
Agreement, the terms and conditions of this Amendment shall control.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
to be executed by its duly authorized representative on the day and year first
above written.
CONVERGENT COMMUNICATIONS, INC., PHILIP G. ALLEN
a Colorado corporation
By /s/ John R. Evans /s/ Philip G. Allen
---------------------------------- ------------------------------
Its: Chairman and Chief Executive Officer
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") made this 7th day of August, 1997,
by and between CONVERGENT COMMUNICATIONS, INC., a Colorado corporation whose
address is 67 Inverness Drive East, Suite 110, Englewood, Colorado 80112
("Employer" or the "Company") and MARTIN E. FREIDEL an individual whose address
is 3426 Woody Creek, Evergreen, Colorado 80439-7996 ("Employee").
R E C I T A L S
A. Employer desires to hire and employ Employee as Executive Vice
President and General Counsel of Employer, as provided herein; and
B. Employee desires to be employed by Employer as provided herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company agrees to employ Employee and Employee
hereby agrees to be employed by the Company and/or such of its subsidiaries and
affiliate corporations as determined by the Company on a full-time basis, for
the period and upon the terms and conditions hereinafter set forth.
2. CAPACITY AND DUTIES. Employee shall be employed as Executive Vice
President and General Counsel of Employer and each of its subsidiaries. During
his employment, Employee shall perform the duties and bear the responsibilities
commensurate with his position and as directed by the Chief Executive Officer
and the Board of Directors of the Company and shall serve the Company faithfully
and to the best of his ability.
3. COMPENSATION AND BENEFITS.
3.1 The Company shall pay Employee during the Term of this
Agreement an initial annual base salary, payable semi-monthly in arrears. The
initial annual base salary shall be One Hundred Twenty-Five Thousand Dollars
($125,000.00). The Board of Directors of the Company may increase that amount
from time to time in their discretion.
3.2 In addition to his base salary, the Company, during the Term
of this Agreement, shall pay Employee a performance bonus for each fiscal year
of the Company after the end of the fiscal year, in an exact amount to be
determined by
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<PAGE>
the Board of Directors of the Company. The target bonus will be one hundred
percent (100%) of Employee's annual base salary. This bonus may be adjusted
based upon performance and as determined by the Board of Directors of the
Company.
3.3 Throughout the Term of this Agreement, the Company shall
provide Employee a monthly car allowance in the amount of $500.00.
3.4 In addition to salary as provided above, the Company shall
provide Employee during the Term of this Agreement, with the benefits of such
insurance plans, hospitalization plans, stock plans, retirement plans and other
employee fringe benefits (including sick leave and four (4) weeks annual
vacation time) as shall be generally provided to similar positions within the
Company and for which Employee may be eligible under the terms and conditions
thereof. The Company reserves the right to modify, delete or change its
benefits at any time.
3.5 Throughout the Term of this Agreement, the Company shall
reimburse Employee for all reasonable out-of-pocket expenses incurred by
Employee in connection with the business of the Company and in performance of
his duties under this Agreement, upon presentation to the Company by Employee of
an itemized accounting of such expenses with reasonable supporting data.
3.6 The Company will provide to Employee from time to time stock
options under the Company's Incentive Stock Option Plans. Employee initially
will have the option to purchase a total of Three Hundred Thousand (300,000)
shares of the Company's no par value common stock ("Common Stock"), which shares
will vest as to twenty percent (20%) of the total on each twelve (12) month
anniversary of the date of granting of the options. The grant price will be
$2.50 per share.
4. TERM. The term ("Term") of this Agreement shall commence on
September 15, 1997 and shall continue for an initial term of five (5) years
(through September 15, 2002). Thereafter, the Term of this Agreement shall
continue on an annual basis, from year to year, unless and until either party
terminates the Agreement pursuant to Section 5 below. The applicable provisions
of Sections 6, 7, 8, 9 and 10 shall remain in full force and effect as provided
and for the time periods specified in such Sections notwithstanding the
termination of this Agreement; all other obligations of either party to the
other under this Agreement shall terminate at the end of the Term.
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<PAGE>
5. TERMINATION.
5.1 If, during the Term of this Agreement, Employee dies or is
prevented from performing his duties by reason of illness or incapacity for one
hundred forty (140) days in any one hundred eighty (180) day period, the Company
may terminate this Agreement, upon thirty (30) days prior notice thereof to
Employee or his duly appointed legal representative.
5.2 The Company or the Employee may terminate this Agreement upon
at least thirty (30) days prior notice to Employee upon the happening of any of
the following events:
5.2.1 The sale by the Company of substantially all of its
assets to a single purchaser or associated group of purchasers who are not
affiliates of the Company. For the purposes of this Agreement, the term
"affiliate" means a person, firm or corporation that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with the Company.
5.2.2 The sale, exchange or other disposition in one
transaction of eighty percent (80%) or more of the outstanding voting stock
of the Company to or with a person, firm or corporation not then an affiliate
of the Company.
5.2.3 The merger or consolidation of the Company in a
transaction not involving an affiliate of the Company in which the
shareholders of the Company receive less than fifty percent (50%) of the
outstanding voting stock of the new continuing corporation.
5.2.4 A bona fide decision by the Company to terminate its
business and liquidate its assets (but only if such liquidation is not part
of a plan to carry on the Company's business through its shareholders).
5.3 The Company may terminate this Agreement at any time for
gross negligence or material non-performance by Employee of any duty as an
executive officer of the Company which continues for a period of thirty (30)
days after written notice specifying such negligence or non-performance.
5.4 The Company may terminate this Agreement immediately upon the
commission of a violation of any federal law, rule or regulation, or any theft,
fraud, embezzlement or similar crime involving the commission of any felony, or
for a
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<PAGE>
material breach of any obligation or covenant created by or under this
Agreement.
5.5 Employer or Employee may terminate this Agreement without
cause upon at least thirty (30) days prior notice.
5.6 If this Agreement is terminated (i) by the Company or Employee
under subsection 5.2; or (ii) by the Company under subsections 5.1 or 5.5 above,
during the Term, or any renewal Term, the Company shall pay Employee a
termination fee ("Termination Fee") equal to Employee's monthly salary at the
time of termination multiplied by twenty-four (24). In addition, the Company
shall continue to provide Employee with all employee benefits that were being
provided at the time of termination for a period of twelve (12) months from the
date of termination. No Termination Fee shall be paid to Employee in the event
that this Agreement is terminated for any other reason, including, without
limitation, pursuant to subsections 5.3, 5.4 or without cause by Employee
pursuant to subsection 5.5 herein.
6. NON-INTERVENTION.
6.1 During the Term of this Agreement (or, if longer, during the
term of Employee's employment with the Company or any of its affiliates) and for
a period of twelve (12) months after termination of this Agreement (or, if
longer, termination of Employee's employment with the Company or any of its
affiliates), Employee shall not (i) directly or indirectly cause or attempt to
cause any employee of the Company or any of its affiliates to leave the employ
of the Company or any affiliate, (ii) in any way interfere with the relationship
between the Company and any employee or between an affiliate and any employee of
the affiliate, (iii) directly or indirectly hire any employee of the Company or
any affiliate to work for any organization of which Employee is an officer,
director, employee, consultant, independent contractor or owner of an equity or
other financial interest, or (iv) interfere or attempt to interfere with any
transaction in which the Company or any of its affiliates was involved during
the Term of this Agreement or Employee's employment, which ever is longer.
6.2 EMPLOYEE AGREES THAT, BECAUSE OF THE NATURE AND SENSITIVITY OF
THE INFORMATION TO WHICH HE WILL BE PRIVY AND BECAUSE OF THE NATURE AND NATIONAL
AND INTERNATIONAL SCOPE OF THE COMPANY'S BUSINESS, THE RESTRICTIONS IN THIS
SECTION 6 ARE FAIR AND REASONABLE.
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<PAGE>
7. CONFIDENTIAL INFORMATION.
7.1 The relationship between the Company and Employee is one of
confidence and trust. This relationship and the rights granted and duties
imposed by this Section shall continue until a date two (2) years from the date
Employee's employment is terminated.
7.2 As used in this Agreement (i) "Confidential Information" means
information disclosed to or acquired by Employee about the Company's plans,
products, processes and services including the Services and any Relevant Area,
including information relating to research, development, inventions,
manufacturing, purchasing, accounting, engineering, marketing, merchandising,
selling, pricing and tariffed or contractual terms, customer lists and prospect
lists or other market information, with respect to any of the Company's then
current business activities; and (ii) "Inventions" means any inventions,
discoveries, concepts and ideas, whether patentable or not, including, without
limitation, processes, methods, formulas, and techniques (as well as related
improvements and knowledge) that are based on or related to Confidential
Information, that pertain in any manner to the Company's then currently used
technology, expertise or business and that are made or conceived by Employee,
either solely or jointly with others, and while employed by the Company or
within six (6) months thereafter, whether or not made or conceived during
working hours or with the use of the Company's facilities, materials or
personnel.
7.3 Employee agrees that he shall at no time during the term of
his employment or at any time for a period of ten (10) years thereafter disclose
any Confidential Information, Inventions or component thereof to any person,
firm or corporation to any extent or for any reason or purpose or use any
Confidential Information or component thereof for any purpose other than the
conduct of the Company's business.
7.4 Any Confidential Information, Invention or component thereof
that is directly or indirectly originated, developed or perfected to any degree
by Employee during the term of his employment by the Company shall be and remain
the sole property of the Company and shall be deemed trade secrets of the
Company.
7.5 Upon termination of Employee's employment pursuant to any of
the provisions herein, Employee or his legal representative shall deliver to the
Company all originals and all duplicates and/or copies of all documents,
records, notebooks,
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<PAGE>
and similar repositories of or containing Confidential Information or subject
matter then in his possession, whether prepared by him or not.
7.6 EMPLOYEE AGREES THAT THE COVENANTS AND AGREEMENTS CONTAINED IN
THIS SECTION 7 ARE FAIR AND REASONABLE AND THAT NO WAIVER OR MODIFICATION OF
THIS SECTION OR ANY COVENANT OR CONDITION SET FORTH HEREIN SHALL BE VALID UNLESS
SET FORTH IN WRITING AND DULY EXECUTED BY THE PARTIES HERETO. EMPLOYEE AGREES
TO EXECUTE SUCH SEPARATE AND FURTHER CONFIDENTIALITY AGREEMENTS EMBODYING AND
ENLARGING UPON THE PROVISIONS OF THIS SECTION 7 AS THE COMPANY MAY REASONABLY
REQUEST.
8. INJUNCTIVE RELIEF. Upon a breach or threatened breach by Employee
of any of the provisions of Sections 6 or 7 of this Agreement, the Company shall
be entitled to an injunction restraining Employee from such breach without a
showing of damage as irreparable harm. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies for such breach or
threatened breach, including recovery of damages from Employee.
9. NO WAIVER. A waiver by the Company of a breach of any provision of
this Agreement by Employee shall not operate or be construed as a waiver of any
subsequent or other breach by Employee.
10. SEVERABILITY. It is the desire and intent of the parties that the
provisions of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision or portion of
this Agreement shall be adjudicated to be invalid or unenforceable, this
Agreement shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such Section in the particular jurisdiction in which
such adjudication is made.
11. NOTICES. All communications, requests, consents and other notices
provided for in this Agreement shall be in writing and shall be deemed given if
mailed by first class mail, postage prepaid, certified or return receipt
requested to the addresses set forth above, or last known address.
12. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Colorado.
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<PAGE>
13. ASSIGNMENT. The Company may assign its rights and obligations under
this Agreement to any affiliate of the Company or, subject to the provisions of
Section 5, to any acquirer of substantially all of the business of the Company,
and all covenants and agreements hereunder shall inure to the benefit of and be
enforceable by or against any such assignee. Neither this Agreement nor any
rights or duties hereunder may be assigned or delegated by Employee.
14. AMENDMENTS. No provision of this Agreement shall be altered,
amended, revoked or waived except by an instrument in writing, signed by each
party to this Agreement.
15. BINDING EFFECT. Except as otherwise provided herein, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective legal representatives, heirs, successors and assigns.
16. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
17. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties and supersedes all prior understandings,
agreements or representations by or between the parties, whether written or
oral, which relate in any way to the subject matter hereof.
18. ARBITRATION. ANY DISPUTE ARISING OUT OF THIS AGREEMENT, THE
EMPLOYEE'S APPLICATION FOR EMPLOYMENT, THE EMPLOYEE'S RELATIONSHIP WITH THE
COMPANY, OR THE EMPLOYEE'S EMPLOYMENT OR SEPARATION FROM EMPLOYMENT SHALL BE
SUBJECT TO ARBITRATION PURSUANT TO THE COMPANY'S ARBITRATION PROCEDURES. THE
EMPLOYEE ACKNOWLEDGES THAT A COPY OF THE PROCEDURES HAVE BEEN DELIVERED TO AND
READ BY THE EMPLOYEE PRIOR TO THE TIME HE/SHE EXECUTED THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CONVERGENT COMMUNICATIONS, INC.
By: /s/ John R. Evans
-------------------------------
John R. Evans, Chief Executive
Officer
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<PAGE>
EMPLOYEE:
/s/ Martin E. Freidel
-----------------------------------
Martin E. Freidel
Dated: August 7, 1997
-----------------------------
-8-
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") made this 3rd day of March,
1997, by and between CONVERGENT COMMUNICATIONS, INC., a Colorado corporation
whose address is 67 Inverness Drive East, Englewood, Colorado 80112
("Employer" or the "Company") and John Phibbs, an individual whose address is
1630 Gore Drive, Larkspur, Colorado 80118 ("Employee").
R E C I T A L S
A. Employer desires to hire and employ Employee as Vice President,
Finance and Administration, of Employer or any of its affiliates in such
capacity of equal or greater responsibility, as provided herein; and
B. Employee desires to be employed by Employer as provided herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company agrees to employ Employee and Employee
hereby agrees to be employed by the Company and/or such of its subsidiaries
and affiliate corporations as determined by the Company on a full-time basis,
for the period and upon the terms and conditions hereinafter set forth.
2. CAPACITY AND DUTIES. Employee shall be employed as Vice President,
Finance and Administration, of Employer or any of its affiliates in such
capacity of equal or greater responsibility. During his employment, Employee
shall perform the duties and bear the responsibilities commensurate with his
position and as directed by the Chief Executive Officer of the Company and
shall serve the Company faithfully and to the best of his ability.
3. COMPENSATION AND BENEFITS.
3.1 The Company shall pay Employee during the Term of this
Agreement (or, if longer, during the term of Employee's employment with the
Company or any of its affiliates) an annual base salary, payable
semi-monthly. The annual base salary shall be One Hundred Fifteen Thousand
Dollars ($115,000.00 USD), adjustable for annual merit increases. In
addition to a base salary the Employee is eligible for an incentive bonus up
to 50% of base salary per year, and an incentive stock option plan, both of
which are at the discretion of the Board of Directors. Throughout the Term
of this Agreement (or, if longer, during the term of Employee's employment
with the Company or any of its affiliates), the Company shall pay Employee a
car allowance, payable semi-monthly..
3.2 In addition to salary as provided above, the Company shall
provide Employee during the Term of this Agreement (or, if longer, during the
term of Employee's employment with the Company or any of its affiliates),
with the benefits of such insurance plans, hospitalization plans, stock
plans, retirement plans and other employee fringe benefits (including sick
leave and four (4) weeks vacation time) as shall be generally provided to
similar positions within the Company and for which Employee may be eligible
under
<PAGE>
the terms and conditions thereof. The Company reserves the right to modify,
delete or change its benefits at any time.
3.3 Throughout the Term of this Agreement, the Company shall
reimburse Employee for all reasonable out-of-pocket expenses incurred by
Employee in connection with the business of the Company and in performance of
his duties under this Agreement, upon presentation to the Company by Employee
of an itemized accounting of such expenses with reasonable supporting data.
4. TERM. The initial term of this Agreement shall commence on
March 3, 1997 and shall terminate on March 3, 1998 ("Term") and shall
continue thereafter from month to month, unless and until either party
terminates the Agreement pursuant to Section 5 below. The applicable
provisions of Sections 6, 7, 8, 9 and 10 shall remain in full force and
effect as provided and for the time periods specified in such Sections
notwithstanding the termination of this Agreement; all other obligations of
either party to the other under this Agreement shall terminate at the end of
the Term.
5. TERMINATION.
5.1 If, during the Term of this Agreement, Employee dies or is
prevented from performing his duties by reason of illness or incapacity for
one hundred forty (140) days in any one hundred eighty (180) day period, the
Company may terminate this Agreement, upon thirty (30) days prior notice
thereof to Employee or his duly appointed legal representative.
5.2 The Company or the Employee may terminate this Agreement upon
at least thirty (30) days prior notice to Employee upon the happening of any
of the following events:
5.2.1 The sale by the Company of substantially all of its
assets to a single purchaser or associated group of
purchasers who are not affiliates of the Company.
For the purposes of this Agreement, the term
"affiliate" means a person, firm or corporation that
directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is
under common control with the Company.
5.2.2 The sale, exchange or other disposition in one
transaction of eighty percent (80%) or more of the
outstanding voting stock of the Company to or with a
person, firm or corporation not then an affiliate of
the Company.
5.2.3 The merger or consolidation of the Company in a
transaction not involving an affiliate of the
Company in which the shareholders of the Company
receive less than fifty percent (50%) of the
outstanding voting stock of the new continuing
corporation.
5.2.4 A bona fide decision by the Company to terminate its
business and liquidate its assets (but only if such
liquidation is not part of a plan to carry on the
Company's business through its shareholders).
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<PAGE>
5.3 The Company may terminate this Agreement at any time for
gross negligence or non-performance by Employee of any duty as an employee of
the Company which continues for a period of thirty (30) days after written
notice specifying such negligence or non-performance.
5.4 The Company may terminate this Agreement immediately upon the
intentional commission of a violation of any federal law, rule or regulation,
or any theft, fraud, embezzlement or similar crime involving the commission
of any felony, or for a material breach of any obligation or covenant created
by or under this Agreement.
5.5 Employer or Employee may terminate this Agreement without
cause upon at least thirty (30) days prior notice. Employee may also
terminate this Agreement if the Employer designates the Employee in a
capacity of lessor responsibility and Employee rejects such designation
pursuant to Section 2 herein.
5.6 If this Agreement is terminated by the Company under
subsections 5.1, 5.2 or 5.5 above, during the Term, or any renewal Term, the
Company shall continue to pay Employee's monthly base salary, as shall be in
effect on the termination date, for a period of twelve (12) months following
the date of termination ("Termination Fee"). No Termination Fee shall be
paid to Employee in the event that this Agreement is terminated for any other
reason, including, without limitation, pursuant to subsections 5.3 and 5.4
herein.
6. COVENANT NOT TO COMPETE.
6.1 During the Term of this Agreement (or, if longer, during the
term of Employee's employment with the Company or any of its affiliates) and
for a period of twelve (12) months after termination of this Agreement (or,
if later, termination of Employee's employment with the Company or any of its
affiliates), Employee shall not, directly or indirectly, own, manage,
operate, control, be employed by, or participate in the ownership,
management, operation or control of a business that is engaged in the same
business as the Company within any area or at any location constituting,
during the term of Employee's employment and/or at the time Employee's
employment is terminated, a Relevant Area. For the purposes of this Section
6, including all subsections of this Section 6, the business in which the
Company is engaged in is the voice and data telecommunications business,
including local and long distance services, network integration, network
monitoring, customer premise equipment, and network equipment leasing, and
which other services the Company provides, whether or not the Company is
authorized to provide and actually provides such services during the term of
Employee's employment ("Services"). The "Relevant Area" shall be defined for
the purposes of this Agreement as any area located within, or within fifty
(50) miles of, the legal boundaries or limits of any city within which the
Company or any parent, subsidiary or affiliate thereof is providing Services,
has commenced the acquisition of any authorizations, rights of way or
facilities or has commenced the construction of facilities for the purpose of
providing Services, or the Company has publicly announced or privately
disclosed in writing to Employee that it plans to provide Services.
6.2 During the Term of this Agreement (or, if longer, during the
term of Employee's
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<PAGE>
employment with the Company or any of its affiliates) and for a period of
twenty-four (24) months after termination of this Agreement (or, if longer,
termination of Employee's employment with the Company or any of its
affiliates), Employee shall not (i) directly or indirectly cause or attempt
to cause any employee of the Company or any of its affiliates to leave the
employ of the Company or any affiliate, (ii) in any way interfere with the
relationship between the Company and any employee or between an affiliate and
any employee of the affiliate, (iii) directly or indirectly hire any employee
of the Company or any affiliate to work for any organization of which
Employee is an officer, director, employee, consultant, independent
contractor or owner of an equity or other financial interest, or (iv)
interfere or attempt to interfere with any transaction in which the Company
or any of its affiliates was involved during the Term of this Agreement or
Employee's employment, which ever is longer.
6.3 EMPLOYEE AGREES THAT, BECAUSE OF THE NATURE AND SENSITIVITY OF
THE INFORMATION TO WHICH HE WILL BE PRIVY AND BECAUSE OF THE NATURE AND
NATIONAL AND INTERNATIONAL SCOPE OF THE COMPANY'S BUSINESS, THE RESTRICTIONS
IN THIS SECTION 6 ARE FAIR AND REASONABLE.
7. CONFIDENTIAL INFORMATION.
7.1 The relationship between the Company and Employee is one of
confidence and trust. This relationship and the rights granted and duties
imposed by this Section shall continue until a date two (2) years from the
date Employee's employment is terminated.
7.2 As used in this Agreement (i) "Confidential Information" means
information disclosed to or acquired by Employee about the Company's plans,
products, processes and services including the Services and any Relevant
Area, including information relating to research, development, inventions,
manufacturing, purchasing, accounting, engineering, marketing, merchandising,
selling, pricing and tariffed or contractual terms, customer lists and
prospect lists or other market information, with respect to any of the
Company's then current business activities; and (ii) "Inventions" means any
inventions, discoveries, concepts and ideas, whether patentable or not,
including, without limitation, processes, methods, formulas, and techniques
(as well as related improvements and knowledge) that are based on or related
to Confidential Information, that pertain in any manner to the Company's then
currently used technology, expertise or business and that are made or
conceived by Employee, either solely or jointly with others, and while
employed by the Company or within six (6) months thereafter, whether or not
made or conceived during working hours or with the use of the Company's
facilities, materials or personnel.
7.3 Employee agrees that he shall at no time during the term of
his employment or at any time for a period of two (2) years thereafter
disclose any Confidential Information, Inventions or component thereof to any
person, firm or corporation to any extent or for any reason or purpose or use
any Confidential Information or component thereof for any purpose other than
the conduct of the Company's business.
7.4 Any Confidential Information, Invention or component thereof
that is directly or indirectly originated, developed or perfected to any
degree by Employee during the term of his employment by the Company shall be
and remain the sole property of the Company and shall be deemed trade secrets
of the Company.
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<PAGE>
7.5 Upon termination of Employee's employment pursuant to any of
the provisions herein, Employee or his legal representative shall deliver to
the Company all originals and all duplicates and/or copies of all documents,
records, notebooks, and similar repositories of or containing Confidential
Information or subject matter then in his possession, whether prepared by him
or not.
7.6 EMPLOYEE AGREES THAT THE COVENANTS AND AGREEMENTS CONTAINED IN
THIS SECTION 7 ARE FAIR AND REASONABLE AND THAT NO WAIVER OR MODIFICATION OF
THIS SECTION OR ANY COVENANT OR CONDITION SET FORTH HEREIN SHALL BE VALID
UNLESS SET FORTH IN WRITING AND DULY EXECUTED BY THE PARTIES HERETO.
EMPLOYEE AGREES TO EXECUTE SUCH SEPARATE AND FURTHER CONFIDENTIALITY
AGREEMENTS EMBODYING AND ENLARGING UPON THE PROVISIONS OF THIS SECTION 7 AS
THE COMPANY MAY REASONABLY REQUEST.
8. INJUNCTIVE RELIEF. Upon a breach or threatened breach by Employee
of any of the provisions of Sections 6 and 7 of this Agreement, the Company
shall be entitled to an injunction restraining Employee from such breach
without a showing of damage as irreparable harm. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies for
such breach or threatened breach, including recovery of damages from Employee.
9. NO WAIVER. A waiver by the Company of a breach of any provision of
this Agreement by Employee shall not operate or be construed as a waiver of
any subsequent or other breach by Employee.
10. SEVERABILITY. It is the desire and intent of the parties that the
provisions of this Agreement shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction
in which enforcement is sought. Accordingly, if any particular provision or
portion of this Agreement shall be adjudicated to be invalid or
unenforceable, this Agreement shall be deemed amended to delete therefrom the
portion thus adjudicated to be invalid or unenforceable, such deletion to
apply only with respect to the operation of such Section in the particular
jurisdiction in which such adjudication is made.
11. NOTICES. All communications, requests, consents and other notices
provided for in this Agreement shall be in writing and shall be deemed given
if mailed by first class mail, postage prepaid, certified or return receipt
requested to the addresses set forth above, or last known address and
received by the intended party. If the mailing is returned to the sender due
to an incorrect address, the correct address must be obtained in order for
the communication to be received and completed.
12. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Colorado.
13. ASSIGNMENT. The Company may assign its rights and obligations
under this Agreement to any affiliate of the Company or, subject to the
provisions of Section 5, to any acquirer of substantially all of the business
of the Company, and all covenants and agreements hereunder shall inure to the
benefit of and be enforceable by or against any such assignee. Neither this
Agreement nor any rights or duties hereunder may be assigned or delegated by
Employee.
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<PAGE>
14. AMENDMENTS. No provision of this Agreement shall be altered,
amended, revoked or waived except by an instrument in writing, signed by each
party to this Agreement.
15. BINDING EFFECT. Except as otherwise provided herein, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective legal representatives, heirs, successors and
assigns.
16. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
17. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties and supersedes all prior understandings,
agreements or representations by or between the parties, whether written or
oral, which relate in any way to the subject matter hereof.
18. ARBITRATION. ANY DISPUTE ARISING OUT OF THIS AGREEMENT, THE
EMPLOYEE'S APPLICATION FOR EMPLOYMENT, THE EMPLOYEE'S RELATIONSHIP WITH THE
COMPANY, OR THE EMPLOYEE'S EMPLOYMENT OR SEPARATION FROM EMPLOYMENT SHALL BE
SUBJECT TO ARBITRATION PURSUANT TO THE COMPANY'S ARBITRATION PROCEDURES. THE
EMPLOYEE ACKNOWLEDGES THAT A COPY OF THE PROCEDURES HAS BEEN DELIVERED TO AND
READ BY THE EMPLOYEE PRIOR TO THE TIME HE/SHE EXECUTED THIS AGREEMENT. IT IS
UNDERSTOOD THAT ALL SECTIONS OF THE ARBITRATION PROCEDURES APPLY, EXCEPT
THOSE SECTIONS PERTAINING TO AT-WILL EMPLOYMENT, WHICH ARE SUPERSEDED BY THIS
EMPLOYMENT AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CONVERGENT COMMUNICATIONS, INC.
By: /s/ John R. Evans
--------------------------------------------
Title: CHIEF EXECUTIVE OFFICER
--------------------------------------------
EMPLOYEE:
/s/ John J. Phibbs
--------------------------------------------
(Signature)
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<PAGE>
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT ("Amendment") is made
this 13th day of April, 1998, by and between CONVERGENT COMMUNICATIONS, INC.,
a Colorado corporation ("Employer" or the "Company") and JOHN J. PHIBBS
("EMPLOYEE").
A. The Parties have entered into that certain Employment Agreement
dated March 3, 1997 ("Agreement");
B. The Parties desire to amend and modify certain of the terms and
conditions of the Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and in the Agreement, the Parties agree as follows:
1. COMPENSATION AND BENEFITS. Section 3.1 of the Agreement shall be
amended to increase EMPLOYEE's annual base salary to One Hundred Thirty
Thousand Dollars ($130,000.00).
2. TERM. Section 4 of the Agreement shall be amended to extend the
Term for an additional three (3) years such that the Term of the Agreement
will terminate on March 3, 2001.
3. OTHER TERMS AND CONDITIONS. All other terms and conditions of the
Agreement shall remain in full force and effect, as if fully stated herein.
4. CAPITALIZED TERMS. Capitalized terms, and other defined terms,
shall have the same meaning as that accorded to them in the Agreement, unless
the context requires otherwise.
5. CONFLICT. If there are any conflicting terms or conditions between
the terms and conditions of this Amendment and the terms and conditions of
the Agreement, the terms and conditions of this Amendment shall control.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
to be executed by its duly authorized representative on the day and year
first above written.
CONVERGENT COMMUNICATIONS, INC., JOHN J. PHIBBS
a Colorado corporation
By /s/ John R. Evans /s/ John J. Phibbs
--------------------------------- -----------------------------------
Its: Chairman and Chief Executive Officer
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made this 15th day of May,
1998 by and between CONVERGENT COMMUNICATIONS SERVICES, INC., a Colorado
corporation ("CCSI") whose address is 67 Inverness Drive East, Suite 110,
Englewood, Colorado 80112, and HH&H COMMUNICATIONS TECHNOLOGIES, INC., a Texas
corporation ("CTI"), whose address is 1207 East Avenue J, Grand Prairie, Texas
75050 (hereinafter collectively referred to as "the parties").
RECITALS
A. CCSI is desirous of buying certain of CTI's assets and CTI is desirous
of selling certain of CTI's assets to CCSI.
NOW, THEREFORE, in Purchase Price of the mutual promises and covenants
contained herein, both parties agree as follows:
1. IDENTIFICATION AND TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES.
1.1 IDENTIFICATION OF ASSETS TO BE TRANSFERRED TO CCSI. The assets
described in EXHIBIT 1.1 shall collectively constitute the "Identified Assets."
1.2 ASSUMPTION OF CERTAIN LIABILITIES. Except for those liabilities
set forth on EXHIBIT 1.2 (the "Assumed Liabilities"), which are hereby expressly
assumed by CCSI, CCSI shall assume no other liabilities and obligations relating
to the Identified Assets; and further provided that CCSI shall not assume any
Assumed Liabilities (excluding operating expenses related to utilities,
telephone charges yellow page ads and office rent) in excess of the accounts
receivable and cash included as part of the Identified Assets. CTI agrees to
hold CCSI harmless from any other liabilities or obligations incurred by CTI,
including, without limitation, any Assumed Liabilities in excess of the accounts
receivable and cash included as part of the Identified Assets, or accruing with
respect to the Identified Assets, and all other assets of CTI, with respect to
any period prior to and including the Closing Date and from liabilities or
obligations with respect to all other assets of CTI with respect to any period
after the Closing Date.
1.3 TRANSFER OF IDENTIFIED ASSETS. CTI shall take all actions
reasonably requested by CCSI to transfer the Identified Assets to CCSI
including, but not limited to, the execution of a bill of sale and assignment in
the form attached hereto as EXHIBIT 1.3 ("Bill of Sale"), and all other bills of
sale, assignment and transfer forms, amendments, applications to governmental
agencies, licenses, and reports reasonably required by CCSI of CTI to effectuate
the transfer of the Identified Assets.
1.4 RECONCILIATION OF PRE-CLOSING IDENTIFIED ASSETS. The parties
acknowledge that effective May 11, 1998 ("Reconciliation Date") certain sales to
CTI's customers (which may include deposits received and accounts receivable
accrued from those customer and which would ordinarily become a part of the
Identified Assets to be transferred to CCSI) may be transferred to
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CCSI prior to Closing ("Pre-Closing Identified Assets"). The parties agree to
cooperate in the preparation of a reconciliation schedule ("Reconciliation
Schedule") showing the obligations and benefits accruing to each party as of the
Reconciliation Date with regard to the Pre-Closing Identified Assets. The
Reconciliation Schedule shall be delivered at the Closing.
2. PURCHASE PRICE. The purchase price ("Purchase Price") for the
purchase and sale of the Identified Assets shall be equal to Three Hundred Fifty
Thousand Dollars ($350,000) and shall be paid by CCSI to CTI on the Closing
Date as follows:
2.1 EARNEST MONEY. CCSI has paid CTI a deposit in the amount of
$10,000 on or about May 14, 1998, receipt of which is hereby acknowledged
("Earnest Money).
2.2 CASH PAYMENT. CCSI will pay CTI $190,000 by wire transfer at the
Closing.
2.3 CONVERGENT STOCK. CCSI's parent company, namely Convergent
Communications, Inc., a Colorado corporation ("Convergent") will deliver a
treasury request to Convergent's transfer agent requesting the issuance of
thirty thousand (30,000) shares of Convergent's no par value common stock
("Convergent Stock") to CTI at the Closing. The parties agree that the value of
the Convergent Stock is $5.00 per share.
3. CLOSING DATE DOCUMENTATION. In addition to the other documents
required hereunder, as a predicate to the closing of the transactions hereunder,
CTI shall supply CCSI with the following on or before the Closing Date.
3.1 TRANSFER DOCUMENTS. Transfer Documents, in form and substance
reasonably satisfactory to CCSI and CTI, including, without limitation, the Bill
of Sale, to effect the transfer of the Identified Assets to CCSI pursuant to the
terms of this Agreement.
3.2 CONSENTS. Any and all consents, in a form and substance
reasonably satisfactory to CCSI and CTI, from any person or entity not a party
to this Agreement whose consent is necessary or desirable for the execution and
performance of this Agreement by CCSI and CTI.
3.3 COMPLIANCE CERTIFICATE. All corporate and other proceedings,
including approval by the board of directors and shareholders of CTI, required
to be taken by or on the part of CTI to authorize CTI to execute, deliver and
carry out this Agreement shall have been duly and properly taken. CCSI shall
have received a certificate of authorized individuals of CTI in the form of
EXHIBIT 3.3, dated as of the Closing, certifying to the fulfillment of the
conditions specified in this Agreement.
3.4 RECONCILIATION SCHEDULE. The Reconciliation Schedule
contemplated by Section 1.4.
3.5 BULK SALES LAWS. CTI shall be responsible for compliance with
all applicable bulk sales laws relating to the purchase and sale of the
Identified Assets. Evidence of compliance
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with any such laws, in form and substance reasonably satisfactory to CCSI, shall
be delivered to CCSI on the Closing Date, if applicable.
4. REPRESENTATIONS OF CTI. As material representations to induce CCSI to
enter into this transaction, CTI represents to CCSI as follows:
4.1 OWNERSHIP. Except as shown on EXHIBIT 4.1, the Identified Assets
transferred pursuant hereto are owned by CTI, free and clear of all liens,
encumbrances, agreements and claims with or of third parties.
4.2 CORPORATE STATUS AND AUTHORITY. CTI is a corporation duly
organized and existing in good standing under the laws of the state of its
incorporation and is fully authorized to carry on its business as it is now
being conducted and to enter into the transactions herein set forth. CTI is
duly qualified to transact business as a foreign corporation and is in good
standing in each of the jurisdictions requiring such qualification whether by
reason of the ownership or leasing of its properties or the conduct or nature of
its business. All board of directors and shareholder approvals required have
been secured to the extent required. Except as set forth on EXHIBIT 4.2, no
consents, approvals, or filings from or with any person or entity other than
those delivered to CCSI herewith are necessary for the execution, delivery and
performance by CTI of this Agreement and the transactions contemplated hereby.
CTI has all requisite power and authority to execute this Agreement and carry
out all the actions required of it herein. This Agreement is the legal, valid
and binding agreement of CTI enforceable against CTI in accordance with its
terms.
4.3 PENDING CLAIMS. CTI is not presently subject to any claim which
would materially and adversely affect the Identified Assets such as:
litigation; disclosed or undisclosed claims or liabilities; or pending
governmental investigations or complaints of any kind or description. The
Identified Assets are subject to no contracts, claims or liens other than as set
forth in EXHIBIT 4.3.
4.4 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and
performance of and compliance with this Agreement, or any agreement or
instrument contemplated hereby, by CTI will not result in any violation of its
Articles of Incorporation or by-laws or be in material conflict with or
constitute a default in any material respect under any term of any agreement,
instrument, judgment, decree, or, to the knowledge of CTI, any order, statute,
rule or governmental regulation applicable to CTI, or result in the creation of
any lien, charge or encumbrance of any kind or nature on the Identified Assets.
4.5 UNDISCLOSED LIABILITIES. CTI does not have, with respect to its
current operation, any material and undisclosed liabilities or obligations of
any nature affecting the Identified Assets.
4.6 ENVIRONMENTAL AND REGULATORY MATTERS. To the best knowledge of
CTI, CTI has duly complied with, and the operation of its business, equipment
and other assets in the facilities owned or leased by CTI and its subsidiaries
are in compliance with the provisions of all applicable federal, state and local
environmental, health and safety laws, statutes, ordinance, rules and
regulations of any governmental or quasi governmental authority relating to (i)
discharges to surface
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water or ground water, (ii) solid or liquid waste disposal, (iii) the use,
storage, generation, handling, transport, discharge, release or disposal of
toxic or hazardous substances or waste, (iv) the emission of non-ionizing
electromagnetic radiation, or (v) other environmental, health or safety matters,
including, without limitation, the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Authorization Act of 1986; the Occupational Safety and Health Act; the
Resource Conservation and Recovery Act of 1976, as amended; the Federal Water
Pollution Control Act of 1970; the Safe Drinking Water Act of 1974; the Toxic
Substances Control Act of 1976; the Emergency Planning and Community Right to
Know Act of 1986, as amended; and the Clean Air Act, as amended (collectively
"Environmental and Health Laws"), or any law, rule or regulation of any state
public utility commission, the Federal Communications Commission or the Federal
Communications Act, as amended (collectively "Regulatory Laws"). To the best
knowledge of CTI, there are no investigations, administrative proceedings,
judicial actions, orders, claims or notices which are pending, anticipated or
threatened against CTI, relating to violations of the Environmental and Health
Laws and the Regulatory Laws. CTI has not received a notice of, and does not
know or have any reason to suspect, any facts which might constitute a violation
of any Environmental or Health Laws which relate to the use, ownership or
occupancy of any property or facilities used by CTI in connection with the
operation of its business or any activity of CTI's business which would result
in a violation or threaten violation of any Environmental or Health Laws or the
Regulatory Laws.
4.7 TAX LIENS. There are no tax liens on any of the Identified
Assets. CTI has duly filed all federal, state and local tax returns and reports
(including, without limitation, returns for estimated tax), and all returns and
reports for any other governmental units or taxing authorities having
jurisdiction with respect to any taxes required to be paid by CTI, except where
extensions have been applied for and granted, and where such extensions have not
expired; all such returns and all such reports show the correct and proper
amounts due, and all taxes shown on such returns and reports and all assessments
received by CTI have been paid to the extent that such taxes or any estimates
thereon have become due. From the date of this Agreement until the Closing, CTI
shall pay all taxes as and when the same become due and payable.
4.8 LIQUIDATION. CTI has not adopted any plan of liquidation or
dissolution affecting the Identified Assets.
4.9 ACCURACY OF DOCUMENTS AND INFORMATION. The copies of all
instruments, agreements, other documents and written information set forth as,
or referenced in, Exhibits and attachments to this Agreement or specifically
required to be furnished pursuant to this Agreement to CCSI by CTI are and will
be complete and correct in all material respects. There have been no material
changes, and will be no material changes as of the Closing Date, in the
information set forth in the Exhibits and attachments between the date of the
Exhibits and attachments and the date of this Agreement. No representations or
warranties made by CTI in this Agreement, nor any document, written information,
statement, financial statement, certificate, Exhibit or attachment furnished to
CCSI pursuant to the requirements of this Agreement contains any untrue
statement of a material fact, or omits to state a material fact necessary to
make the statements or facts contained therein not misleading. There is no fact
which materially and adversely affects the Identified Assets known to
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CTI which has not been expressly and fully set forth in this Agreement or the
Exhibits and attachments hereto.
4.10 DISCLOSURE. No representation or warranty whether contained in
this Agreement or in any certificates provided to CCSI pursuant to this
Agreement contains or will contain any materially untrue statement or omits, or
will omit, to state a material fact necessary to make any such statement(s) not
misleading.
4.11 STOCK REPRESENTATIONS. CTI (i) intends to acquire the shares of
Convergent Stock solely for the purpose of investment and not for the resale and
distribution thereof, and has no present intention to offer, sell, pledge,
hypothecate, assign or otherwise dispose of the same except in accordance with
this Section 4.11; (ii) understands and acknowledges that the sale of such
shares of Convergent Stock will not be registered under the Securities Act of
1933, as amended (the "Securities Act"), the Convergent Stock being acquired
pursuant to this Agreement constitute "restricted securities" as that term is
defined under Rule 144 promulgated under the Securities Act and may not be sold
except pursuant to a registration statement under the Securities Act or pursuant
to an exemption available under federal and applicable state Securities laws,
and such shares may be required to be held indefinitely unless the shares are
subsequently registered under the Securities Act or an exemption from such
registration is available, (iii) agrees that it will not offer, sell, pledge,
hypothecate, transfer, assign or otherwise dispose of any such shares of
Convergent Stock unless such shares and such offer, pledge, hypothecation,
transfer, assignment or other disposition shall be registered or exempt from
registration under the Securities Act and shall comply with all applicable
federal and state securities laws, and (iv) agrees and acknowledges that the
stock certificates representing the shares of Convergent Stock will contain a
legend restricting the transferability of the shares as provided herein and that
stop order instructions may be imposed by Convergent's transfer agent
restricting the transferability of the Convergent Stock.
4.12 ACCURACY OF REPRESENTATIONS. In the event that any of the
foregoing representations or warranties should be inaccurate as of the Closing
Date, CTI shall have thirty (30) days after written notice from CCSI in which to
cure such inaccuracy.
5. CTI'S EMPLOYEES AND CUSTOMERS. CCSI is not a successor business to
CTI nor any operation of CTI. CCSI shall not be liable for any obligations
which CTI has on any contracts including employment contracts, existing or
future workers compensation claims, employment discrimination claims, unfair
labor practice claims, or compensation claims except those obligations, if any,
specifically identified on EXHIBITS 1.1 and 1.2 and any obligations of which
CCSI hereby specifically assumes in writing. CCSI is purchasing the Identified
Assets and Assumed Liabilities only, and it is not taking over any employment
contracts for any employees or any obligations under agreements entered into by
CTI in its own right and CCSI shall not be liable for any sums owed to customers
by CTI.
6. REPRESENTATIONS OF CCSI. As material representations to induce CTI to
enter into this transactions, CCSI represents to CTI as follows:
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6.1 CORPORATE STATUS AND AUTHORITY. CCSI is a corporation duly
organized and existing in good standing under the laws of the state of its
incorporation and is fully authorized to carry on its business as it is now
being conducted and to enter into the transactions herein set forth. CCSI is
duly qualified to transact business as a foreign corporation and is in good
standing in each of the jurisdictions requiring such qualification whether by
reason of the ownership or leasing of its properties or the conduct or nature of
its business. All corporate approvals required have been secured. No consents,
approvals, or filings from or with any person or entity other than those
delivered to CTI herewith are necessary for the execution, delivery and
performance by CCSI of this Agreement and the transactions contemplated hereby.
CCSI has all requisite power and authority to execute this Agreement and carry
out all the actions required of it herein. This Agreement is the legal, valid
and binding agreement of CCSI enforceable against CCSI in accordance with its
terms.
6.2 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and
performance of and compliance with this Agreement, or any agreement or
instrument contemplated hereby, by CCSI will not result in any violation of its
Certificate of Incorporation or Bylaws or be in material conflict with or
constitute a default in any material respect under any term of any agreement,
instrument, judgment, decree, or, to the knowledge of CCSI, any order, statute,
rule or governmental regulation applicable to CCSI.
6.3 DISCLOSURE. No representation or warranty whether contained in
this Agreement or in any certificates provided to CTI pursuant to this Agreement
contains or will contain any materially untrue statement or omits, or will omit,
to state a material fact necessary to make any such statement(s) not misleading.
7. OBLIGATIONS PRIOR TO THE CLOSING DATE. The following conditions and
obligations shall be satisfactorily performed prior to the Closing Date.
7.1 GOVERNMENTAL AGENCY APPROVALS. Any governmental agencies whose
approval is required prior to the consummation of the transactions contemplated
by this Agreement shall have approved such sale on the terms contemplated by
this Agreement.
7.2 {Intentionally Deleted}
7.3 PERFORMANCE. Both parties shall have executed and delivered to
the other party this Agreement and the other documents required hereby and shall
have performed and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or complied with by the
parties prior to the Closing Date.
7.4 OPINION OF COUNSEL FOR CTI. CCSI shall have been furnished with
an opinion of CTI's counsel, dated the date of the Closing, in substantially the
form of EXHIBIT 7.4 attached hereto.
7.5 CONSENTS. All other consents to the purchase and sale of the
Identified Assets which are necessary or required to be obtained, in CCSI's
reasonable discretion, including, without
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limitation, those from CTI's customers, suppliers and vendors, shall have been
obtained by CTI and delivered to CCSI.
7.6 NO ACTION TO PREVENT COMPLETION. There shall not have been
instituted and be continuing or threatened any claim, action or proceeding that
would materially adversely affect the Identified Assets, nor shall there have
been instituted and be continuing or threatened any claim, action or proceeding
by or before any court or other governmental body to restrain, prohibit or
invalidate, or to obtain damages in respect of, the transactions contemplated by
this Agreement or which might materially and adversely affect the rights of
CCSI.
8. CONDUCT OF BUSINESS AND CERTAIN COVENANTS. Prior to the Closing Date,
CTI agrees that, with respect only to the Identified Assets, unless otherwise
specifically provided for in this Agreement or unless otherwise consented to in
writing by CCSI:
8.1 ORDINARY COURSE. CTI shall conduct its business in the ordinary
course.
8.2 CERTAIN CHANGES. CTI shall not: (i) grant any security interest
to or in connection with the Identified Assets; (ii) make or offer to make any
disposition, including any sale or transfer, of any of the Identified Assets;
(iii) make any change in any method of accounting, billing, rates, rate
structure, tariffs, payment of fees and expenses related in any way to the
Identified Assets; and, (iv) enter into any material contract, agreement, or
commitment relating to the Identified Assets.
9. CLOSING DATE. Closing will occur within three (3) business days after
the completion of due diligence and the receipt of any and all necessary board,
shareholder, governmental or other approvals, but not later than May 30, 1998,
unless extended by mutual agreement of the parties, and will take place at the
offices of CCSI.
10. NOTICES. Notices required or allowed hereunder shall be deemed given
when hand delivered or when deposited in the United States mail, postage
prepaid, return receipt requested, to the parties at the following addresses:
If to CCSI: Convergent Communications Services, Inc.
67 Inverness Drive East, Suite 110
Englewood, Colorado 80112
Attn.: Legal Department
If to CTI: Communications Technologies, Inc.
1207 East Avenue J
Grand Prairie, Texas 75050
Attn.: President
or to such other addresses as may from time to time be supplied.
11. INDEMNITY.
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11.1 CTI'S INDEMNIFICATION. Notwithstanding the Closing and
regardless of any investigation at any time made by or on behalf of CCSI or of
any information CCSI may have in respect thereof, CTI will indemnify, defend and
save and hold CCSI harmless from and against any costs, expenses, damages,
liabilities, losses or deficiencies, including, without limitation, reasonable
attorneys' fees and other costs and expenses incident to any suit, action or
proceeding (collectively "Losses") suffered or incurred by CCSI arising out of
or resulting from, and will pay CCSI on demand the full amount of any such
amounts which CCSI may pay or may become obligated to pay in respect of:
(a) any material inaccuracy in any representation or document
delivered under or pursuant to this Agreement or the material breach of any
warranty made by CTI in or pursuant to this Agreement;
(b) any misrepresentations in or omission from any Exhibit,
schedule, or other attachment to this Agreement;
(c) any failure by CTI duly to perform or observe any term,
provision, covenant, or agreement in this Agreement to be performed or observed
on the part of CTI;
(d) acts or omissions in connection with business activities
conducted or to be conducted by CTI, including, without limitation, the sale of
goods or provision of services, prior to the Closing Date; or
(e) any action, suit, investigation, proceeding, demand,
assessment, audit, judgment and claim, including any employment-related claim,
arising out of the foregoing (collectively "Claims"), even though such Claims
may not be filed or come to light until after the Closing Date.
CCSI hereby covenants and agrees to immediately provide to CTI any and
all notifications or other correspondence it receives related to matters which
may affect this indemnity and hereby agrees to allow CTI to defend any and all
actions affecting this indemnity and shall not settle any action or dispute
affecting this indemnity without obtaining the prior written consent of CTI.
Upon such prior written consent, CCSI may defend against, and consent to the
entry of any judgment or enter into any settlement with respect to such Claims
in any manner it may deem to be appropriate and CTI shall reimburse CCSI
promptly for the acts of defending against such Claims and will otherwise remain
responsible for any Loss which CCSI may suffer from, arising out of, relating to
or caused by such Claims to the full extent provided in this Section.
All statements of fact contained in any written statement, certificate,
schedule or other document delivered to CCSI by or on behalf of CTI shall be
deemed representations and warranties by CTI hereunder.
11.2 CCSI'S INDEMNIFICATION. CCSI agrees that notwithstanding the
Closing and regardless of any investigation at any time made by or on behalf of
CTI or any information CTI may have in respect thereof, CCSI will indemnify,
defend and save and hold CTI harmless from and
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against any Losses suffered or incurred by CTI arising out of or resulting from,
and will pay CTI on demand the full amount of any such amounts which CTI may pay
or may become obligated to pay in respect of:
(a) any material inaccuracy in any representation or the breach
of any warranty made by CCSI in or pursuant to this Agreement;
(b) any failure by CCSI duly to perform or observe any item,
provision, covenant or agreement in this Agreement to be performed or observed
on the part of CCSI, as applicable; or
(c) acts or omissions in connection with business activities
conducted or to be conducted by CCSI, including, without limitation, the sale of
goods or provision of services, following the Closing Date.
12. NO THIRD PARTY BENEFICIARIES. This Agreement shall be for and inure
to the benefit of CCSI and CTI and there shall be no third party beneficiaries
hereto. Specifically excluded from any beneficial status hereunder are CTI's
creditors, employees, customers and suppliers.
13. GOVERNING LAW AND FORUM. This Agreement shall be construed under the
laws of the state of Colorado, without regard to its choice of law provisions
(except as to the applicable bulk sales laws, where it is agreed that to the
extent the parties' ability to so designate is restricted, the laws of the
applicable state shall apply) and any action to enforce, construe or modify this
Agreement shall be brought in an appropriate court of competent jurisdiction in
Colorado.
14. BINDING NATURE. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
assigns. This Agreement shall not be assigned by either party without the
express written consent of the other party.
15. PARAGRAPH HEADINGS. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
16. TIME OF THE ESSENCE. Time is of the essence of this Agreement and the
obligations of the parties hereunder.
17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, indemnifications and agreements of CCSI and CTI provided herein
shall survive the Closing for a period of two (2) years following the Closing
Date.
18. WAIVER. The failure of either of the parties hereto to enforce any
provision of this Agreement shall not be construed to be a waiver of such
provision or of the right thereafter to enforce the same, and no waiver of any
breach shall be construed as an agreement to waive any subsequent breach of the
same or any other provisions.
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19. EXPENSES. Except as expressly provided herein, each party will pay
their own expenses, including fees of their respective attorneys, accountants
and consultants in connection with this transaction.
20. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
21. NO BROKERS OR AGENTS. CTI represents that it has not used the
services of any brokers or agents in the negotiation or consummation of this
Agreement such that any commissions or fees are due to any such broker or agent
based upon the transactions herein set forth. CCSI represents that it has not
used the services of any brokers or agents in the negotiation or consummation of
this Agreement such that any commissions or fees are due to any such broker or
agent based upon the transactions herein set forth. Should any such claim be
advanced by any such foregoing broker or agent, it is agreed that the
satisfaction of such claim shall be the sole responsibility of the party which
it is claimed utilized the services of such broker or agent.
22. CONFIDENTIALITY. CTI and CCSI agree to not disclose the terms and
conditions of this Agreement except (i) as may be required to fulfill
obligations hereunder; (ii) as may be required by law, regulation, custom or
judicial or administrative proceeding; or, (iii) as and to the extent such
information becomes known to the general public through no fault of either party
in tangible, demonstrable form. Both parties shall take reasonable precautions
to insure that their respective employers, employees and agents also treat such
information in a confidential manner. The obligations of confidentiality shall
survive the consummation of the transactions herein set forth.
23. TAXES. CCSI shall be responsible for and shall pay all federal, state
and municipal taxes or other charges, if any, on the sale of the Identified
Assets except income taxes payable by CTI on the Purchase Price.
24. SEVERABILITY. It is agreed and understood that should any of the
provisions of this Agreement be determined by any court of competent
jurisdiction to be invalid or void for any reason, then the parties consent that
this Agreement shall be amended retroactive to the date of its execution to
include all terms and conditions other than those found by the court to be
invalid or void in order to give effect to the parties intent.
25. PUBLIC ANNOUNCEMENT. Each party acknowledges and agrees that either
may make a public announcement of the transactions contemplated by this
Agreement any time after the date of execution of this Agreement provided that
the other party approves the form and substance of any such public announcement
prior to its release, which approval shall not be unreasonably withheld or
delayed.
26. FORCE MAJEURE. This Agreement and the obligations of the parties
hereunder shall not be impaired or invalidated and a party shall not be in
breach hereof if such party is unable to fulfill any of its obligations
hereunder or is delayed in doing so by reason of strike, labor troubles, acts of
God or any other cause beyond the reasonable control of such party.
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27. ATTACHMENTS. All Exhibits and attachments to this Agreement are made
a part of this Agreement by this reference. Any information disclosed in an
Exhibit or attachment shall be deemed to be disclosed and incorporated into any
other Exhibit or attachment where such disclosure would be appropriate.
28. ADDITIONAL DOCUMENTATION. CTI shall from time to time, subsequent to
Closing, at CCSI's request and without further Purchase Price, execute and
deliver such other instruments of conveyance, assignment and transfer and take
such other action as CCSI reasonably may require in order more effectively to
effectuate the purchase of the Identified Assets.
29. ARBITRATION. Notwithstanding anything to the contrary herein, any
dispute arising pursuant to or in any way related to this Agreement or the
transactions contemplated hereby shall be settled by arbitration at a mutually
agreed upon location in Denver, Colorado; provided, however, that nothing in
this Section shall restrict the right of any party to apply to a court of
competent jurisdiction for emergency relief pending final determination of a
claim by arbitration in accordance with this Section. All arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, in force at the time of any such dispute. Each party
shall pay its own expenses associated with such arbitration, provided that the
prevailing party in any arbitration shall be entitled to reimbursement of
reasonable attorneys' fees and expenses (including, without limitation,
arbitration expenses) relating to such arbitration. The decision of the
arbitrators, based upon written findings of fact and conclusions of law, shall
be binding upon the parties; and judgment in accordance with that decision may
be entered in any court having jurisdiction thereof. In no event shall the
arbitrators be authorized to grant any punitive, incidental or consequential
damages of any nature or kind whatsoever.
30. TERMINATION.
30.1 This Agreement may be terminated, and the transactions
contemplated hereby abandoned (i) by the mutual consent of CCSI and CTI; (ii) by
CCSI or CTI at any time after May 30, 1998 (or such later date as shall have
been agreed to in writing by the parties) if the conditions and obligations set
forth in this Agreement shall not have been fulfilled (or waived by the party
entitled to the benefit thereof) by such date, with no further liability on the
part of any party hereto; provided, however, that no party shall be released
from liability hereunder if any such condition is not fulfilled by reason of the
breach by such party of its obligations hereunder.
30.2 Notwithstanding anything contained in the foregoing to the
contrary, if this Agreement is terminated by CCSI due to a failure of CTI to
perform the conditions precedent to the Closing hereunder, CTI shall immediately
refund to CCSI all amounts paid to CTI, including, without limitation, the
Earnest Money.
31. ENTIRE AGREEMENT; AMENDMENT. This Agreement, together with the
Exhibits, schedules and attachments hereto, contains the entire understanding
between the parties hereto with respect to the subject matter hereof and no
prior or collateral promises or conditions in connection with or with respect to
the subject matter hereof not incorporated herein shall be binding upon the
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parties. No modification, extension, renewal, rescission, termination or waiver
of any of the provisions contained herein or any future representation, promise
or condition in connection with the subject matter hereof, shall be binding upon
either of the parties hereto unless made in writing and duly executed by both
the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives on the day and year first above
written.
CONVERGENT COMMUNICATIONS SERVICES, INC.,
a Colorado corporation
By: /s/ John R. Evans
---------------------------------------------
John R. Evans, Chief Executive Officer
HH&H COMMUNICATIONS TECHNOLOGIES, INC.,
a Texas corporation
By: /s/ David Hammond
---------------------------------------------
David Hammond, President
-12-
<PAGE>
TELEPHONE COMPANY ACQUISITION AGREEMENT
THIS AGREEMENT is entered into by and between CONVERGENT COMMUNICATIONS,
INC., ("CCI") of 2696 South Colorado Boulevard, Suite 585-5, Denver, Colorado
80202, and FIRST CONTINENTAL GROUP, L.C. ("FCG") of 5731 Glendale Road,
Johnston, Iowa 50131, and ICN, LLC ("LLC") of 5731 Glendale Road, Johnston,
Iowa 50131 (hereinafter collectively referred to as "the parties") this ___ day
of July, 1996.
RECITALS
WHEREAS, FCG owns ninety-six percent (96%) of the stock of a telephone
company called ICN, LLC ("LLC"); and
WHEREAS, CCI controls a management team with proven experience in growing
telecommunications companies into larger and stronger entities; and
WHEREAS, CCI's management has experience in raising funds for
telecommunications companies; and
WHEREAS, the parties believe that by entering into this Agreement, they
will be able to create a new and more vital ICN corporation ("NEW ICN") with
CCI's management and business plan to grow the company as a new communications
company taking advantage of the 1996 Telecommunications Act; and
WHEREAS, there is a certain dispute with William A. Becker ("Becker") and
entities that he owns or controls which may cause him to interfere with NEW ICN;
and
WHEREAS, the parties desire that Mr. Bruce Boland, a principal of LLC, have
some comfort in the transition between LLC and NEW ICN.
THEREFORE, IT IS AGREED AS FOLLOWS:
The rights and the responsibilities of the parties to this Agreement depend
upon whether there is a closing. The "Closing," as defined herein, is the
closing of at least Four Million Dollars ($4,000,000) in financing for NEW ICN,
whether it be debt or equity, on or before November 30, 1996.
PRE-CLOSING OBLIGATIONS OF CCI
1. DEPOSIT. In order to secure this Agreement, CCI shall pay to FCG as a
deposit the sum of One Hundred Thousand Dollars ($100,000) upon FCG's execution
hereof.
2. BEST EFFORTS FINANCING. CCI shall use its best efforts
<PAGE>
to secure financing for the capitalization of NEW ICN, in the sum of at least
Four Million Dollars ($4,000,000) by November 30, 1996. The Principal Financial
Group will be considered by CCI when selecting potential sources of financing.
3. CAPITAL LOANS. During the term of this Agreement and so long as FCG
is not in breach, CCI shall loan NEW ICN Twenty-Five Thousand Dollars ($25,000)
per month to defray the operating expenses of the Company beginning August 15,
1996. Each $25,000 shall be represented by a note executed by LLC and NEW ICN.
All inter-company receivables shall be subordinate to the loans called for by
this Section 3. FCG's guarantees shall be continuing in nature and shall be in
a form acceptable to CCI's counsel. Each of these notes shall be secured by a
lien on all of the assets of LLC. FCG will cause LLC to execute and deliver to
CCI a security agreement and such financing statements as CCI's counsel
requests, and in a form requested by CCI's counsel, to perfect CCI's security
interest. The notes shall be due one year from the date each is executed, and
shall bear interest at the rate of nine percent (9%) per annum. In the event a
note becomes in default, the interest rate shall be eighteen percent (18%) per
annum and all attorneys' fees and costs incurred concerning the collection of
the note shall be borne by the defaulting party. The notes shall contain a
venue selection clause which specifies that they shall be enforceable through
arbitration pursuant to the commercial arbitration rules of the American
Arbitration Association in Denver, Colorado and that the laws of the State of
Colorado apply to the enforceability of the notes. At Closing, the working
capital notes and the payment of One Hundred Thousand Dollars ($100,000) paid
pursuant to Section 1 shall be repaid or converted as provided in section 17(g)
hereafter. In the event FCG defaults hereunder or Closing becomes futile, CCI
shall not be obligated to make further loans under this Section 3.
4. FAILURE OF CLOSING. In the event there is no Closing and FCG is not
in default of this Agreement, CCI's deposit of One Hundred Thousand Dollars
($100,000) shall not be refundable and shall be retained by FCG. CCI shall be
under no further obligation to FCG. This specifically includes, but is not
limited to, any obligation to make the loans described in Section 3, above.
PRE-CLOSING OBLIGATIONS OF FCG AND LLC
5. CONVERSION TO NEW ICN. FCG and LLC, at their own risk and liability,
will cause all of the assets and liabilities of LLC to be converted to assets
and liabilities of a subchapter "C" stock corporation, to be known as ICN
Corporation (hereinafter referred to as "NEW ICN").
6. SECURE OWNERSHIP. FCG will cause itself to become the one hundred
percent (100%) owner of NEW ICN.
<PAGE>
7. FURNISH PROOF. FCG will furnish CCI with evidence satisfactory to
CCI's counsel that it has performed its obligations pursuant to paragraphs 5
and 6 within thirty (30) days of the execution of this Agreement. FCG will
bear all legal fees and expenses to perform the acts described in Sections 5
and 6 above. However, at Closing, FCG shall be reimbursed by NEW ICN for
these legal fees and expenses.
8. FURTHER STEPS. From the date of this Agreement until Closing, or the
November 30, 1996 termination of this Agreement, whichever is later, FCG and LLC
shall take all steps with regard to themselves and their assets to facilitate
CCI's efforts to raise Four Million Dollars ($4,000,000) in capital for NEW ICN,
including, but not limited to, any steps required by the investors or
underwriters of the financing or their counsel.
9. COOPERATION. FCG and LLC will fully cooperate and not interfere in
any fashion with CCI's efforts to secure the Four Million Dollar ($4,000,000)
financing.
10. SILENCE. FCG and LLC shall conduct no public or private discussion of
the sale of their businesses or the assets of their businesses unless directed
to do so by CCI.
11. NON-DEPLETION. FCG and LLC shall not deplete or transfer any of their
assets during the term of this Agreement.
12. DEBTS. FCG and LLC shall not incur any debts or obligations outside
of the necessary and ordinary course of their businesses during the term of this
Agreement.
13. RECEIVABLES. FCG shall not collect any inter-company receivables owed
it by LLC.
14. BECKER DISPUTE. FCG is currently in a dispute with Becker and his
entities arising out of Becker's former business dealings with LLC and FCG. FCG
agrees to compromise and settle this dispute as soon as possible so that there
is no legal impediment or threat to this Agreement or NEW ICN. CCI agrees to
pay half of any funds paid, up to the sum of $25,000, in the settlement of this
dispute.
15. TERMINATION. In the event this Agreement terminates without default
by FCG, all obligations of FCG and LLC shall cease, except their obligations to
repay and guarantee repayment of the loans described in Section 3 above.
However, if FCG becomes in default of this Agreement or any other note or
agreement with CCI, it shall additionally immediately refund the One Hundred
Thousand Dollars ($100,000) paid pursuant to Section 1.
<PAGE>
PARTIES' OBLIGATIONS AT CLOSING
16. CONDITION OF CLOSING. The full and complete performance of this
Agreement by all parties hereto shall be a condition of the Closing.
17. CLOSING OBLIGATIONS. Simultaneously with the Closing, the Parties
shall:
a. Cause NEW ICN to issue stock to CCI so that the result of the
stock issuance is that NEW ICN is owned sixty-eight percent (68%)
by CCI and thirty-two (32%) percent by FCG. It is contemplated
that NEW ICN will initially issue eleven million shares. FCG's
thirty-two percent (32%) will consist of 3.5 million shares of
stock and, in addition, FCG will hold a 1 million share
convertible debenture which, if fully converted, would give FCG
an additional six percent (6%), for a total thirty-eight (38%)
percent potential ownership interest in NEW ICN.
b. Cause 7.5 million shares to issue to CCI, and 3.5 million shares
to issue to FCG.
c. Enter into the "Shareholders' Agreement" in the form attached
hereto and made a part hereof as EXHIBIT A.
d. Enter into a shareholder voting agreement which provides that
while FCG has a thirty-two percent (32%) interest or more in the
ownership of NEW ICN, the board shall consist of five (5) seats,
two (2) of which shall be selected by FCG, and three (3) of which
shall be selected by CCI. Provided, however, that so long as FCG
shall be owed the convertible note described in Section 17(e)
below, FCG shall have the right to select at least one (1) board
seat. FCG's right to select one (1) board seat while the
convertible debenture exists shall be placed in the bylaws of NEW
ICN.
e. Cause NEW ICN to pay FCG One Million Dollars ($1,000,000) from
the proceeds of the Closing and to cause NEW ICN to execute a One
Million Dollar ($1,000,000) convertible note in favor of FCG in
the form attached hereto and made a part hereof as EXHIBIT B.
f. Cause NEW ICN to pay $170,000 to FCG in full satisfaction of all
receivables between ICN and FCG existing at that time. FCG shall
execute a
<PAGE>
release of all debts of LLC and NEW ICN which existed prior to
closing in a form acceptable to counsel for CCI.
g. Cause the working capital notes provided for in Section 3 above
and the One Hundred Thousand Dollar ($100,000) deposit provided
for in Section 1 above to be repaid in full in the event the
initial financing exceeds Five Million Dollars ($5,000,000) or at
the sole election of CCI cause these debts to be retired by the
issuance of one share of stock for each $1.00 owed to CCI. In
the event the initial funds raised are less than Five Million
Dollars ($5,000,000), the separate notes shall be consolidated
and reflected in one convertible debenture evidencing the
indebtedness which shall be secured by all assets of ICN. ICN
shall execute a security agreement and such financing statements
as required and in a form acceptable to CCI's counsel. The new
note shall be in the form attached hereto and made a part hereof
as EXHIBIT C. It being the intent of the parties that should the
company have sufficient funds to pay the consolidated note
sooner, then, in that event, the note may be paid prior to
November 30, 1997, at the election of CCI.
OBLIGATIONS OF NEW ICN TO BRUCE BOLAND AT CLOSING
18. EMPLOYMENT CONTRACT. At the time of Closing, the parties shall cause
an employment contract to be executed between NEW ICN and Bruce Boland with the
following provisions:
a. The term of the contract shall be five (5) years at $125,000 per
year.
b. NEW ICN shall, however, have the right to terminate Mr. Boland at
any time during the first two years of the contract by paying him
three years' salary.
c. At the beginning of each fiscal year, the board of directors
shall set a pre-established budget criteria and bonus plan which
could result in Mr. Boland receiving a bonus of not more than
fifty (50%) percent of his salary based on targets established by
the board for the company's performance.
d. Mr. Boland will be Chief Operating Officer to the Telephone
Operations of the company and will report to the Chief Executive
Officer of NEW ICN.
<PAGE>
e. As an officer of NEW ICN, Mr. Boland will be entitled to the same
health benefits, business expenses and 401(k) plans of NEW ICN as
are all other executive officers of that entity. This will
include an executive company car and other executive perquisites
commensurate with his duties as an executive officer of the
company.
f. It is understood that Mr. Boland is an officer and director of
various companies and, as such, has duties and responsibilities
to those other companies. NEW ICN will agree that he may
continue his involvements provided that he spend at least eighty
percent (80%) of his time performing his ICN duties. Mr. Boland
will acknowledge that he is aware of the corporate opportunity
doctrine and agree to bring any business opportunities related to
the businesses of NEW ICN first to the board of NEW ICN.
19. FEMA LOAN. LLC has an outstanding FEMA loan which is guaranteed by
Bruce Boland. The parties shall cause the FEMA loan to be assumed by NEW ICN
and shall use its best efforts to see that Mr. Boland is released from his
status as a guarantor on that obligation. In the event Mr. Boland cannot be
released from the obligation, then CCI and FCG will cause NEW ICN to indemnify
Mr. Boland as long as he has liability pursuant to the FEMA loan, and will cause
NEW ICN to create a reserve cash instrument in a mutually agreeable form to
assure Mr. Boland that NEW ICN's agreement to indemnify him is enforceable.
MISCELLANEOUS PROVISIONS
20. AMENDMENT. This Agreement may be amended only by the written
agreement of the parties.
21. NUMBER AND GENDER. Unless the context requires otherwise, words
denoting the singular may be construed as denoting the plural; and words of the
plural may be construed as denoting the singular; and words of one gender may be
construed as denoting such other gender as is appropriate.
22. PERFORMANCE OF NECESSARY ACTS. Each party agrees to perform any
further acts and to execute and deliver any additional documents which may be
reasonably necessary to carry out the provisions of this Agreement.
23. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
parties, their heirs, personal representatives or other legal representatives,
successors and assigns. No party may assign any of his rights or obligations
arising hereunder to
<PAGE>
any other person or entity.
24. SEVERABILITY. Should any one or more of the provisions hereof be
determined to be illegal or unenforceable, all other provisions hereof shall be
given effect separately therefrom to cause such other provisions to be legally
enforceable and such other provisions shall not be affected thereby.
25. NON-WAIVER. The failure of a party to the Agreement to enforce any
provision, right, claim or assessment under this Agreement upon any default or
violation thereof on a particular occasion shall not operate as a waiver of such
party to enforce any subsequent defaults or violations of any provision, right,
claim or assessment under this Agreement.
26. ATTORNEYS' FEES. In any action at law or in equity or subject to
arbitration under the provisions of this Agreement to enforce any of the
provisions or rights under this Agreement, unless otherwise provided in this
Agreement, the unsuccessful party of such litigation or arbitration, as
determined by the court in a final judgment or decree, shall pay to the
successful party or parties all costs, expenses and reasonable attorneys' fees
incurred therein by such party or parties (including, without limitation, such
costs, expenses and fees on any appeals), and if such successful party shall
recover judgment in any such action or proceeding, such costs, expenses and
attorneys' fees shall be included as part of such judgment.
27. APPLICABLE LAW. Except as otherwise expressly provided herein, it is
the intention of the parties that the laws of the State of Colorado shall govern
the validity of this Agreement, the construction of its terms and the
interpretation of the rights and duties of the parties.
28. ARBITRATION. All disputes between the parties arising out of this
Agreement shall be arbitrated in Denver, Colorado pursuant to the Rules of the
American Arbitration Association.
29. CAPTIONS. Section captions or headings are not to be considered a
part of this Agreement and are included solely for convenience and are not
included to be full or accurate descriptions of the contents thereof nor shall
such headings be controlling of the interpretation of the contents of any such
section.
30. SEPARATE COUNTERPARTS. This Agreement may be executed in separate
counterparts which shall collectively and separately be considered one and the
same Agreement.
31. MERGER. This Agreement constitutes the entire agreement between the
parties concerning its subject matter.
32. TERM OF THE AGREEMENT. The term of this Agreement
<PAGE>
shall be from the date first above written to and including November 30, 1996,
unless extended by written consent of all parties hereto.
33. PARTIES' RIGHTS IF IPO. If it is in the best interests of NEW ICN as
determined by its board of directors, and subject to the underwriters agreement
as to price, propriety of the transaction and amount of stock, then FCG and CCI
shall each have the right to purchase up to twenty percent (20%) of any initial
public offering at the offering price determined by the underwriter.
34. MATERIAL DETERIORIATION. In the event that LLC or NEW ICN's gross
revenues deteriorate by ten percent (10%) during the term of this Agreement,
then the $100,000.00 deposit provided for in Section 1 hereof shall be repaid at
once jointly and severally by NEW ICN, FCG and LLC, and the notes called for in
Section 3 hereof shall be accelerated and shall become due and payable in full.
CONVERGENT COMMUNICATIONS, INC.
BY:
ITS
-------------------------------
FIRST CONTINENTAL GROUP, L.C.
BY:
ITS
-------------------------------
ICN, LLC
BY:
ITS
-------------------------------
<PAGE>
Exhibit 21.1 Subsidiaries
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation Assumed Names
---- ----------------------------- ---------------
<S> <C> <C>
1. Convergent Communications Colorado a. Colorado Communications Services, Inc.
Services, Inc. (in Texas)
b. Convergent Communications- Telephone
Communications Corporation (in Colorado)
2. Convergent Capital Corporation Colorado None
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-4 (File
No. 333- ) of our report dated March 4, 1998, on our audits of the
consolidated financial statements of Convergent Communications, Inc. We also
consent to the reference to our firm under the captions "Summary Consolidated
Financial and Operating Data", "Selected Financial Data" and "Experts."
Coopers & Lybrand, L.L.P
Denver, Colorado
May 29, 1998
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-4 (File
No. 333- ) of our report dated May 27, 1998, on our audits of the
financial statements of Communications Services of Iowa, Inc. We
also consent to the reference to our firm under the caption "Experts."
Coopers & Lybrand, L.L.P
Denver, Colorado
May 29, 1998
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-4 (File
No. 333- ) of our report dated May 27, 1998, on our audit of the
financial statements of A.T.T.ex Corporation. We also consent to the
reference to our firm under the caption "Experts."
Coopers & Lybrand, L.L.P
Denver, Colorado
May 29, 1998
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-4 (File
No. 333- ) of our report dated May 27, 1998, on our audits of the
financial statements of Vital Integration Solutions, Inc. We also consent
to the reference to our firm under the caption "Experts."
Coopers & Lybrand, L.L.P
Denver, Colorado
May 29, 1998
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-4 (File
No. 333- ) of our report dated May 27, 1998, on our audits of the
financial statements of Telephone Communications Corporation. We
also consent to the reference to our firm under the caption "Experts."
Coopers & Lybrand, L.L.P
Denver, Colorado
May 29, 1998
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-4 (File
No. 333- ) of our report dated May 27, 1998, on our audits of the
financial statements of Communications Services of Colorado, Inc. We also
consent to the reference to our firm under the caption "Experts."
Coopers & Lybrand, L.L.P
Denver, Colorado
May 29, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Martin E. Freidel and John J. Phibbs and
each of them, as such person's true and lawful attorney-in-fact and agent with
full power of substitution for such person and in such person's name, place and
stead, in any and all capacities, to sign and to file with the Securities and
Exchange Commission a Registration Statement of Convergent Communications, Inc.,
a Colorado corporation (the "Corporation"), on Form S-4 with respect to the
exchange of the 13% Senior Notes due 2008 of the Corporation for 13% Series A
Senior Notes due 2008 of the Corporation, and any and all amendments and
post-effective amendments to said Registration Statement, with exhibits thereto
and other documents in connection therewith, granting unto each said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or any substitute therefor, may lawfully do or cause to be done by virtue
thereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John R. Evans Chairman, Chief Executive
- ------------------------ Officer and Director May 29, 1998
John R. Evans (Principal Executive ----------------
Officer)
/s/ John J. Phibbs Chief Financial Officer
- ------------------------ and Treasurer (Principal May 29, 1998
John J. Phibbs Financial and Principal ----------------
Accounting Officer)
/s/ Keith V. Burge President, Chief
- ------------------------ Operating Officer and May 29, 1998
Keith V. Burge Director ----------------
/s/ Philip G. Allen Executive Vice President,
- ------------------------ Secretary and Director May 29, 1998
Philip G. Allen ----------------
Director May 29, 1998
- ------------------------ ----------------
Roland E. Casati
/s/ Richard G. Tomlinson Director May 29, 1998
- ------------------------ ----------------
Richard G. Tomlinson
/s/ Roger W. Christoph Director May 29, 1998
- ------------------------ ----------------
Roger W. Christoph
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an application to determine eligibility of a
Trustee pursuant to Section 305(b)(2)____
------------
NORWEST BANK COLORADO, N.A.
(Exact name of trustee as specified in its charter)
NOT APPLICABLE 84-0187632
----------------
(Jurisdiction of incorporation or (I.R.S. Employer
Organization if not a U.S. national Identification No.)
bank)
1740 BROADWAY
DENVER, COLORADO 80274-8593
(Address of principal executive office) (Zip Code)
NORWEST BANK COLORADO, N.A.
ATTN: CORPORATE TRUST DEPARTMENT
1740 BROADWAY
DENVER, CO 80274-8693
303-863-6247
(Name, address and telephone number of agent for service)
------------
CONVERGENT COMMUNICATIONS, INC.
(Exact name of obligor as specified in its charter)
COLORADO 84-1337265
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
67 INVERNESS DRIVE WEST
ENGLEWOOD, CO 80112
(Address of principal executive office) (Zip Code)
------------
Convergent Communications, Inc. 13% Senior Notes Due 2008
<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.
Name Address
---- -------
Comptroller of the Currency Washington, D.C.
Federal Reserve Bank of Denver Denver, Colorado
Federal Deposit Insurance Corporation Dallas, Texas
National Bank Examiners - Western District Denver, Colorado
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the Obligor is an affiliate of the trustee, describe such
affiliation.
None.
ITEM 3. VOTING SECURITIES OF THE TRUSTEE.
(a) Furnish the following information as to each class of voting
securities of the trustee.
As of April 30, 1998
--------------
(within 31 days)
COL. A COL. B
------ ------
Title of Class Amount Outstanding
-------------- ------------------
Not Applicable
ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES.
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 obligor are outstanding, furnish the
following information:
(a) Title of the securities outstanding under each such other
indenture.
None
<PAGE>
(b) A brief statement of the facts relied upon as a basis for the
claim that no conflicting interest within the meaning of Section
310(b)(1) of the Act arises as a result of the trusteeship under
any such other indentures, including a statement as to how the
indenture securities will rank as compared with the securities
under such other indentures.
Not applicable.
ITEM 5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE
OBLIGOR OR UNDERWRITERS.
If the trustee or any of the directors or executive officers of the
trustee is a director, officer, partner, employee, appointee, or
representative of the obligor or of any underwriter for the obligor,
identify each such person having any such connection and state the
nature of each such connection.
Not applicable.
ITEM 6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS
OFFICIALS.
Furnish the following information as to the voting securities of
the trustee owned beneficially by the obligor and each director,
partner and executive officer of the obligor:
As of April 30, 1998
--------------
(within 31 days)
COL. A COL. B COL. C COL. D
- ------------- -------------- ------------ --------------------
PERCENTAGE OF VOTING
SECURITIES REPRESENTED
AMOUNT OWNED BY AMOUNT GIVEN
NAME OF OWNER TITLE OF CLASS BENEFICIALLY IN COL. C
- ------------- -------------- ------------ --------------------
None
ITEM 7. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE UNDERWRITERS OR THEIR
OFFICIALS.
Furnish the following information as to the voting securities of
the trustee owned beneficially by each underwriter for the obligor
and each director, partner, and executive officer of each such
underwriter:
As of April 30, 1998
--------------
(within 31 days)
<PAGE>
COL. A COL. B COL. C COL. D
- ------------- -------------- ------------ --------------------
PERCENTAGE OF VOTING
SECURITIES REPRESENTED
AMOUNT OWNED BY AMOUNT GIVEN
NAME OF OWNER TITLE OF CLASS BENEFICIALLY IN COL. C
- ------------- -------------- ------------ --------------------
None
ITEM 8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.
Furnish the following information as to securities of the obligor
owned beneficially or held as collateral security for obligations in
default by the trustee:
As of April 30, 1998
--------------
(within 31 days)
COL. A COL. B COL. C COL. D
- ------------- -------------- ------------------ --------------
WHETHER THE AMOUNT OWNED PERCENTAGE OF
SECURITIES ARE BENEFICIALLY OR CLASS
VOTING OR HELD AS COLLATERAL REPRESENTED BY
TITLE OF NONVOTING SECURITY FOR AMOUNT GIVEN
CLASS SECURITIES OBLIGATIONS TO DEFAULT IN COL. C
- ------------- -------------- --------------------------------
None
ITEM 9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
If the trustee owns beneficially or holds as collateral security for
obligations in default any securities of an underwriter for the
obligor, furnish the following information as to each class of
securities of such underwriter, any of which are so owned or held by
the trustee:
As of April 30, 1998
--------------
(within 31 days)
COL. A COL. B COL. C COL. D
- ------------- -------------- ------------------ --------------
AMOUNT OWNED
NAME OF BENEFICIALLY OR HELD PERCENTAGE OF CLASS
ISSUER AND AS COLLATERAL SECURITY SECURITIES REPRESENTED
TITLE OF AMOUNT FOR OBLIGATIONS IN BY AMOUNT GIVEN
CLASS OUTSTANDING DEFAULT BY TRUSTEE IN COL. C
- ------------- -------------- ----------------------
None
ITEM 10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF
CERTAIN AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.
<PAGE>
If the trustee owns beneficially or holds as collateral security
for obligations in default any voting securities of a person who,
to the knowledge of the trustee (1) owns 10 percent or more of the
voting securities of the obligor or (2) is an affiliate, other
than a subsidiary, of the obligor, furnish the following
information as to the voting securities of such person:
As of April 30, 1998
--------------
(within 31 days)
Col. A Col. B Col. C Col. D
- -------------- ----------- ---------------------- ----------------------
Amount Owned
Beneficially or Held Percentage of Class
Name of Issuer as Collateral Security Securities Represented
and Title Amount for Obligations in by Amount Given
of Class Outstanding Default by Trustee in Col. C
- -------------- ----------- ---------------------- ----------------------
None
ITEM 11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON
OWNING 50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR.
If the Trustee owns beneficially or holds as collateral security
for obligations in default any securities of a person who, to the
knowledge of the trustee, owns 50 percent or more of the voting
securities of the obligor, furnish the following information as to
each class of securities of such person, any of which are so owned or
held by the trustee:
As of April 30, 1998
--------------
(within 31 days)
Col. A Col. B Col. C Col. D
- -------------- ----------- ---------------------- ----------------------
Amount Owned
Beneficially or Held Percentage of Class
Name of Issuer as Collateral Security Securities Represented
and Title Amount for Obligations in by Amount Given
of Class Outstanding Default by Trustee in Col. C
- -------------- ----------- ---------------------- ----------------------
None
ITEM 12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.
Except as noted in the instructions, if the obligor is indebted to
the trustee, furnish the following information:
Col. A Col. B Col. C
---------- ---------- ----------
<PAGE>
Nature of Indebtedness Amount Outstanding Date Due
------------------------ ------------------ -----------------
Standby Letter of Credit $ 50,000.00 May 8, 2001
Standby Letter of Credit $202,543.80 May 1, 2003
Standby Letter of Credit $100,000.00 February 1, 1999
Standby Letter of Credit $100,000.00 February 28, 2002
ITEM 13. DEFAULTS BY THE OBLIGOR.
(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.
(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 obligor 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.
Not applicable.
ITEM 14. AFFILIATIONS WITH THE UNDERWRITERS.
If any underwriter is an affiliate of the trustee, describe each
such affiliation.
Not applicable.
ITEM 15. FOREIGN TRUSTEE.
Identify the order or rule pursuant to which the foreign trustee is
authorized to act as sole trustee under indentures qualified or to be
qualified under the Act.
Not applicable.
<PAGE>
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as a part of this statement of
eligibility.
1. A copy of the articles of association of the trustee as now in
effect*
2. A copy of the authorization of the trustee to exercise
corporate trust powers*
3. A copy of the existing bylaws of the trustee, or instruments
corresponding thereto*
4. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its supervising
or examining authority**
*EXHIBITS 1, 2, AND 3 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS
BEARING IDENTICAL NUMBERS IN ITEM 16 OF THE FORM T-1 OF NORWEST BANK
COLORADO, N.A. FILED AS EXHIBIT 25.1 TO THE REGISTRATION STATEMENT ON
AMENDMENT NO. 2 TO FORM S-4 OF ICG HOLDINGS, INC., FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION ON JUNE 5, 1997 (REGISTRATION NO. 333-24359).
**EXHIBIT 4 IS HEREIN INCORPORATED BY REFERENCE TO EXHIBIT BEARING IDENTICAL
NUMBERS IN ITEM 16 OF THE FORM T-1 OF NORWEST BANK COLORADO, N.A. FILED AS
EXHIBIT 25.1 TO THE REGISTRATION STATEMENT ON FORM 8-K OF NORDSTROM, INC.,
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 13, 1998
(REGISTRATION NO. 333-47035).
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trustee Indenture Act of 1939 the
trustee, Norwest Bank Colorado, N.A., organized and existing under the laws
of the United States of America, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City and County of Denver, and State of Colorado on
the 30th day of April, 1998.
NORWEST BANK COLORADO, N.A.
By: /s/ Amy E. Buck
----------------------
Vice President
<PAGE>
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939, in connection with the issue of Convergent Communications, Inc. 13%
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 therefore.
NORWEST BANK COLORADO, N.A.
By: /s/ Amy E. Buck
-----------------------
Vice President
Dated: As of April 30, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SUMMARY CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS CONTAINED IN THE REGISTRATION STATEMENT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 MAR-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 1,073,160 822,115
<SECURITIES> 0 0
<RECEIVABLES> 20,772,889 4,646,737
<ALLOWANCES> 21,389 49,740
<INVENTORY> 0 0
<CURRENT-ASSETS> 10,562,955 8,276,706
<PP&E> 5,448,183 8,189,511
<DEPRECIATION> (610,386) (1,054,036)
<TOTAL-ASSETS> 24,922,169 26,661,457
<CURRENT-LIABILITIES> 5,228,728 11,099,796
<BONDS> 965,711 1,251,371
0 0
0 0
<COMMON> 24,941,521 25,549,757
<OTHER-SE> (6,213,791) (11,239,467)
<TOTAL-LIABILITY-AND-EQUITY> 24,922,169 26,661,457
<SALES> 7,415,247 4,715,792
<TOTAL-REVENUES> 10,210,024 6,522,865
<CGS> 6,090,243 3,882,456
<TOTAL-COSTS> 7,368,509 4,798,024
<OTHER-EXPENSES> 12,435,788 6,824,284
<LOSS-PROVISION> 5,709 37,145
<INTEREST-EXPENSE> 152,071 52,568
<INCOME-PRETAX> (9,654,779) (5,110,666)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (9,654,779) (5,110,666)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (9,654,779) (5,110,666)
<EPS-PRIMARY> (0.46) (0.22)
<EPS-DILUTED> (0.46) (0.22)
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
OFFER FOR OUTSTANDING
13% SENIOR NOTES DUE 2008
IN EXCHANGE FOR
13% SERIES B SENIOR NOTES DUE 2008
OF
CONVERGENT COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
_____________, 1998, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
THE EXCHANGE AGENT IS NORWEST BANK COLORADO, N.A., WHOSE MAILING ADDRESS,
FACSIMILE NUMBER AND TELEPHONE NUMBER ARE AS FOLLOWS:
BY REGISTERED OR CERTIFIED BY HAND DELIVERY OR OVERNIGHT
MAIL: COURIER:
Norwest Banks Norwest Banks
Corporate Trust Section Corporate Trust Section
P.O. Box 1517 NorthStar East Building
Minneapolis, MN 55480-1517 Sixth and Marquette Avenues
Minneapolis, MN 55479-0113
FACSIMILE TRANSMISSION:
(612) 667-4972
CONFIRM BY TELEPHONE:
Amy E. Buck
Senior Vice President
(303) 863-6477
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SECURITIES TENDERED
- ----------------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF REGISTERED HOLDER AS IT APPEARS
ON THE PRIVATELY PLACED 13% SENIOR CERTIFICATE NUMBER(S) PRINCIPAL AMOUNT OF OLD
NOTES DUE 2008 ("OLD NOTES") OF OLD NOTES TRANSMITTED NOTES TRANSMITTED
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE
ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
1. The undersigned hereby agrees to exchange the aggregate principal
amount of privately placed 13% Senior Notes Due 2008 (the "Old Notes") for a
like principal amount of 13% Series B Senior Notes Due 2008 (the "Notes") of the
Company, upon the terms and subject to the conditions contained in the
Registration Statement on Form S-4 filed by Convergent Communications, Inc., a
Colorado corporation, with the Securities and Exchange Commission (the
"Registration Statement") and the accompanying Prospectus dated August __, 1998
included therein (the "Prospectus"), receipt of which is hereby acknowledged.
2. If the undersigned is tendering Old Notes, the undersigned hereby
acknowledges and agrees that the Notes will bear interest from and including
April 1, 1998. Accordingly, the undersigned will forego accrued but unpaid
interest on his, her or its Old Notes that are exchanged for Notes from and
including April 1, 1998 but will receive such interest under the Notes.
3. The undersigned hereby represents and warrants that he, she or it has
full authority to tender the Old Notes described above. The undersigned will,
upon request, execute and deliver any additional documents deemed by the Company
to be necessary or desirable to complete the exchange of Old Notes.
4. The undersigned understands that the tender of the Old Notes pursuant
to all of the procedures set forth in the Prospectus will constitute an
agreement between the undersigned and the Company as to the terms and conditions
set forth in the Prospectus.
5. The undersigned hereby represents and warrants that the undersigned is
acquiring the Notes in the ordinary course of the business of the undersigned
and that the undersigned is not engaged in, and does not intend to engage in, a
distribution of the Notes.
6. If the undersigned is a broker-dealer, (i) it hereby represents and
warrants that it acquired the Old Notes, for its own account as a result of
market-making activities or other trading activities and (ii) it hereby
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), in connection with
any resale of the Notes received hereby. The acknowledgment contained in the
foregoing sentence shall not be deemed an admission that the undersigned is an
"underwriter" within the meaning of the Securities Act.
7. Any obligation of the undersigned hereunder shall be binding upon the
successors, assigns, executors, administrators, trustees in bankruptcy and legal
and personal representatives of the undersigned.
2
<PAGE>
SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 1)
To be completed ONLY IF the Notes are to be issued in the name of someone
other than the undersigned or are to be sent to someone other than the
undersigned or to the undersigned at an address other than that provided above.
Issue to:
Name:
--------------------------------------------------------------------------
(PLEASE PRINT)
Address:
-----------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Mail to:
Name:
--------------------------------------------------------------------------
(PLEASE PRINT)
Address:
-----------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
SIGNATURE
(NAME OF REGISTERED HOLDER)
By:
----------------------------------------------------------------------------
Name:
-----------------------------------------------------------------------
Title:
----------------------------------------------------------------------
Date:
--------------------------------------------------------------------------
(Must be signed by registered holder exactly as name appears on Old Notes
If signature is by trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, please set forth full title. See Instruction 3.)
Address:
-----------------------------------------------------------------------
Telephone No.
-----------------------------------------------------------------
Taxpayer Identification No.:
---------------------------------------------------
Signature Guaranteed by:
-------------------------------------------------------
(See Instruction 1)
Title:
-------------------------------------------------------------------------
Name of Institution:
-----------------------------------------------------------
Address:
-----------------------------------------------------------------------
Date:
--------------------------------------------------------------------------
PLEASE READ THE INSTRUCTIONS BELOW, WHICH
FORM A PART OF THIS LETTER OF TRANSMITTAL.
3
<PAGE>
INSTRUCTIONS
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal must
be guaranteed by a firm that is a member of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or by
a commercial bank or trust company having an office in the United States which
is a member of a recognized Medallion Signature Program approved by the
Securities Transfer Association, Inc. (an "Eligible Institution") unless (i) the
"Special Issuance and Delivery Instructions" above have not been completed or
(ii) the Old Notes described above are tendered for the account of an Eligible
Institution.
2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD NOTES. The Old Notes,
together with a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof), should be mailed or delivered to the Exchange Agent at the
address set forth above.
THE METHOD OF DELIVERY OF OLD NOTES AND OTHER DOCUMENTS IS AT THE ELECTION
AND RISK OF THE RESPECTIVE HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL
(WITH RETURN RECEIPT), PROPERLY INSURED, IS SUGGESTED.
1. GUARANTEED DELIVERY PROCEDURES. Registered holders who wish to tender
their Old Notes and (i) whose Old Notes are not immediately available or
(ii) who cannot deliver such Old Notes, the Letter of Transmittal or any other
required documents to the Exchange Agent prior to the Expiration Date, may
effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the registered holder of the Old
Notes, the certificate number or numbers of such Old Notes and the
principal amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within three New York Stock Exchange
trading days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing such Old
Notes and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer and all other documents required by
the Letter of Transmittal are received by the Exchange Agent within three
New York Stock Exchange trading days after the Expiration Date.
Upon request of the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to registered holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
4. SIGNATURES ON LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by a person other than a registered holder
of any Old Notes, such Old Notes must be endorsed or accompanied by appropriate
bond powers, in either case signed exactly as the name or names of the
registered holder or holders appear on such Old Notes.
If this Letter of Transmittal or any Old Notes or bond power is signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
person should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
5. EXCHANGE OF OLD NOTES ONLY. Only the above-described Old Notes may be
exchanged for Notes pursuant to the Exchange Offer.
6. MISCELLANEOUS. All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of tendered Old Notes
will be resolved by the Company, whose determination will be final and binding.
The Company reserves the absolute right to reject any or all tenders that are
not in proper form or the acceptance of which would, in the opinion of counsel
for the Company, be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tender as to particular Old Notes. The
Company's interpretation of
4
<PAGE>
the terms and conditions of the Exchange Offer (including the instructions in
this Letter of Transmittal) will be final and binding. Unless waived, any
irregularities in connection with tenders or consents must be cured within such
time as the Company shall determine. Neither the Company nor the Exchange Agent
shall be under any duty to give notification of defects in such tenders or shall
incur liabilities for failure to give such notification. Tenders of Old Notes
will not be deemed to have been made until such irregularities have been cured
or waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the irregularities have not been cured or waived will
be returned by the Exchange Agent to the tendering holder thereof.
IMPORTANT TAX INFORMATION
Under current Federal income tax law, an Old Noteholder whose tendered Old
Notes are accepted for payment generally is required to provide the Exchange
Agent (as agent for the payer) with his or her correct taxpayer identification
number ("TIN") on Substitute Form W-9 below. If such Old Noteholder is an
individual, the TIN is his or her social security number. If the Exchange Agent
is not provided with the correct TIN, the Old Noteholder may be subject to a $50
penalty imposed by the Internal Revenue Service. In addition, payments that are
made to such Old Noteholders with respect to Notes exchanged pursuant to the
Exchange Offer may be subject to backup withholding.
Certain Old Noteholders (including, among others, all corporations and
certain foreign individuals) may not be subject to these backup withholding and
reporting requirements. Exempt Old Noteholders should indicate their exempt
status on Substitute Form W-9. In order for a foreign individual to qualify as
an exempt recipient, that Old Noteholder must submit a properly completed
Internal Revenue Service Form W-8, signed under penalties of perjury, attesting
to his or her exempt status. Such statements can be obtained from the Exchange
Agent. See the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31 percent of any such payments made to the Old Noteholder. Backup withholding
is not an additional tax. Rather, the federal income tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to an Old
Noteholder with respect to Old Notes exchanged pursuant to the Exchange Offer,
each Old Noteholder is required to notify the Exchange Agent of his, her or its
correct TIN by completing the Substitute Form W-9 below certifying the TIN
provided on such form is correct (or that such Old Noteholder is awaiting a TIN)
and that (1) such Old Noteholder has not been notified by the Internal Revenue
Service that he, she or it is subject to backup withholding as a result of a
failure to report all interest or dividends or (2) the Internal Revenue Service
has notified such Old Noteholder that he, she or it is no longer subject to
backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Old Noteholder is required to give the Exchange Agent the social
security number or employer identification number of the record owner of the Old
Notes. If the Old Notes are in more than one name or are not in the name of the
actual owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidelines on which
number to report.
5
<PAGE>
<TABLE>
<S><C>
- ---------------------------------------------------------------------------------------------------------------------------------
PAYER'S NAME:
- ---------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN -----------------------------
THE BOX AT RIGHT AND CERTIFY BY Social Security Number
SIGNING AND DATING BELOW OR
FORM W-9 ------------------------------
Employer Identification Number
-----------------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY PART 2-- PART 3--
INTERNAL REVENUE SERVICE Certification--Under penalties of perjury, I Awaiting TIN / /
certify that:
(1) The number shown on this form is my
current taxpayer identification number
(or I am waiting for a number to be
issued to me) and
(2) I am not subject to backup withholding
because: (a) I am exempt from backup
withholding, (b) I have not been
notified by the Internal Revenue Service
(the IRS) that I am subject to backup
withholding as a result of a failure to
report all interest or dividends or
(c) the IRS has notified me that I am no
longer subject to backup withholding.
PAYER'S REQUEST FOR TAXPAYER Certificate Instructions--You must cross out Item (2) above if you have been notified by
IDENTIFICATION NUMBER "TIN" the IRS that you are current subject to backup withholding because of under-reporting
interest or dividends on your tax return. However, if after being notified by the IRS
that you were subject to backup withholding you received another notification from the IRS
that you are no longer subject to backup withholding, do not cross out such Item (2).
SIGNATURE: DATE:
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31 PERCENT OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE W-9" FOR
ADDITIONAL DETAILS.
NOTE YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Officer or
(b) I intend to mail or deliver such an application in the near future. I
understand that if I do not provide a taxpayer identification number within
sixty (60) days, 31 percent of all reportable payments made to me thereafter
will be withheld until I provide a number.
SIGNATURE DATE
- --------------------------------------------------------------------------------
6
<PAGE>
NOTICE OF GUARANTEED DELIVERY
OFFER FOR OUTSTANDING
13% SENIOR NOTES DUE 2008
IN EXCHANGE FOR
13% SERIES B SENIOR NOTES DUE 2008
of
CONVERGENT COMMUNICATIONS, INC.
Registered holders of privately placed 13% Senior Notes Due 2008 (the "Old
Notes") who wish to tender their Old Notes in exchange for a like principal
amount of 13% Series B Senior Notes Due 2008 (the "Notes") of the Company and
whose Old Notes are not immediately available or who cannot deliver their Old
Notes and Letter of Transmittal or any other documents required by the Letter of
Transmittal to Norwest Bank Colorado, N.A., (the "Exchange Agent") prior to the
Expiration Date, must use this Notice of Guaranteed Delivery or one
substantially equivalent hereto. This Notice of Guaranteed Delivery may be
delivered by hand or sent by facsimile transmission or mail to the Exchange
Agent. See "The Exchange Offer--Procedures for Tendering Old Notes" in the
Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS
NORWEST BANK COLORADO, N.A.
BY REGISTERED OR CERTIFIED MAIL: BY HAND DELIVERY OR OVERNIGHT COURIER:
Norwest Banks Norwest Banks
Corporate Trust Section Corporate Trust Section
P.O. Box 1517 NorthStar East Building
Minneapolis, MN 55480-1517 Sixth and Marquette Avenues
Minneapolis, MN 55479-0113
FACSIMILE TRANSMISSION:
(612) 667-4972
CONFIRM BY TELEPHONE:
Amy E. Buck
Senior Vice President
(303) 863-6477
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO
A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN ELIGIBLE INSTITUTION UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED ON THE LETTER
OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Old Notes indicated
below, upon the terms and subject to the conditions contained in the
Registration Statement on Form S-4 filed by Convergent Communications,
<PAGE>
Inc., a Colorado corporation, with the Securities and Exchange Commission (the
"Registration Statement") and the accompanying Prospectus dated August _______,
1998 included therein (the "Prospectus"), receipt of which is hereby
acknowledged.
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
NAME AND ADDRESS OF REGISTERED HOLDER AS IT CERTIFICATE NUMBER(S) OF PRINCIPAL AMOUNT OF
APPEARS ON THE OLD NOTES OLD NOTES TRANSMITTED OLD NOTES TRANSMITTED
<S> <C> <C>
- --------------------------------------------- ------------------------ ---------------------
- --------------------------------------------- ------------------------ ---------------------
- --------------------------------------------- ------------------------ ---------------------
- --------------------------------------------- ------------------------ ---------------------
- --------------------------------------------- ------------------------ ---------------------
</TABLE>
2
<PAGE>
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office, branch,
agency or correspondent in the United States, which is a member of a recognized
Medallion Signature Program approved by the Securities Transfer Association,
Inc., hereby guarantees to deliver to the Exchange Agent at one of its addresses
set forth above, the Old Notes, together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, and any other documents required by the Letter of
Transmittal within three New York Stock Exchange, Inc. trading days after the
date of execution of this Notice of Guaranteed Delivery.
Name of Firm:
--------------------- ----------------------------------
(Authorized Signature)
Address: Title:
-------------------------- ----------------------------
Name:
- ----------------------------------- -----------------------------
(Zip Code) (Please type or print)
Area Code and Telephone Number: Date
------------------------------
- -----------------------------------
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. OLD
NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
3
