<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
MGC COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
---------------------
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<S> <C> <C>
NEVADA 4813 88-0360042
(State or other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
incorporation or Classification Code Number)
organization)
3165 PALMS CENTRE DRIVE KENT F. HEYMAN, ESQ.
LAS VEGAS, NEVADA 89103 3165 PALMS CENTRE DRIVE
(702) 310-1000 LAS VEGAS, NEVADA 89103
(Address, including zip (702) 310-1000
code, and (Address, including zip
telephone number including code, and
area code, telephone number including
of registrant's principal area code,
executive offices) of agent for service)
</TABLE>
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COPIES TO:
ROBERT B. GOLDBERG, ESQ.
ELLIS, FUNK, GOLDBERG, LABOVITZ & DOKSON, P.C.
3490 PIEDMONT ROAD, N.E., SUITE 400
ATLANTA, GEORGIA 30305
(404) 233-2800
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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===================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE FEE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
13% Senior Secured Notes due
2004........................... $160,000,000 100% $160,000,000 $48,484.84
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
MGC COMMUNICATIONS, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K, SHOWING THE LOCATION IN THE
PROSPECTUS
OF THE INFORMATION REQUIRED BY PART I OF FORM S-4.
<TABLE>
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ITEM NUMBER AND CAPTION IN FORM S-4 LOCATION OR CAPTION IN PROSPECTUS
----------------------------------- ---------------------------------
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A. INFORMATION ABOUT THE TRANSACTION.
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus....... Cover Page of Registration Statement; Cross
Reference Sheet; Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front Cover Page; Outside Back Cover
Page
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information................ Prospectus Summary; Risk Factors; Business;
Selected Historical Financial Data
4. Terms of the Transaction....................... Prospectus Summary; The Exchange Offer;
Description of the Exchange Notes; United
States Federal Income Tax Consequences of the
Exchange of Notes
5. Pro Forma Financial Information................ Prospectus Summary; Selected Historical
Financial Data
6. Material Contacts with the Company being
Acquired..................................... Not Applicable
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters................................. Not Applicable
8. Interests of Named Experts and Counsel......... Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Not Applicable
B. INFORMATION ABOUT THE REGISTRANT.
10. Information With Respect to S-3 Registrants.... Not Applicable
11. Incorporation of Certain Information by
Reference.................................... Not Applicable
12. Information With Respect to S-2 or S-3
Registrants.................................. Not Applicable
13. Incorporation of Certain Information by
Reference.................................... Not Applicable
14. Information With Respect to Registrants Other
Than S-2 or S-3 Registrants.................. Prospectus Summary; Risk Factors;
Capitalization; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Selected Historical Financial
Data; Business; Management; Principal
Stockholders; Description of the Exchange
Notes; Financial Statements
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED.
15. Information With Respect to S-3 Companies...... Not Applicable
16. Information With Respect to S-2 or S-3
Companies.................................... Not Applicable
17. Information With Respect to Companies Other
Than S-2 or S-3 Companies.................... Not Applicable
D. VOTING AND MANAGEMENT INFORMATION.
18. Information if Proxies, Consents or Other
Authorizations are to be Solicited........... Not Applicable
19. Information if Proxies, Consents or Other
Authorizations are not to be Solicited or in
an Exchange Offer............................ Management
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<PAGE> 3
SUBJECT TO COMPLETION, DATED OCTOBER 28, 1997
PROSPECTUS
[LOGO] MGC COMMUNICATIONS, INC.
OFFER TO EXCHANGE
13% SERIES B SENIOR SECURED NOTES DUE 2004
FOR
ALL OUTSTANDING 13% SENIOR SECURED NOTES DUE 2004
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME
ON , 1998, UNLESS EXTENDED.
---------------------
MGC Communications, Inc., a Nevada corporation (the "Company"), hereby
offers, upon the terms and subject to conditions set forth in this Prospectus
(the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"; together with the Prospectus, the "Exchange Offer"), to exchange
up to an aggregate principal amount of $160,000,000 of its registered 13% Series
B Senior Secured Notes Due 2004 (the "Exchange Notes") for up to an aggregate
principal amount of $160,000,000 of its outstanding unregistered 13% Senior
Secured Notes Due 2004 (the "Outstanding Notes"). The terms of the Exchange
Notes are identical in all material respects to those of the Outstanding Notes,
except for certain transfer restrictions and registration rights relating to the
Outstanding Notes. The Exchange Notes will be issued pursuant to, and entitled
to the benefits of, the Indenture (as defined herein) governing the Outstanding
Notes. The Exchange Notes and the Outstanding Notes are sometimes referred to
collectively as the "Notes."
Interest on the Notes will be payable semi-annually in arrears on April 1
and October 1 of each year, commencing April 1, 1998. At the closing of the sale
of the Notes, the Company used a portion of the net proceeds (approximately
$56.8 million) to purchase a portfolio of Government Securities (as defined)(the
"Pledged Securities") representing funds sufficient to provide for payment in
full of interest on the Notes through October 1, 2000. The Pledged Securities
are pledged as security for repayment of principal of and interest on the Notes.
In addition, the Notes are and will be secured by a security interest in certain
Telecommunications Equipment (as defined) currently owned by the Company and by
a first priority security interest in certain Telecommunications Equipment
acquired by the Company after the Issue Date (as defined). See "Description of
the Exchange Notes--Security."
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after October 1, 2001, at the redemption prices set
forth herein plus accrued and unpaid interest and Liquidated Damages (as
defined), if any, to the date of redemption. In the event of a Change of
Control, holders of the Exchange Notes will have the right to require the
Company to purchase their Notes, in whole or in part, at a price equal to 101%
of the aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase.
The Exchange Notes will be senior secured obligations of the Company, will
rank pari passu in right of payment with all existing and future senior
Indebtedness (as defined) of the Company, except with respect to the
Telecommunications Equipment securing the Notes, and will rank senior in right
of payment to any future subordinated Indebtedness of the Company. Holders of
other secured Indebtedness of the Company will, however, have claims prior to
the claims of the holders of the Notes with respect to the assets securing such
other Indebtedness. As of June 30, 1997, on a pro forma basis after giving
effect to the sale of the Notes and the offering (the "Preferred Stock
Offering") of a new series of convertible preferred stock (the "Convertible
Preferred Stock") by the Company to generate an aggregate gross proceeds of at
least $15.0 million, the Company would have had approximately $159.4 million of
senior Indebtedness outstanding, including current liabilities. Excluding the
Notes, $4.4 million of such Indebtedness would have been secured. The indenture
pursuant to which the Notes will be issued will limit the ability of the Company
and its Restricted Subsidiaries (as defined) to incur additional Indebtedness.
The terms of the Preferred Stock Offering have not yet been determined.
The Issuer will accept for exchange any and all Outstanding Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York time, on
, 1998, unless extended by the Company in its sole discretion (the
"Expiration Date"). The Exchange Offer will not in any event be extended to a
date beyond , 1998. Tenders of Outstanding Notes may be withdrawn at
any time prior to 5:00 p.m., New York time, on the Expiration Date. If the
Company terminates the Exchange Offer and does not accept for exchange any
Outstanding Notes with respect to the Exchange Offer, the Company will promptly
return the Outstanding Notes to the holders thereof. The Exchange Offer is not
conditioned upon any minimum principal amount of Outstanding Notes being
tendered for exchange, but is otherwise subject to certain customary conditions.
The Outstanding Notes may be tendered only in integral multiples of $1,000.
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
---------------------
THESE SECURITIES HAVE NOT BEEN 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.
---------------------
The date of this Prospectus is , 1997.
<PAGE> 4
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement dated
September 29, 1997 (the "Registration Rights Agreement") by and among the
Company and Bear, Stearns & Co. Inc. and Furman Selz LLC, as the initial
purchasers (the "Initial Purchasers") with respect to the initial sale of the
Outstanding Notes. Based on positions taken by the staff of the Securities and
Exchange Commission (the "Commission") that have been enunciated in no-action
letters issued in Exxon Capital Holdings Corp. (available April 13, 1989) and
Morgan Stanley & Co. Inc. (available June 5, 1991), among others, the Exchange
Notes issued pursuant to the Exchange Offer in exchange for Outstanding Notes
may be offered for resale, resold and otherwise transferred by the respective
holders thereof (other than any such holder which is an "affiliate" of the
Issuer within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act of 1933, as amended (the "Securities Act"), provided that the
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder has no arrangement with any person to participate in the
distribution of such Exchange Notes and is not engaged in and does not intend to
engage in a distribution of the Exchange Notes. Holders who tender Outstanding
Notes in the Exchange Offer with the intention to participate in a distribution
of the Exchange Notes may not rely upon the Morgan Stanley or similar no-action
letters. Each broker-dealer that receives Exchange 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 Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of the Exchange Notes received in exchange for Outstanding Notes if
such Exchange Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 365 days after the effective date of the Registration
Statement of which this Prospectus is a part, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the
Exchange Notes. There can be no assurance as to the liquidity of any markets
that may develop for the Exchange Notes, the ability of holders to sell the
Exchange Notes or the price at which holders would be able to sell the Exchange
Notes. The Issuer does not intend to list the Exchange Notes for trading on any
national securities exchange or over-the-counter market system. Future trading
prices of the Exchange Notes will depend on many factors, including among other
things, prevailing interest rates, the Company's operating results and the
market for similar securities. Historically, the market for securities similar
to the Exchange Notes, including non-investment grade debt, has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that any market for the Exchange Notes, if
such market develops, will not be subject to similar disruptions. The Initial
Purchasers have advised the Company that it currently intends to make a market
in the Exchange Notes offered hereby. However, the Initial Purchasers are not
obligated to do so and any market making may be discontinued at any time without
notice.
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay certain expenses incident to the Exchange Offer.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER, OR A SOLICITATION
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
(i)
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TABLE OF CONTENTS
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PAGE
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Available Information....................................... (ii)
Summary of Prospectus....................................... 1
Risk Factors................................................ 11
Use of Proceeds............................................. 17
Capitalization.............................................. 18
The Exchange Offer.......................................... 19
Selected Historical Financial Data.......................... 26
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 28
Business.................................................... 31
Management.................................................. 44
Principal Stockholders...................................... 49
Certain Transactions........................................ 50
Description of the Exchange Notes........................... 51
United States Federal Income Tax Consequences of the
Exchange of Notes......................................... 81
Plan of Distribution........................................ 81
Legal Matters............................................... 82
Experts..................................................... 82
Financial Statements........................................ F-1
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement", which term shall include all amendments, exhibits, annexes and
schedules thereto) pursuant to the Securities Act, and the rules and regulations
promulgated thereunder, covering the Exchange Notes being offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Copies of such material can be obtained from the
Company upon request.
The Company has agreed to file with the Commission, to the extent
permitted, and distribute to holders of the Exchange Notes reports, information
and documents specified in Section 13 and 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), so long as the Exchange Notes are
outstanding, whether or not the Company is subject to such informational
requirements of the Exchange Act. While any Exchange Notes remain outstanding,
the Company will make available, upon request, to any holder of the Exchange
Notes, the information required pursuant to Rule 144A(d)(4) under the Securities
Act during any period in which the Company is not subject to Section 13 or 15(d)
of the Exchange Act. Any such request should be directed to the Vice
President -- General Counsel of the Company at 3165 Palms Centre Drive, Las
Vegas, Nevada, 89103, telephone number (702) 310-1000.
(ii)
<PAGE> 6
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by, and should be read
in conjunction with, the information and financial statements (including the
notes thereto) included elsewhere in this Prospectus. Prospective investors
should carefully consider the factors set forth in "Risk Factors." References in
this Prospectus to the "Company" mean MGC Communications, Inc. Certain terms
used herein are defined in the Glossary attached hereto as Annex A. This
Prospectus contains certain "forward-looking statements" concerning the
Company's operations, economic performance and financial condition, which are
subject to inherent uncertainties and risks, including those identified under
"Risk Factors." Actual results could differ materially from those anticipated in
this Prospectus. When used in this Prospectus, the words "estimate," "project,"
"anticipate," "expect," "intend," "believe" and similar expressions are intended
to identify forward-looking statements.
THE COMPANY
MGC Communications, Inc. ("MGC" or the "Company") is a rapidly growing,
switched-based provider of telecommunications services, offering competitive
local exchange ("CLEC") services to small business and residential users. The
Company focuses primarily on offering switched local dialtone and enhanced
calling features such as voice mail, call waiting and call forwarding ("basic
telephone services"). These services are required by virtually all users of
telecommunications. Beginning in the fall of 1997, the Company intends to
integrate long distance services with its local service offerings. The Company
provides its basic telephone services through the leasing of unbundled network
elements provided by incumbent local exchange carriers ("ILECs") and through the
leasing of dedicated transport to the Company's combined local and long distance
Nortel DMS 500 switches. The Company began its operations in Las Vegas in
December 1996 and expects to be operational in suburban Atlanta and Los Angeles
by the end of 1997. At September 30, 1997, the Company had 12,482 access lines
in service. Of the lines in service, 7,564 were business and 4,918 were
residential. During September 1997, the Company sold 2,851 access lines and
placed 684 net lines in service. The Company has used the results of its
experience in Las Vegas to refine its strategy, products and customer service
procedures and to develop a sophisticated back office operation.
The Company intends to continue expanding its markets by targeting
residential and small business users in suburban areas of large metropolitan
markets. After the initiation of service in Atlanta and Los Angeles, the Company
intends to expand its operations to an additional seven markets in 1998 and an
additional seven markets in 1999. As of September 30, 1997, the Company has
obtained CLEC certification in four states (with one application pending), has
completed interconnection agreements with five ILECs (with an additional four in
negotiation) and has negotiated transport arrangements with a long distance
carrier.
The Company believes the implementation of its network architecture
represents a low risk, demand driven approach requiring less capital deployment
than that required for the buildout of a fiber optic infrastructure. The
Company's network is comprised of leased, unbundled elements of the ILEC's
network coupled with the collocation of Company owned equipment in the ILEC's
central offices ("COs"). The Company adds transport capacity on an incremental
basis with the addition of new customers, and utilizes compression technology to
reduce its transport costs. Management believes the Company's network
architecture and equipment installation plans will enable it to (i) increase the
size of its addressable market to reach a significant number of potential
customers, and (ii) achieve efficient network operations and economies of scale
in sales and marketing.
Management believes offering superior customer service is critical to
achieving its goal of capturing market share. The Company is continually
enhancing its service approach which utilizes a well-trained team of customer
sales and service representatives to coordinate customer installation, billing
and service. A comprehensive back office support system is also a critical
component of the Company's service goal. The Company has installed a fully
automated, proprietary management information system which is designed to
provide comprehensive, integrated features addressing all aspects of its
business, including customer care and billing, general ledger, payroll, fixed
asset management, purchasing and personnel. The Company believes this
1
<PAGE> 7
system is readily adaptable to changing circumstances and is scalable to support
the Company's operations throughout its expected growth.
Key components of the Company's operating strategy are described below.
BUSINESS STRATEGY
Early in Addressing Tier II Sectors of Tier I Markets. In order to gain
and sustain a competitive advantage, the Company intends to move quickly to
implement its switch-based, unbundled transport networks. MGC believes it is
currently the only CLEC utilizing as its exclusive network strategy the
employment of combined local and long distance switches and unbundled transport
and local loops to target small business and residential customers in suburban
areas of Tier I markets. The Company is targeting these suburban areas because
they have concentrated numbers of basic telephone service users, such as small
businesses (3-50 lines), pay phone operators, multiple dwelling unit customers
and single family residences. The Company believes its only significant
switch-based competition is the ILEC in its target market segments.
Success Based Capital Deployment. Virtually all of the Company's planned
capital expenditures are related to switching and incremental infrastructure
resulting from additions of new revenue generating customers. Management
believes this provides for a low risk profile to the Company's planned capital
deployment and will provide an attractive return on invested capital.
Provide Simplified Product Offerings. MGC's target market segment is
comprised of basic telephone service users. While requiring sophistication for
their delivery, the Company's products and services are perceived as simple,
basic solutions. The Company has consciously narrowed its offerings, choosing
not to sell more complex telephone or data solutions or resell other complex
products at this time. Currently, the Company believes most CLECs which are
bundling such services are focused on larger businesses that require a wider
range of telecommunications products for their more sophisticated needs.
Provide Superior Customer Service. The Company believes superior customer
service will be critical to the success of its expansion plan. The Company's
proprietary customer-focused management information system allows immediate
access to the Company's customer data, enabling quick and effective responses to
customer requests and needs at any time. This system permits the Company to
present its customers with one fully integrated monthly billing statement for
all basic telephone services. In addition, by having a centralized call center
in Las Vegas, which will handle all inquiries and orders for new service, the
Company should be able to control personnel and related training to a greater
degree than if call centers were maintained in each market.
Targeted Sales and Marketing Effort. The Company's sales programs include
direct sales efforts, vendor and affinity programs, direct mail and
telemarketing. The Company has both local and national sales personnel. The
Company's national sales group concentrates on large basic telephone service
users such as multi-tenant buildings, pay phone operators and wholesale
customers. The local sales group coordinates activities with equipment vendors
and affinity groups and also assists with the national sales efforts. They also
make selective calls on business customers who have large basic telephone
service requirements which may not be solicited by the Company's national group.
Leverage Sophisticated Information System and Centralized Call Center. The
Company's proprietary management information system enables the user to record,
maintain and retrieve all customer information in one environment, including
such customer's services, equipment and billing.
Capitalize on Management Expertise. The Company has recruited a team of
experienced business executives with entrepreneurial backgrounds. Maurice J.
Gallagher, Jr., the Chairman, has been a founder of a number of start-up
businesses, including ValuJet and BankServ. Nield J. Montgomery, CEO and
President, has over 34 years of telephone experience, most recently with ICG
Communications, Inc. ("ICG"). Other executives have held senior management
positions at major telecommunications companies, including, among others,
Sprint, Centel, NYNEX, Contel and GTE.
2
<PAGE> 8
NETWORK STRATEGY
Accelerate Provision of Local Exchange Services. To accelerate
provisioning of local exchange service, the Company selects larger markets with
a relatively cooperative ILEC and a pro-competitive regulatory environment. The
Telecommunications Act of 1996 (the "Act") significantly improved the
opportunity for competition in the local exchange market by mandating ILECs to
enter into agreements with competitors such as the Company for central office
collocation and unbundling of local services. The Company believes
implementation of such pro-competitive policies creates favorable opportunities
to more aggressively pursue the provisioning of local exchange services. The
Company has interconnection agreements in place with BellSouth
Telecommunications, Inc. ("BellSouth"), GTE, Pacific Bell ("PacBell"), Sprint
Central Telephone of Nevada, and Ameritech Information Industry Services
("Ameritech") and expects to have agreements with New England Telephone &
Telegraph Company ("NYNEX") in Massachusetts, Southwestern Bell Telephone
Company ("Southwestern Bell") in Texas, Bell Atlantic in Pennsylvania and
Central Telephone Company of Illinois. The Company believes it is
well-positioned to add switches and associated services with minimal increases
in support infrastructure.
Low Cost Network Architecture. One of the most critical elements of
creating a low cost structure is a service provider's decision as to the type of
network to build. MGC has chosen to exclusively build a switch-based network and
to lease the necessary transport and local loops on an incremental basis, as
demand dictates, from ILECs and CAP/CLECs. As a result, the Company will not be
burdened by the carrying cost of a constructed transport network. MGC believes
this low-cost approach will allow the Company to precisely target its capital
expenditures to the specifics of each market and developing conditions.
The Company believes it will be able to lease the necessary transport at
reasonable prices. Prior to the Act, the ILEC's fiber transport was subject to
tariffs and usually priced substantially higher than a competing CAP/CLEC. With
the passage of the Act and subsequent state initiatives and introduction of
facilities-based competition, management believes network elements have become
available at cost-based prices and basic transport services have become
available at competitive prices. Most of MGC's targeted markets have numerous
competing transport suppliers with attractive unbundled transport prices.
Control Customer Elements of the Networks. Connection to customers
represents an important component of MGC's network strategy. Network control
issues of the Company's architecture are different from those of other CLECs.
MGC does not have to contend with local governments or landlords to obtain
permits or consents to construct its network, but rather with the ILEC to
acquire local loops. While this interface can be challenging, it has proven to
be a manageable process to date. Once a line has been leased from an ILEC, MGC
achieves control of its network similar to other CLECs. Specifically, all
changes to features, additions and billing are under the direct control of the
Company with the exception of repairs which are infrequent and may require the
participation of the ILEC's network maintenance staff.
Create a Uniform Technological Platform. A critical component of the
Company's low cost formula is the ability to standardize its switch
configuration. Unlike a traditional long distance or local switch, the Nortel
DMS 500 switch enables the Company to provide local and long distance services
from a single platform. The Company believes having a standardized switch
platform will enable it to (i) deploy features and functions quickly in all of
its networks, (ii) expand switch capacity in a cost effective manner, (iii)
lower maintenance costs through reduced training and spare parts requirements
and (iv) pursue a "switch in the box" rapid network deployment solution (under
development with Nortel) which should allow the Company to rapidly enter new
markets. In addition, the scalability and capacity of its switches will allow
the Company to switch calls from more than one market, which enhances the
Company's ability to benefit from a clustered approach to the building of its
networks.
RECENT REGULATORY DEVELOPMENTS
The Act and the issuance by the Federal Communications Commission ("FCC")
of rules governing local competition, particularly those requiring the
interconnection of all networks and the exchange of traffic among the ILECs and
CLECs, as well as pro-competitive policies already developed by state regulatory
commissions, have caused fundamental changes in the structure of the local
exchange markets. On July 18, 1997, the U.S.
3
<PAGE> 9
Court of Appeals for the Eighth Circuit issued a final decision vacating the
FCC's interconnection pricing rules and "most favored nation" rules as well as
certain other FCC interconnection rules. See "Business -- Regulation." Despite
this action, the Company's analysis shows interconnection arrangements that have
been approved or mandated by state regulatory commissions have been consistent
with the intent of the Act and the Company's business plan. On October 14, 1997,
the U.S. Court of Appeals for the Eighth Circuit ruled that ILECs are under no
obligation to provide AT&T or anyone else with a rebundled package of individual
network elements. The Company believes that the impact of this ruling is neutral
to the Company in light of the Company's switch-based network strategy employing
unbundled network elements and may be beneficial in the short-term by delaying
entrance into the local service market by IXC's such as AT&T.
On May 16, 1997, the FCC released an order that fundamentally restructured
the "access charges" ILECs and CLECs charge to interexchange carriers and end
user customers. The Company believes the FCC's new access charge rules do not
adversely affect the Company's business plan, and they in fact present
significant opportunities for new entrants, including the Company. Aspects of
the access charge order may be changed in the future. At least ten parties have
filed appeals with federal courts, and numerous parties have asked the FCC to
reconsider portions of its new rules.
FINANCING STRATEGY
The Company commenced operations in Las Vegas in December 1996 and expects
to be fully operational in its targeted Atlanta and Los Angeles markets by the
end of 1997. The Company intends to expand its operations to an additional seven
markets in 1998 and an additional seven markets in 1999. MGC expects the
available net proceeds of the sale of the Notes and the Preferred Stock Offering
or the closing of the Common Stock Commitment, as the case may be, together with
cash on hand, will be sufficient to finance this expansion, but it will need to
secure additional financing to enter new markets thereafter. The Company's
actual cash requirement for its expansion through 1999 will vary based upon the
timing and success of MGC's roll out of services in its targeted markets. If
demand for the Company's services is less than expected, the Company may require
additional financing at an earlier date although the Company should be able to
reduce certain costs that are, to a large extent, demand driven or delay its
entry into various of its targeted markets. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
THE EXCHANGE OFFER
THE EXCHANGE NOTES......... The form and terms of the Exchange Notes are
identical in all material respects to the terms of
the Outstanding Notes for which they may be
exchanged pursuant to the Exchange Offer, except
for certain transfer restrictions and registration
rights relating to the Outstanding Notes and except
for certain interest provisions relating to such
registration rights described below under
"Description of the Exchange Notes."
THE EXCHANGE OFFER......... The Company is offering to exchange up to
$160,000,000 aggregate principal amount of
registered 13% Series B Senior Secured Notes due
2004 (the "Exchange Notes") for up to $160,000,000
aggregate principal amount of its outstanding
unregistered 13% Senior Secured Notes due 2004 (the
"Outstanding Notes"). Outstanding Notes may be
exchanged only in integral multiples of $1,000.
EXPIRATION DATE; WITHDRAWAL
OF TENDER................ The Exchange Offer will expire at 5:00 p.m., New
York time, on 1998, or such later date
and time to which it is extended by the Company.
The Exchange Offer will not in any event be
extended to a date beyond , 1998. The
tender of Outstanding Notes pursuant to the
Exchange Offer may be withdrawn at any time prior
to the Expiration Date. Any Outstanding Notes not
accepted for exchange
4
<PAGE> 10
for any reason will be returned without expense to
the tendering holder thereof as promptly as
practicable after the expiration or termination of
the Exchange Offer.
CERTAIN CONDITIONS TO THE
EXCHANGE OFFER........... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Certain Conditions to the
Exchange Offer."
PROCEDURES FOR TENDERING
OUTSTANDING NOTES........ Each holder of Outstanding Notes wishing to accept
the Exchange Offer must either: (i) complete, sign
and date the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with such Outstanding Notes and
any other required documentation to the Exchange
Agent (as defined) at the address set forth herein,
or (ii) if such Outstanding Notes are tendered
pursuant to the procedures for book-entry transfer
set forth herein, a holder tendering Outstanding
Notes may transmit an Agent's Message (as defined)
to the Exchange Agent in lieu of the Letter of
Transmittal, in either case on or prior to the
Expiration Date. By executing the Letter of
Transmittal (or by having been deemed to have
executed the Letter of Transmittal, in the event of
delivery of an Agent's Message), each holder will
represent to the Company that, among other things,
(i) any Exchange Notes to be received by it will be
acquired in the ordinary course of its business,
(ii) it has no arrangement with any person to
participate in the distribution of the Exchange
Notes and (iii) it is not an "affiliate," as
defined in Rule 405 of the Securities Act, of the
Company or, if it is an affiliate, it will comply
with the registration and prospectus delivery
requirements of the Securities Act to the extent
applicable.
INTEREST ON THE EXCHANGE
NOTES.................... The Exchange Notes will bear interest at the rate
of 13% per annum, payable semi-annually on April 1
and October 1, commencing April 1, 1998, to holders
of record on the immediately preceding March 15 and
September 15, respectively. Holders of the Exchange
Notes will receive interest on April 1, 1998 from
the later of the date of initial issuance of the
Outstanding Notes or the most recent date to which
interest has been paid thereon.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........ Any beneficial owner whose Outstanding Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender such Outstanding Notes in the
Exchange Offer should contact such registered
holder to tender on such beneficial owner's behalf.
If such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of Transmittal
and delivering its Outstanding Notes, either make
appropriate arrangements to register ownership of
the Outstanding Notes in such owner's name or
obtain a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time and may not be
able to be completed prior to the Expiration Date.
5
<PAGE> 11
GUARANTEED DELIVERY
PROCEDURES............... Holders of Notes who wish to tender their
Outstanding Notes and whose Outstanding Notes are
not immediately available or who cannot deliver
their Outstanding Notes, the Letter of Transmittal
or any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date, must tender their Outstanding
Notes according to the guaranteed delivery
procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
REGISTRATION
REQUIREMENTS............. The Company has agreed to use its best efforts to
consummate the Exchange Offer to offer holders of
the Outstanding Notes an opportunity to exchange
their Outstanding Notes for the Exchange Notes
which will be issued without legends restricting
the transfer thereof. If the Company is not
permitted to effect the Exchange Offer under
certain previously enunciated positions of the
staff of the Commission, or in certain other
circumstances, the Company has agreed to file a
shelf registration statement (the "Shelf
Registration Statement") covering resales of the
Outstanding Notes and to use its best efforts to
cause the Shelf Registration Statement to be
declared effective under the Securities Act and,
subject to certain exceptions, keep the Shelf
Registration Statement effective until 365 days
after the effective date thereof.
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS........... For a discussion of certain federal income tax
considerations relating to the exchange of Notes,
see "United States Federal Income Tax Consequences
of the Exchange of Notes."
USE OF PROCEEDS............ There will be no proceeds to the Company from the
exchange of Notes pursuant to the Exchange Offer.
EXCHANGE AGENT............. Marine Midland Bank is the Exchange Agent. The
address and telephone number of the Exchange Agent
are set forth in "The Exchange Offer -- Exchange
Agent."
THE EXCHANGE NOTES
MATURITY................... October 1, 2004.
INTEREST................... The Exchange Notes will bear interest at the rate
of 13% per annum, payable semi-annually in arrears
on April 1 and October 1, commencing April 1, 1998.
RANKING.................... The Exchange Notes will be senior secured
obligations of the Company, will rank pari passu in
right of payment with all existing and future
senior Indebtedness of the Company, except with
respect to the Telecommunications Equipment
securing the Notes, and will rank senior in right
of payment to any future subordinated Indebtedness
of the Company. Holders of secured Indebtedness of
the Company will, however, have claims prior to the
claims of the holders of the Notes with respect to
the assets securing such other Indebtedness. As of
June 30, 1997, on a pro forma basis after giving
effect to the sale of the Notes and the Preferred
Stock Offering, or the closing of the Common Stock
Commitment, as the case may be, the total amount of
senior Indebtedness outstanding of the Company,
including current liabilities, was approximately
$159.4 million. Excluding the Notes, $4.4 million
of such Indebtedness was secured.
6
<PAGE> 12
SECURITY................... At the closing of the sale of the Notes, the
Company used a portion of the net proceeds thereof
(approximately $56.8 million) to purchase Pledged
Securities representing funds sufficient to provide
for payment in full of interest on the Notes
through October 1, 2000 and as security for
repayment of principal of and interest on the
Notes. Proceeds from the Pledged Securities may be
used by the Company to make interest payments on
the Notes through October 1, 2000. The actual
amount of the net proceeds used to purchase Pledged
Securities may vary depending upon the interest
rates on Government Securities prevailing at the
time of the purchase of the Pledged Securities. The
Pledged Securities will be held by the Trustee (as
defined) under the Pledge Agreement (as defined)
pending disbursement. In addition, the Exchange
Notes will be secured by a security interest in
certain Telecommunications Equipment currently
owned by the Company and by a first priority
security interest in certain Telecommunications
Equipment acquired by the Company after the Issue
Date and prior to such time as the aggregate dollar
value of the Company's purchases of
Telecommunications Equipment subsequent to the
Issue Date securing the Notes equals $100.0
million. See "Description of the Exchange
Notes--Security."
OPTIONAL REDEMPTION........ The Notes may be redeemed at the option of the
Company, in whole or in part, on or after October
1, 2001, at a premium declining to par in 2003,
plus accrued and unpaid interest and Liquidated
Damages, if any, through the redemption date.
In the event of a sale by the Company prior to
October 1, 2000 of its capital stock (other than
Disqualified Stock (as defined)) in one or more
Equity Offerings (as defined), up to a maximum of
35% of the aggregate principal amount of the Notes
originally issued will, at the option of the
Company, be redeemable from the net cash proceeds
thereof (but only to the extent such proceeds
consist of cash or readily marketable cash
equivalents) at a redemption price equal to 113% of
the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any,
thereon to the redemption date, provided at least
65% of the aggregate principal amount of Notes
originally issued remain outstanding immediately
after the occurrence of such redemption.
CHANGE OF CONTROL.......... In the event of a Change of Control, the holders of
the Notes will have the right to require the
Company to purchase the Notes at a price equal to
101% of the aggregate principal amount thereof,
plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase.
COVENANTS.................. The indenture pursuant to which the Exchange Notes
will be issued (the "Indenture") contains certain
covenants that, among other things, limit the
ability of the Company and its Restricted
Subsidiaries to make certain restricted payments,
incur additional indebtedness and issue preferred
stock, pay dividends or make other distributions,
repurchase equity interests or subordinated
indebtedness, acquire an aggregate of more than 20
switches until Consolidated EBITDA (as defined) is
positive for each of two consecutive quarters (with
certain exceptions), engage in sale and leaseback
transactions, create certain liens, enter into
certain transactions with affiliates, sell assets
of the Company or its Restricted Subsidiaries,
conduct certain lines of business, issue or sell
equity interests of the Company's Restricted
Subsidiaries or enter into certain mergers and
consolidations. In addition, under certain circum-
7
<PAGE> 13
stances, the Company will be required to offer to
purchase the Notes at a price equal to 100% of the
principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the
date of purchase, with the proceeds of certain
asset sales. See "Description of the Exchange
Notes--Certain Covenants."
EXCHANGE OFFER;
REGISTRATION RIGHTS;
LIQUIDATED
DAMAGES.................. Pursuant to a Registration Rights Agreement (the
"Registration Rights Agreement") between the
Company and the Initial Purchasers, the Company has
agreed to file a registration statement (the
"Exchange Offer Registration Statement") with
respect to an offer to exchange (the "Exchange
Offer") the Notes for Exchange Notes (as defined).
If (1) the Exchange Offer is not permitted by
applicable law or (2) any holder of Transfer
Restricted Securities (as defined) notifies the
Company that (A) it is prohibited by law or
Commission policy from participating in the
Exchange Offer, (B) it may not resell the Exchange
Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the
prospectus contained in the Exchange Offer
Registration Statement is not appropriate or
available for such resales or (C) it is a
broker-dealer and holds Notes acquired directly
from the Company or an affiliate of the Company,
the Company will be required to provide a shelf
registration statement (the "Shelf Registration
Statement") to cover resales of such Transfer
Restricted Securities by the holders thereof. The
Registration Statement of which this Prospectus is
a part has been filed to satisfy the Company's
obligation to file the Exchange Offer Registration
Statement. If the Company fails to satisfy these
registration obligations, it will be required to
pay liquidated damages ("Liquidated Damages") to
the affected holders of Notes under certain
circumstances. See "Description of the Exchange
Notes--Registration Rights; Liquidated Damages."
For additional information concerning the Notes and the definitions of
certain capitalized terms used above, see "Description of the Exchange Notes"
and "United States Federal Income Tax Consequences of the Exchange of Notes."
RISK FACTORS
See "Risk Factors" on page 11 for a discussion of certain factors that
should be considered by holders of Outstanding Notes prior to tendering
outstanding Notes in the Exchange Offer.
8
<PAGE> 14
SUMMARY FINANCIAL DATA
The following summary financial data of the Company for the year ended
December 31, 1996, under the captions "Statement of Operations Data" and "Other
Financial Data" are derived from the financial statements of the Company, which
financial statements have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The financial statements as of and for the year
ended December 31, 1996 are included elsewhere in this Prospectus. The following
summary financial data of the Company as of and for the six months ended June
30, 1997 under the captions "Statement of Operations Data," "Other Financial
Data," and "Balance Sheet Data" are derived from the unaudited financial
statements of the Company included elsewhere in this Prospectus. The unaudited
financial statements include all adjustments, consisting of normal recurring
accruals, which the Company considers necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for the six months ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the entire year. Financial data as of and
for the six months ended June 30, 1996, is immaterial and is therefore excluded.
The information presented below under the caption "Operating Data" is unaudited.
The data should be read in conjunction with the financial statements, related
notes and other financial information included elsewhere in this Prospectus, as
well as "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
-------------------- -------------------
(DOLLARS IN THOUSANDS EXCEPT OPERATING DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues........................................ $ 1 $ 864
Cost of operating revenues (excluding depreciation)....... 305 1,360
Selling, general and administrative expenses.............. 841 2,154
Depreciation and amortization expense..................... 54 417
Write-off of purchased software........................... 355 --
------- -------
Loss from operations...................................... (1,554) (3,067)
Other income.............................................. 63 270
------- -------
Net loss.................................................. $(1,491) $(2,797)
======= =======
Net loss per common share outstanding(1).................. $ (1.27) $ (0.20)
======= =======
OTHER FINANCIAL DATA:
EBITDA(2)................................................. $(1,145) $(2,650)
Summary Cash Flow Information:
Net cash used in operating activities................... (943) (1,935)
Net cash used in investing activities................... (2,287) (3,597)
Net cash provided by financing activities............... 11,126 5,496
Capital expenditures...................................... 3,659 6,969
Ratio of earnings to fixed charges........................ --(3) --(3)
OPERATING DATA (END OF PERIOD):
Total access lines........................................ 50 9,002
Business................................................ -- 5,212
Residential............................................. 50 3,790
Central office collocation sites.......................... 9 15
</TABLE>
9
<PAGE> 15
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
---------------------------------------
ACTUAL AS ADJUSTED(4)
------ ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents (excluding pledged
securities)............................................. $ 7,860 $ 119,493(5)
Pledged securities........................................ -- 56,767(6)
Property and equipment, net............................... 9,802 9,802
Total assets.............................................. 18,184 192,725(5)
Long-term debt............................................ -- 153,557
Convertible preferred stock............................... -- 14,000(5)
Stockholders' equity...................................... 12,357 33,341(5)
</TABLE>
- ---------------
(1) Net loss per common share outstanding is calculated based on weighted
average shares outstanding of 1,178,932 for the year ended December 31, 1996
and 13,800,551 for the six months ended June 30, 1997.
(2) EBITDA consists of earnings before interest, income taxes, depreciation and
amortization. For the year ended December 31, 1996, EBITDA excludes a charge
of $355,000 related to the one-time write-off of purchased software. While
EBITDA is not an alternative indicator of operating performance to operating
income or an alternative to cash flows from operating activities as a
measure of liquidity as defined by generally accepted accounting principles
and EBITDA may not be comparable to other similarly titled measures of other
companies, management believes that EBITDA is a measure commonly used in the
telecommunications industry to analyze and compare telecommunications
companies on the basis of operating performance, leverage and liquidity. See
the Statements of Cash Flows included in the Company's financial statements
and the notes thereto appearing elsewhere in this Prospectus. EBITDA as
defined in this footnote is not equivalent to Consolidated EBITDA as defined
in the "Description of the Exchange Notes."
(3) The ratio of earnings to fixed charges is calculated by dividing earnings
(loss) before income taxes, plus fixed charges excluding capitalized
interest by fixed charges. For the year ended December 31, 1996 and the six
months ended June 30, 1997, the Company incurred net losses and had no fixed
charges.
(4) Gives effect to the sale of the Notes and the Preferred Stock Offering or
the closing of the Common Stock Commitment, as the case may be, and the
commitment fee payable in warrants for the Common Stock Commitment.
(5) The Company estimates that if the Common Stock Commitment is closed in lieu
of the Preferred Stock Offering, Cash and cash equivalents (excluding
pledged securities), as adjusted, will be $120.5 million, Total assets, as
adjusted, will be $193.7 million, Convertible preferred stock, as adjusted,
will be zero and Stockholders' equity, as adjusted, will be $34.3 million.
(6) Approximately $56.8 million of the proceeds of the sale of the Notes has
been used to purchase Government Securities representing funds sufficient to
provide for payment in full of the first six interest payments on the Notes
and which will be pledged as security for repayment of the principal of and
interest on the Notes. See "Description of the Exchange Notes--Security."
10
<PAGE> 16
RISK FACTORS
Prior to tendering Outstanding Notes in the Exchange Offer, holders of
Outstanding Notes should consider carefully the following factors, in addition
to other information set forth elsewhere in this Prospectus.
Substantial Indebtedness; Insufficiency of Earnings to Cover Fixed
Charges. Following the sale of the Notes and the Preferred Stock Offering or
the closing of the Common Stock Commitment, as the case may be, the Company will
be highly leveraged. At June 30, 1997, after giving pro forma effect to the sale
of the Notes and the Preferred Stock Offering or the closing of the Common Stock
Commitment, as the case may be, and the application of the net proceeds
therefrom, the Company would have had approximately $159.4 million in aggregate
principal amount of indebtedness and other liabilities (including trade
payables) outstanding. The degree to which the Company is leveraged could have
important consequences to holders of the Notes, including the following: (i) a
substantial portion of the Company's cash flow from operations will be dedicated
to payment of the principal and interest on its indebtedness, thereby reducing
funds available for other purposes; (ii) the Company's significant degree of
leverage could increase its vulnerability to changes in general economic
conditions or increases in prevailing interest rates; (iii) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes could
be impaired; and (iv) the Company may be more leveraged than certain of its
competitors, which may be a competitive disadvantage.
For the six months ended June 30, 1997, and on a pro forma basis after
giving effect to the sale of the Notes, the Preferred Stock Offering or the
closing of the Common Stock Commitment, as the case may be, and the application
of the proceeds therefrom, the Company's pro forma earnings would have been
inadequate to cover its pro forma combined fixed charges. The Company
anticipates earnings will be insufficient to cover fixed charges through 1999.
In order for the Company to meet its debt service obligations, the Company will
need to substantially improve its operating results. There can be no assurance
the Company's operating results will be of sufficient magnitude to enable the
Company to meet its debt service obligations. In the absence of such operating
results, the Company could face substantial liquidity problems and might be
required to seek additional financing through the issuance of debt or equity
securities; however, there can be no assurance the Company would be successful
in raising such financing, or the terms or timing thereof. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Limited Operations; Net Losses. The Company began providing local exchange
services in December 1996. Substantially all of the Company's revenues to date
have been derived from local exchange services. The Company is expecting to add
long distance services and substantially increase the size of its operations in
the near future. Prospective investors, therefore, have limited historical
financial information about the Company upon which to base an evaluation of the
Company's performance. Given the Company's limited operating history, there is
no assurance that it will be able to compete successfully in the
telecommunications business.
The development and expansion of the Company's business require significant
capital, operational and administrative expenditures, a substantial portion of
which are incurred before the realization of revenues. These capital
expenditures will result in negative cash flow until an adequate customer base
is established. Although its revenues have increased since its inception, the
Company has incurred significant increases in expenses associated with the
installation of switches and expansion of its services and customer base. The
Company anticipates recording a significant net loss through 1999. There can be
no assurance the Company will achieve or sustain profitability or positive
EBITDA thereafter.
Although many of the Company's managerial and supervisory personnel have
had substantial telecommunications industry experience, the Company has a very
limited operating history. Accordingly, there is no firm basis, other than
Management's judgment, on which to estimate the number of customers or the
amount of revenues the Company's planned operations will generate.
Risks of Implementation, Sites, Equipment and Suitable Interconnect
Arrangements. The Company intends to develop and expand the Company's business
and enter new markets as described elsewhere in this Prospectus. There can be no
assurance the Company will be able to develop and expand its business or enter
new markets as currently planned. The development and expansion of the Company's
business and its entry
11
<PAGE> 17
into new markets will be dependent, among other things, on its ability to lease
or purchase suitable sites, obtain equipment on a timely basis, negotiate
suitable interconnection arrangements with ILECs on satisfactory terms and
conditions and finance such expansion. These factors and others could adversely
affect the expansion of the Company's customer base and commencement of
operations in new markets. If the Company is not able to expand or enter new
markets in accordance with its plans, the growth of its business would be
materially adversely affected.
Significant Capital Requirements and Need for Additional
Financing. Expansion and development of the Company's business and services and
the development of new markets require significant capital expenditures. The
Company expects to fund its capital requirements through existing resources,
debt or equity financing and internally generated funds, including capital
raised through the sale of the Notes and the Preferred Stock Offering or the
closing of the Common Stock Commitment, as the case may be. The Company expects
that to continue to expand its business will require raising substantial
additional equity and/or debt capital. There can be no assurance, however, the
Company will be successful in raising sufficient debt or equity capital on terms
it will consider acceptable. In addition, the Company's future capital
requirements will depend upon a number of factors, including marketing expenses,
staffing levels and customer growth, as well as other factors that are not
within the Company's control, such as competitive conditions, government
regulation and capital costs. Failure to generate sufficient funds may require
the Company to delay or abandon some of its future expansion or expenditures,
which would have a material adverse effect on its growth and its ability to
compete in the telecommunications industry.
Expansion Risk. The Company expects to expand rapidly. This growth will
increase 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.
Effect of Substantial Additional Indebtedness on the Company's Ability to
Repay the Notes. The Company may incur substantial additional indebtedness in
the future to finance the entry into new markets, the purchase of equipment and
increases in capacity. Additional indebtedness of the Company may rank pari
passu with the Notes in certain circumstances. See "Description of the Exchange
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.
Reliance on Others. Because the Company has elected to lease transport
capacity, it is dependent upon the cooperation of ILECs and/or CAP/CLECs whose
fiber optic networks and local loops are being leased by the Company. The risks
inherent in this approach include, but are not limited to, negotiating and
renewing favorable interconnection agreements; timeliness of the ILEC or
CAP/CLECs in processing the Company's orders for customers who seek to utilize
the Company's service; and maintenance of the unbundled network elements (UNEs).
The ILECs have had little experience in providing UNEs and there can be no
assurance the ILECs will provide and maintain the UNEs in a prompt and efficient
manner. The Company's interconnection agreements currently provide the Company's
connection and maintenance orders will receive attention at parity with the
ILECs or other CAP/CLECs customers and the ILEC will provide adequate trunking
capacity to keep blockage within industry standards. Accordingly, the Company
and its customers are dependent on the ILEC and/or CAP/CLEC to assure
uninterrupted service. In Las Vegas, the Company has experienced excessive
blockage, from time to time, in the delivery of calls from the ILEC to the
Company due to inadequate trunk provisioning by the ILEC. Blocked calls result
in customer dissatisfaction and risk the loss of Company business. There can be
no assurance ILECs will comply with their network provisioning requirements.
Furthermore, there can be no assurance the rates to be charged to the Company
under the interconnection agreements will allow the Company to offer low enough
usage rates to attract a sufficient number of customers and to also operate the
business profitably.
Dependence on Key Personnel. The Company's business is managed by a small
number of key management and operating personnel, the loss of certain of whom
could have a material adverse impact on the Company's business. The Company
believes that its future success will depend in large part on its continued
12
<PAGE> 18
ability to attract and retain highly skilled and qualified personnel. None of
the Company's key executives is a party to a long-term employment agreement with
the Company. The Company does not maintain key man insurance on its officers.
Control of the Company; Conflicts of Interest. As of September 30, 1997,
Maurice J. Gallagher, Jr., Nield J. Montgomery, Timothy P. Flynn and Robert L.
and Carol A. Priddy owned, directly or indirectly, in the aggregate
approximately 63% of the outstanding Common Stock and voting power (and at least
52.3% of the voting power after giving effect to the Preferred Stock Offering or
the closing of the Common Stock Commitment, as the case may be, assuming a price
of at least $5.00 per share) of the Company. Accordingly, such stockholders
collectively are able to control the management policy of the Company and all
fundamental corporate actions, including mergers, substantial acquisitions and
dispositions, and election of the Board of Directors of the Company.
Certain decisions concerning the operations or financial structure of the
Company may present conflicts of interest between the Company's stockholders and
the holders of the Notes. For example, if the Company encounters financial
difficulties or is unable to pay its debts as they mature, the interests of the
Company's stockholders might conflict with those of the holders of the Notes. In
addition, the Company's stockholders may have an interest in pursuing
acquisitions, divestitures, financings or other transactions that, in their
judgment, could enhance their equity investment, even though such transactions
might involve risk to the holders of the Notes. Because certain significant
stockholders of the Company are able to control the management policy of the
Company and all fundamental corporate actions, any such conflict of interest may
be resolved in favor of the Company's stockholders to the detriment of the
holders of the Notes.
Automation. The Company employs a proprietary management information
system which is expected to be an important factor in its success. If the
proprietary management information system fails or is unable to perform as
represented, it would have a substantial adverse effect on the Company.
Furthermore, problems may be encountered with higher volumes or with additional
automation features, in which case, the Company might experience system
breakdowns, delays and additional, unbudgeted expense to remedy the defect or to
replace the defective system with an alternative system.
Nortel Contract. The Company is obligated to purchase 20 Nortel DMS 500
switches (two of which have already been delivered) by the end of 1999. There
can be no assurance the Company will have adequate funds to complete the
purchase of all 20 switches or be able to utilize all of these switches in its
business.
Dependence upon Network Infrastructure; Risk of System Failure; Security
Risks. The Company's success in marketing its services to business and
residential users requires the Company to provide reliable service. The
Company's networks are subject to physical damage, power loss, capacity
limitations, software defects, breaches of security (by computer virus,
break-ins or otherwise) and other factors which may cause interruptions in
service or reduced capacity for the Company's customers. Interruptions in
service, capacity limitations or security breaches could have a material adverse
effect on customer acceptance and, therefore, on the Company's business,
financial condition and results of operations. Certain aspects of the Company's
network architecture involve new applications of equipment which may result in
technical issues that may not be easily resolved.
Lack of New Service Acceptance by Customers. The Company is entering new
markets which have historically been serviced by existing ILECs. The success of
the Company will be dependent upon, among other things, the willingness of
customers to accept the Company as an alternative provider of local and long
distance service. No assurance can be given that such acceptance will occur and
the lack of such acceptance could have a material adverse effect on the Company.
Rapid Technological Changes. The telecommunications industry is subject to
rapid and significant changes in technology. While the Company believes that for
the foreseeable future these changes will not materially affect or hinder the
Company's ability to acquire necessary technologies, the effect of technological
changes on the business of the Company cannot be predicted. Thus, there can be
no assurance technological developments will not have a material adverse effect
on the Company.
13
<PAGE> 19
Competition. In its existing market and the markets into which it intends
to expand, the Company faces significant competition for its local telephone
services, including local exchange services, from ILECs, which currently
dominate their local telecommunications markets, and others. ILECs have
long-standing relationships with their customers which relationships may create
competitive barriers. Furthermore, ILECs may have the potential to subsidize
competitive service from monopoly service revenues. In addition, a continuing
trend toward business combinations and alliances in the telecommunications
industry may create significant new competitors to the Company. The Company also
faces and will face competition in the market in which it operates and in
markets into which it intends to expand from one or more CAP/CLECs operating
fiber optic networks. Many of the Company's existing and potential competitors
have financial, personnel and other resources significantly greater than those
of the Company.
The Company believes various legislative initiatives, including the Act,
have removed remaining legislative barriers to local exchange competition.
Nevertheless, in light of the passage of the Act, regulators are also likely to
provide ILECs with increased pricing flexibility as competition increases. If
ILECs are permitted to lower their rates substantially or engage in excessive
volume or term discount pricing practices, the net income or cash flow of the
Company could be materially adversely affected.
When the Company enters the long distance market, it will compete with
AT&T, MCI and others in the long distance services market. Additionally, recent
federal legislation permits the RBOCs to provide long distance services once
certain criteria are met. Once the RBOCs begin to provide such services, they
will be in a position to offer single source service similar to the service the
Company intends to offer. In addition, AT&T and MCI have entered, and other
interexchange carriers have announced their intent to enter, the local exchange
services market, which is facilitated by the Act's resale and unbundled network
element provisions. The Company cannot predict the number of competitors that
will emerge as a result of existing or new federal and state regulatory or
legislative actions. Competition from the RBOCs with respect to long distance
services or from AT&T, MCI or others with respect to local exchange services
could have a material adverse effect on the Company's business.
Competitive Reaction. Although the Company plans to offer rates for its
services which are below those currently charged by ILECs, ILECs or new
competitors with greater capital and resources than the Company may meet or
undercut the Company's price structure and prevent the Company from attaining
the share of the local telecommunications market necessary to achieve profitable
operations. The Company's ability to meet price competition may depend on its
ability to operate at costs equal to or lower than its competitors or potential
competitors. There is a risk that competitors, perceiving the Company to lack
capital resources, may undercut the Company's rates or increase their services
in an effort to force the Company out of business. In addition, the success of
the Company will ultimately depend on Management's ability to react
expeditiously and effectively to exigencies that have not been taken into
account in the Company's plan.
Risks Regarding the Collateral. Although the Notes will be secured by
certain Telecommunications Equipment, the value of the collateral will be
substantially less than the principal amount of the Notes. As of June 30, 1997,
the Company has accepted delivery of approximately $1.9 million of
Telecommunications Equipment (other than Telecommunications Equipment located in
the Las Vegas area) and has purchase commitments for an additional $44.1 million
of Telecommunications Equipment (the majority of which will be located outside
of the Las Vegas area). In addition, the purchase price of the
Telecommunications Equipment may not represent the value that a secured party
would be able to receive upon enforcement of its security interest in such
Telecommunications Equipment. Furthermore, it is likely that the value of such
Telecommunications Equipment will decrease over time as such Telecommunications
Equipment is deployed in the business and equipment manufacturers develop
improved products or similar products at reduced prices. Liens on certain of the
Telecommunications Equipment will also be required to be released if such
Telecommunications Equipment is transferred to ILECs for nominal consideration
in connection with the establishment of virtual collocation arrangements with
such ILECs. The Company is not required to reduce the outstanding amount of the
Notes based on the value of the collateral. Therefore, it is likely that, if the
Notes were in default and the Trustee attempted to foreclose on the collateral,
the value of the collateral would be substantially less than the amount of the
indebtedness under the Notes.
14
<PAGE> 20
The security interest in Telecommunications Equipment to be acquired by the
Company will not arise until the Company actually acquires such
Telecommunications Equipment, which will be substantially after the issuance of
the Notes. As a result, the security interest arising in connection with the
later acquired Telecommunications Equipment may be subject to challenge, in a
bankruptcy or reorganization of the Company, as a preferential transfer insofar
as such security interest secures an antecedent debt. In such event, if the
Company became subject to a bankruptcy or similar proceeding during the
preference period (generally 90 days) following the acquisition of any
Telecommunications Equipment, the security interest in such Telecommunications
Equipment could be set aside in such proceeding for the benefit of other
creditors (if any) of the Company. See "Description of the Exchange Notes."
Failure to Maintain Perfected Security Interest. Under the Indenture, the
Company is required to secure the Notes by granting liens on certain
Telecommunications Equipment. The Company will file UCC-1 financing statements
naming the Company as debtor and the Trustee (as defined) as the secured party
acting as collateral agent for holders of Notes with the Secretary of State or
other appropriate office in each state in which the Company currently has (or
proposes to locate) Telecommunications Equipment. The Company has agreed to
maintain the effectiveness of such filings under the relevant provisions of the
Uniform Commercial Code. However, the liens will be perfected only to the extent
that such filings are sufficient to perfect liens on the Telecommunications
Equipment. Generally, filings will not be made in local filing offices, in real
estate records, with any federal office or agency or in respect of any
certificate of title. Failure to make additional filings or to maintain the
contemplated filings may allow other creditors of the Company, if any, to obtain
rights to the Telecommunications Equipment equal or superior to those of the
holders of the Notes. Owners or mortgagees of property on which items of
Telecommunications Equipment are installed may also obtain such rights. This
could result in all or some of the value of the Telecommunications Equipment
acquired by the Company not being available to the holders of the Notes to
satisfy the outstanding indebtedness of the Notes upon the occurrence of an
Event of Default (as defined). Such failure could arise, among other reasons,
because of the failure to file continuation statements prior to the expiration
of each five-year period after the initial filing or because of the failure to
make the additional filings discussed above. Accordingly, investors should not
rely on the perfection of any specific lien in making an investment decision to
tender Outstanding Notes in the Exchange Offer.
Bankruptcy Risks Related to Escrow Account. The right of the Trustee under
the Indenture and the Collateral Pledge Agreement (as defined) to foreclose upon
and sell Collateral (as defined) upon the occurrence of an Event of Default 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 Exchange Notes."
Failure to Raise Additional Equity. In the event the Preferred Stock
Offering is not consummated, there can be no assurance that the Common Stock
Commitment will be consummated notwithstanding the fact that the Common Stock
Commitment is irrevocable and the funds therefor are held in escrow. If neither
the Preferred Stock Offering nor the Common Stock Commitment is consummated, the
Company's debt to equity ratio will be significantly increased.
Effective Subordination of the Notes. The Indenture permits certain
Indebtedness of the Company to be secured. Holders of secured indebtedness of
the Company will have claims that are prior to the claims of the holders of the
Notes to the extent of the assets securing such other indebtedness. While the
Company currently has no subsidiaries, the Notes would be effectively
subordinated to the debt of any subsidiaries created in the future.
Regulation. The Company is subject to varying degrees of federal, state
and local regulation. The Company is not currently subject to price cap or rate
of return regulation, nor is it currently required to obtain FCC authorization
for the installation, acquisition or operation of its network facilities.
Further, the FCC has issued an order holding that non-dominant carriers, such as
the Company, are not required to file interstate tariffs for domestic long
distance service on an ongoing basis. That order was stayed by a federal appeals
court
15
<PAGE> 21
and the FCC recently has issued a further decision in the matter addressing the
court's concerns and providing for detariffing, subject to further court review.
The Company is or will be generally subject to certification and tariff or price
list filing requirements for intrastate services by state regulators. Although
passage of the Act should result in increased opportunities for companies
competing with the ILECs, no assurance can be given changes in current or future
regulations adopted by the FCC or state regulators or other legislative or
judicial initiatives relating to the telecommunications industry would not have
a material adverse effect on the Company. Furthermore, while the Act reduces
regulations to which non-dominant local exchange carriers are subject, it also
reduces the level of regulation that applies to the ILECs and increases their
ability to respond quickly to competition from the Company and others. In
addition, although the Act provides incentives to ILECs to negotiate
interconnection agreements with local competitors, there can be no assurance
these ILECs will negotiate quickly with competitors such as the Company for the
required interconnection of the competitor's networks with those of the ILECs.
It is anticipated the FCC will issue an order later in 1997 that may permit
significant new pricing flexibility to ILECs. To the extent such increased
pricing flexibility is afforded to the ILECs, the ability of the Company to
compete with ILECs for certain services may be adversely affected. On May 8,
1997, the FCC issued an order establishing new Universal Service support funds.
The new Universal Service support fund rules will be administered jointly by the
FCC and state regulatory authorities, many of which rules are still in the
process of being formulated. The net revenue effect on the Company of these
rules is incalculable at this time.
In certain locations, the Company may be required to obtain local
franchises, licenses or other operating rights and street opening and
construction permits to install its switches. In some of the areas where the
Company provides facilities based services, the Company may be required to pay
license or franchise fees based on a percentage of gross revenues or on a per
linear foot basis. There is no assurance certain cities that do not impose fees
will not seek to impose fees, nor is there any assurance, following the
expiration of existing franchises, fees will remain at their current levels.
Forward Looking Statements. The statements contained in this Prospectus
that are not historical facts are "forward-looking statements" (as such term is
defined in the Private Securities Litigation Reform Act of 1995), which can be
identified by the use of forward-looking terminology such as "estimates,"
"projects," "anticipates," "expects," "intends," "believes," or the negative
thereof or other variations thereon or comparable terminology, or by discussions
of strategy that involve risks and uncertainties. Management wishes to caution
the reader these forward-looking statements (cautionary statements), such as the
Company's plans to expand its existing network or to commence service in new
areas, the market opportunity presented by the Company's target markets, the
Company's anticipation of installation of switches or the provision of local
exchange and long distance services, and statements regarding development of the
Company's businesses, the estimate of market sizes and addressable markets for
the Company's services and products, the Company's anticipated capital
expenditures, the effect of regulatory reform and other statements contained in
this Prospectus regarding matters that are not historical facts, are only
estimates or predictions. No assurance can be given future results will be
achieved; actual events or results may differ materially as a result of risks
facing the Company or actual results differing from the assumptions underlying
such statements. Such risks and assumptions include, but are not limited to, the
Company's ability to successfully market its services to current and new
customers, generate customer demand for its services in the particular markets
where it plans to market services, access markets, install switches and obtain
suitable locations for its switches, negotiate suitable interconnect agreements
with the ILECs, all in a timely manner, at reasonable costs and on satisfactory
terms and conditions, as well as regulatory, legislative and judicial
developments that could cause actual results to vary materially from the future
results indicated, expressed or implied in such forward-looking statements. All
written and oral forward-looking statements made in connection with this
Prospectus which are attributable to the Company or persons acting on its behalf
are expressly qualified in their entirety by these cautionary statements.
Absence of a Public Market for the Notes. The Exchange Notes are new
issues of securities for which there is currently no public market. The Company
does not intend to apply for listing of the Exchange Notes on any securities
exchange or on the Nasdaq National Market. Although the Initial Purchasers have
informed the Company they currently intend to make a market in the 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
16
<PAGE> 22
as to the development or liquidity of any market for the Notes. If a market for
the Notes were to develop, the Notes may trade at prices that may be higher or
lower than their initial offering price depending upon many factors, including
prevailing interest rates, the Company's operating results and the markets for
similar securities. Historically, the market for securities such as those
offered hereby has been subject to disruptions that have caused substantial
volatility in the prices of similar securities. There can be no assurance, if a
market for the Notes were to develop, such a market would not be subject to
similar disruptions. Any such disruptions may have an adverse effect on the
holders of the Notes.
Consequences of Failure to Exchange; Possible Adverse Effect on Trading
Market for Outstanding Notes. Holders of Outstanding Notes who do not exchange
their Outstanding Notes for Exchange Notes pursuant to the Exchange Offer will
continue to be subject to the restrictions on transfer of such Notes as set
forth in the legend thereon as a consequence of the issuance of the Outstanding
Notes pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. In general, the Outstanding Notes may not be offered or sold unless
registered under the Securities Act and applicable state laws, or pursuant to an
exemption therefrom. Subject to the obligation by the Company to file a Shelf
Registration Statement covering resales of Outstanding Notes in certain
circumstances, the Company does not intend to register the Outstanding Notes
under the Securities Act and, after consummation of the Exchange Offer, will not
be obligated to do so. In addition, any holders of Outstanding Notes who tender
in the Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes may be deemed to have received restricted securities and, if so,
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Additionally, as a result of the Exchange Offer, it is expected that a
substantial decrease in the aggregate principal amount of Outstanding Notes
outstanding will occur. As a result, it is unlikely that a liquid trading market
will exist for the Outstanding Notes at any time. This lack of liquidity will
make transactions more difficult and may reduce the trading price of the
Outstanding Notes. See "The Exchange Offer" and "Description of the Exchange
Notes -- Registration Rights; Liquidated Damages."
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any proceeds from the issuance of the Exchange Notes offered hereby. In
consideration for issuing the Exchange Notes as contemplated in this Prospectus,
the Company will receive, in exchange, Outstanding Notes in like principal
amount. The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Outstanding Notes, except as otherwise
described herein under "The Exchange Offer -- Terms of the Exchange Offer." The
Outstanding Notes surrendered in exchange for the Exchange Notes will be retired
and canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes
will not result in any increase in the outstanding debt of the Company.
17
<PAGE> 23
CAPITALIZATION
The following table shows the Total capitalization, Cash and cash
equivalents and Pledged Securities of the Company as of June 30, 1997 and as
adjusted to give effect to the receipt of the net proceeds of the sale of the
Notes and Preferred Stock Offering or the closing of the Common Stock
Commitment, as the case may be. This table should be read in conjunction with
the financial statements and related notes appearing elsewhere herein.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents (excluding Pledged Securities).... $ 7,860 $ 119,493(2)
Pledged Securities.......................................... -- 56,767(3)
------- ---------
Total cash and Pledged Securities......................... $ 7,860 $ 176,260
======= =========
13% Senior Secured Notes due 2004........................... $ -- $ 153,557(4)
------- ---------
Stockholders' equity
Convertible Preferred Stock -- par value.................. -- 3(2)
Convertible Preferred Stock -- paid in capital in excess
of par value........................................... -- 13,997(2)
Common Stock -- par value................................. 14 14(2)
Common Stock -- paid in capital in excess of par value.... 16,631 23,615(2)
Deficit accumulated during development stage.............. (4,288) (4,288)
------- ---------
Total stockholders' equity............................. 12,357 33,341(2)
------- ---------
Total capitalization.............................. $12,357 $ 186,898(2)
======= =========
</TABLE>
- ---------------
(1) Gives effect to the sale of the Notes and the Preferred Stock Offering or
the closing of the Common Stock Commitment, as the case may be, and the
commitment fee payable in warrants for the Common Stock Commitment.
(2) The Company estimates that if the Common Stock Commitment is closed in lieu
of the Preferred Stock Offering, Cash and cash equivalents (excluding
Pledged Securities), as adjusted, will be $120.5 million, Convertible
Preferred Stock, as adjusted, and Convertible Preferred Stock -- paid in
capital in excess of par value, as adjusted, will be zero, Common Stock, as
adjusted, will be $17,000, Common Stock -- paid in capital in excess of par
value, as adjusted, will be $38.6 million, Total stockholders' equity, as
adjusted, will be $34.3 million and Total capitalization, as adjusted, will
be $187.9 million.
(3) Approximately $56.8 million of the proceeds of the sale of the Notes has
been used to purchase Government Securities representing funds sufficient to
provide for payment in full of the first six interest payments on the Notes
and which will be pledged as security for repayment of the principal of and
interest on the Notes. See "Description of the Exchange Notes--Security."
(4) A portion of the proceeds of the sale of the Notes has been allocated to
Common Stock -- paid in capital in excess of par value to reflect the value
of warrants issued to the purchasers of the Notes.
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<PAGE> 24
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Outstanding Notes were sold by the Company on September 29, 1997 to the
Initial Purchasers, who sold the Outstanding Notes to certain institutional
investors in reliance on Rule 144A and Regulation D promulgated by the
Commission under the Securities Act and certain foreign investors in reliance on
Regulation S promulgated by the Commission under the Securities Act. In
connection with the sale of the Outstanding Notes, the Company and the Initial
Purchasers entered into the Registration Rights Agreement, pursuant to which the
Company agreed (i) to file a registration statement with respect to an offer to
exchange the Outstanding Notes for senior secured debt securities of the Company
with terms substantially identical to the Outstanding Notes (except that the
Exchange Notes will not contain terms with respect to transfer restrictions)
within 30 days after the date of original issuance of the Outstanding Notes and
(ii) to use best efforts to cause such registration statement to become
effective under the Securities Act within 120 days after such issue date. If
applicable law or the positions taken by the staff of the Commission that have
been enunciated in the no-action letters issued in Exxon Capital Holdings Corp.
(available April 13, 1989) and Morgan Stanley & Co. Inc. (available June 5,
1991), among others, do not permit the Company to cause the registration
statement containing this Prospectus to become effective or to effect the
Exchange Offer, or under certain other circumstances, the Company will use its
best efforts to cause to become effective the Shelf Registration Statement with
respect to the resale of the Outstanding Notes and to keep the Shelf
Registration Statement effective until 365 days after the effective date
thereof. The Company is obligated to pay certain liquidated damages under
certain circumstances if the Company is not in compliance with its obligations
under the Registration Rights Agreement. See "Description of the Exchange
Notes -- Registration Rights; Liquidated Damages." Unless the context requires
otherwise, the term "holder" with respect to the Exchange Offer means the
registered holder of the Outstanding Notes or any other person who has obtained
a properly completed bond power from the registered holder.
Each holder of the Outstanding Notes who wishes to exchange such
Outstanding Notes for Exchange Notes in the Exchange Offer will be required to
make certain representations, including representations that (i) any Exchange
Notes to be received by it will be acquired in the ordinary course of its
business, (ii) at the time of the commencement of the Exchange Offer, it had no
arrangement with any person to participate in the distribution of the Exchange
Notes and (iii) it is not an "affiliate," as defined in Rule 405 of the
Securities Act, of the Company or, if it is an affiliate, it will comply with
the registration and prospectus delivery requirements of the Securities Act to
the extent applicable. See "Description of the Exchange Notes -- Registration
Rights; Liquidated Damages." Holders who tender Outstanding Notes in the
Exchange Offer with the intention to participate in a distribution of the
Exchange Notes may not rely upon the Morgan Stanley or similar no-action
letters.
RESALE OF EXCHANGE NOTES
Based on positions taken by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that, except as
described below, Exchange Notes issued pursuant to the Exchange Offer in
exchange for Outstanding Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than a holder which is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holder's business and such holder does not intend to participate
and has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Any holder who tenders in the Exchange
Offer with the intention or for the purpose of participating in a distribution
of the Exchange Notes cannot rely on such positions taken by the staff of the
Commission 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, any
such resale transaction should be covered by an effective registration statement
containing the selling security holders information required by Item 507 of
Regulation S-K under the Securities Act.
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<PAGE> 25
This Prospectus may be used for an offer to resell, resale or other
retransfer of Exchange Notes only as specifically set forth herein. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Outstanding Notes, where such Outstanding Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept for exchange any and
all Outstanding Notes properly tendered and not withdrawn prior to 5:00 p.m.,
New York time, on the Expiration Date. The Company will issue $1,000 principal
amount of Exchange Notes in exchange for each $1,000 principal amount of
Outstanding Notes surrendered pursuant to the Exchange Offer. Outstanding Notes
may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes will be the same as the form and
terms of the Outstanding Notes, except that the Exchange Notes will be
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof. The Exchange Notes will evidence the same debt as the
Outstanding Notes. The Exchange Notes will be issued under and entitled to the
benefits of the Indenture, which also authorized the issuance of the Outstanding
Notes, such that both series will be treated as a single class of debt
securities under the Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Outstanding Notes being tendered for exchange. Holders of Outstanding
Notes do not have any appraisal or dissenters' rights in connection with the
Exchange Offer.
As of the date of this Prospectus, $160,000,000 aggregate principal amount
of the Outstanding Notes are outstanding. This Prospectus, together with the
Letter of Transmittal, is being sent to all registered holders of Outstanding
Notes. There will be no fixed record date for determining registered holders of
Outstanding Notes entitled to participate in the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
provisions of the Registration Rights Agreement and the applicable requirements
of the Exchange Act, and the rules and regulations of the Commission thereunder.
Outstanding Notes which are not tendered for exchange in the Exchange Offer will
remain outstanding and continue to accrue interest and will be entitled to the
rights and benefits such holders have under the Indenture and the Registration
Rights Agreement.
The Company shall be deemed to have accepted for exchange properly tendered
Notes when, as and if the Company shall have given oral or written notice
thereof to the Exchange Agent and complied with the applicable provisions of the
Registration Rights Agreement. The Exchange Agent will act as agent for the
tendering holders for the purposes of receiving the Exchange Notes from the
Company. The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Outstanding Notes not
theretofore accepted for exchange, upon the occurrence of any of the conditions
specified below under "-- Certain Conditions to the Exchange Offer."
Holders who tender Outstanding Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Outstanding Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes described below, in
connection with the Exchange Offer. See "The Exchange Offer -- Fees and
Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York time on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. The Exchange Offer will
not in any event be extended beyond , 1998.
20
<PAGE> 26
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders of Outstanding Notes an announcement thereof, each prior to 9:00 a.m.,
New York time, on the next business day after the then Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting for exchange any Notes, to extend the Exchange Offer or to terminate
the Exchange Offer if any of the conditions set forth below under "-- Certain
Conditions to the Exchange Offer" shall not have been satisfied, by giving oral
or written notice of such delay, extension or termination to the Exchange Agent
or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay
in acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the registered holders of
Outstanding Notes. If the Exchange Offer is amended in a manner determined by
the Company to constitute a material change, the Company will promptly disclose
such amendment by means of a prospectus supplement that will be distributed to
the registered holders, and the Company will extend the Exchange Offer,
depending upon the significance of the amendment and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during such
period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate of 13% per annum, payable
semi-annually, on each April 1 and October 1, commencing April 1, 1998. Holders
of Exchange Notes will receive interest on April 1, 1998 from the later of the
date of initial issuance of the Outstanding Notes, or the most recent date as of
which interest has been paid on the Outstanding Notes. All obligations under the
Outstanding Notes accepted for exchange will cease to exist upon issuance of the
Exchange Notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange any Exchange Notes for, any
Outstanding Notes, and may terminate the Exchange Offer as provided herein
before the acceptance of any Outstanding Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the Company's reasonable judgment, might materially impair the
ability of the Company to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission, which, in the Company's reasonable judgment,
might materially impair the ability of the Company to proceed with the
Exchange Offer; or
(c) any governmental approval has not been obtained, which approval
the Company shall reasonably deem necessary for the consummation of the
Exchange Offer as contemplated hereby.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Outstanding Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified above. The Company will give oral or written notice of
any extension, amendment, non-acceptance or termination to the holders of the
Outstanding Notes as promptly as practicable, such notice in the case of any
extension to be issued no later than 9:00 a.m., New York time, on the next
business day after the previously scheduled Expiration Date.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable judgment. The failure by the Company at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right, and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Outstanding Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Outstanding Notes, if at such time any stop order
21
<PAGE> 27
shall be threatened or in effect with respect to the Registration Statement of
which this Prospectus constitutes a part or the qualification of the Indenture
under the Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING
Only a holder of Outstanding Notes may tender such Outstanding Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must either: (i)
complete, sign and date the Letter of Transmittal, or facsimile thereof, have
the signature thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile to the
Exchange Agent, or (ii) if such Outstanding Notes are tendered pursuant to the
procedures for book-entry transfer set forth below, a holder tendering
Outstanding Notes may transmit an Agent's Message (defined herein) to the
Exchange Agent in lieu of the Letter of Transmittal, in either case on or prior
to the Expiration Date. In addition, either (i) Outstanding Notes must be
received by the Exchange Agent along with the Letter of Transmittal, or (ii) a
timely confirmation of book-entry transfer (a "Book-Entry Confirmation") of such
Outstanding Notes, if such procedure is available, into the Exchange Agent's
account at the Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedure for book-entry transfer described below, along with
the Letter of Transmittal or an Agent's Message, as the case may be, must be
received by the Exchange Agent prior to the Expiration Date, or (iii) the holder
must comply with the guaranteed delivery procedures described below. The term
"Agent's Message" means a message, transmitted to the Book-Entry Transfer
Facility and received by the Exchange Agent and forming a part of the Book-Entry
Confirmation, which states that the Book-Entry Transfer Facility has received an
express acknowledgment from the tendering participant in the Book-Entry Transfer
Facility that such participant has received and agrees to be bound by the Letter
of Transmittal and that the Company may enforce the Letter of Transmittal
against such participant. To be tendered effectively, the Letter of Transmittal
and other required documents or, in the case of a Book-Entry Confirmation, an
Agent's Message in lieu thereof, must be received by the Exchange Agent at the
address set forth below under "The Exchange Offer -- Exchange Agent" prior to
5:00 p.m., New York time, on the Expiration Date.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Outstanding Notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder of Outstanding Notes to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender on such owner's own behalf,
such owner must, prior to completing and executing the Letter of Transmittal and
delivering such owner's Outstanding Notes, either make appropriate arrangements
to register ownership of the Outstanding Notes in such owner's name or obtain a
properly completed bond power from the registered holder of Outstanding Notes.
The transfer of registered ownership may take considerable time and may not be
able to be completed prior to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case may be, must be guaranteed by an Eligible Institution (as
defined below) unless the Outstanding Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the Letter
of Transmittal or (ii) for the account of an Eligible Institution. If signatures
on a Letter of Transmittal or a notice of withdrawal, as the case may be, are
22
<PAGE> 28
required to be guaranteed, such guarantor must be a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of
the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Outstanding Notes listed therein, such Outstanding
Notes must be endorsed or accompanied by a properly completed bond power, signed
by such registered holder as such registered holder's name appears on such
Outstanding Notes with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Outstanding Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Outstanding Notes and withdrawal of tendered
Outstanding Notes will be determined by the Company in its sole discretion,
which determination will be final and binding. The Company reserves the absolute
right to reject any and all Outstanding Notes not properly tendered or any
Outstanding Notes the Company's acceptance of which would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the right to
waive any defects, irregularities or conditions of tender as to particular
Outstanding Notes. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Outstanding Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of
Outstanding Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Outstanding Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Outstanding Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In all cases, issuance of Exchange Notes for Outstanding Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of Outstanding Notes or a timely Book-Entry
Confirmation of such Outstanding Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents, or, in the case of a Book-Entry
Confirmation, an Agent's Message in lieu thereof. If any tendered Outstanding
Notes are not accepted for exchange for any reason set forth in the terms and
conditions of the Exchange Offer or if Outstanding Notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted or
non-exchanged Outstanding Notes will be returned without expense to the
tendering holder thereof (or, in the case of Outstanding Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described below, such
non-exchanged Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Outstanding Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Outstanding Notes by causing
the Book-Entry Transfer Facility to transfer such Outstanding Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of
23
<PAGE> 29
Notes may be effected through book-entry transfer at the Book-Entry Transfer
Facility, the Letter of Transmittal or facsimile thereof, with any required
signature guarantees, or an Agent's Message in lieu of a Letter of Transmittal,
and any other required documents, must, in any case, be transmitted to and
received by the Exchange Agent at the address set forth below under "The
Exchange Offer -- Exchange Agent" on or prior to the Expiration Date or, if the
guaranteed delivery procedures described below are to be complied with, within
the time period provided under such procedures. Delivery of documents to the
Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available or (ii) who cannot deliver their
Outstanding 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 holder, the registered number(s)
of such Outstanding Notes and the principal amount of Outstanding Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three (3) New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof) together
with the Outstanding Notes or a Book-Entry Confirmation, as the case may
be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Notes in proper form for
transfer or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal, are received by the
Exchange Agent within three (3) New York Stock Exchange trading days after
the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to 5:00 p.m., New York time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth below under "Exchange
Agent." Any such notice of withdrawal must specify the name of the person having
tendered the Outstanding Notes to be withdrawn, identify the Outstanding Notes
to be withdrawn (including the principal amount of such Outstanding Notes), and
(where certificates for Outstanding Notes have been transmitted) specify the
name in which such Outstanding Notes were registered, if different from that of
the withdrawing holder. If certificates for Outstanding Notes have been
delivered or otherwise identified to the Exchange Agent, then, prior to the
release of such certificates, the withdrawing holder must also submit the serial
numbers of the particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution unless such
holder is an Eligible Institution. If Outstanding Notes have been tendered
pursuant to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Outstanding Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Outstanding Notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer. Any
Outstanding Notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder (or, in the case of Outstanding Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described above, such Outstanding
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility for the Outstanding Notes) as soon as practicable after withdrawal,
rejection of tender or termination of the
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<PAGE> 30
Exchange Offer. Properly withdrawn Outstanding Notes may be retendered by
following one of the procedures described under "-- Procedures for Tendering"
above at any time on or prior to the Expiration Date.
EXCHANGE AGENT
Marine Midland Bank has been appointed as Exchange Agent of the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
Marine Midland Bank
140 Broadway
New York, New York 10005-1180
Attn: Corporate Trust Operations
By Facsimile:
(212) 658-6425
(For Eligible Institutions Only)
Confirm by Telephone: (212) 658-6433
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to broker-dealers or others
soliciting acceptances 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 cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
[$110,000]. Such expenses include registration fees, fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees, printing costs and
related fees and expenses.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Notes pursuant to the Exchange Offer. If, however, certificates representing
Outstanding Notes for principal amounts not tendered or accepted for exchange
are to be delivered to, or are to be issued in the name of, any person other
than the registered holder of Notes tendered, or if tendered Notes are
registered in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of 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 therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Outstanding Notes, as set forth in the
legend thereon, as a consequence of the issuance of the Outstanding Notes
pursuant to the exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. In general, the Outstanding Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the
Outstanding Notes under the Securities Act.
25
<PAGE> 31
SELECTED HISTORICAL FINANCIAL DATA
The following selected financial data of the Company for the year ended
December 31, 1996, under the captions "Statement of Operations Data" and "Other
Financial Data" are derived from the financial statements of the Company which
financial statements have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The financial statements as of and for the year
ended December 31, 1996 are included elsewhere in this Prospectus. The following
selected financial data of the Company as of and for the six months ended June
30, 1997, under the captions "Statement of Operations Data," "Balance Sheet
Data" and "Other Financial Data" are derived from the unaudited financial
statements of the Company included elsewhere in this Prospectus. The unaudited
financial statements include all adjustments, consisting of normal recurring
accruals, which the Company considers necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for the six months ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the entire year. Financial data as of and
for the six months ended June 30, 1996 is immaterial and is therefore excluded.
The information presented below under the caption "Operating Data" is unaudited.
The data should be read in conjunction with the financial statements, related
notes and other financial information included elsewhere in this Prospectus as
well as "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
------------------- ------------------
(DOLLARS IN THOUSANDS EXCEPT OPERATING DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues......................................... $ 1 $ 864
Cost of operating revenues (excluding depreciation)........ 305 1,360
Selling, general and administrative expenses............... 841 2,154
Depreciation and amortization expense...................... 54 417
Write-off of purchased software............................ 355 --
-------- --------
Loss from operations....................................... (1,554) (3,067)
Other income............................................... 63 270
-------- --------
Net loss................................................... $(1,491) $(2,797)
======== ========
Net loss per common share outstanding(1)................... $ (1.27) $ (0.20)
======== ========
OTHER FINANCIAL DATA:
EBITDA(2).................................................. $(1,145) $(2,650)
Summary Cash Flow Information:
Net cash used in operating activities.................... (943) (1,935)
Net cash used in investing activities.................... (2,287) (3,597)
Net cash provided by financing activities................ 11,126 5,496
Capital expenditures....................................... 3,659 6,969
Ratio of earnings to fixed charges......................... --(3) --(3)
OPERATING DATA (END OF PERIOD):
Total access lines......................................... 50 9,002
Business................................................. -- 5,212
Residential.............................................. 50 3,790
Central office collocation sites........................... 9 15
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents (excluding pledged securities).... $ 7,860
Pledged securities.......................................... --
Property and equipment, net................................. 9,802
Total assets................................................ 18,184
Long-term debt.............................................. --
Convertible preferred stock................................. --
Stockholders' equity........................................ 12,357
</TABLE>
- ---------------
(1) Net loss per common share outstanding is calculated based on weighted
average shares outstanding of 1,178,932 for the year ended December 31, 1996
and 13,800,551 for the six months ended June 30, 1997.
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<PAGE> 32
(2) EBITDA consists of earnings before interest, income taxes, depreciation and
amortization. For the year ended December 31, 1996, EBITDA excludes a charge
of $355,000 related to the one-time write-off of purchased software. While
EBITDA is not an alternative indicator of operating performance to operating
income or an alternative to cash flows from operating activities as a
measure of liquidity as defined by generally accepted accounting principles
and EBITDA may not be comparable to other similarly titled measures of other
companies, management believes that EBITDA is a measure commonly used in the
telecommunications industry to analyze and compare telecommunications
companies on the basis of operating performance, leverage and liquidity. See
the Statements of Cash Flows included in the Company's financial statements
and the notes thereto appearing elsewhere in this Prospectus. EBITDA as
defined in this footnote is not equivalent to Consolidated EBITDA as defined
in the "Description of the Exchange Notes."
(3) The ratio of earnings to fixed charges is calculated by dividing earnings
(loss) before income taxes, plus fixed charges excluding capitalized
interest by fixed charges. For the year ended December 31, 1996 and the six
months ended June 30, 1997, the Company incurred net losses and had no fixed
charges.
27
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
MGC began providing competitive local exchange services to small businesses
and residential users in December 1996. In the fall 1997, the Company expects to
begin offering long distance services. The Company has adopted a strategy of
providing services through the leasing of unbundled network elements of the ILEC
and dedicated transport to the Company's switches. Currently, the Company has
one switch fully operational in Las Vegas and anticipates having another two
fully operational in suburban Atlanta and Los Angeles by the end of 1997.
The development and expansion of the Company's business will require
significant expenditures. The Company has made the strategic decision to install
Company-owned switches with broad market coverage, which initially increases its
level of capital expenditures and operating losses. The Company believes this
will enhance the Company's financial performance over the long term through
higher margins and control of customer accounts.
The Company's principal operating expenses consist of: direct costs,
operating costs and depreciation. Direct costs consist of access fees, line
installation expenses, transport expenses, engineering costs and long distance
expenses. Operating costs are comprised of sales and marketing, customer service
and general and administrative expenses. As the Company expands into new
markets, both direct costs and selling, general and administrative costs will
continue to increase prior to achieving significant revenue. Significant levels
of marketing activity may be necessary in new markets in order for the Company
to build a customer base large enough to generate sufficient revenue to offset
such marketing expenses. In addition, selling, general and administrative costs
may increase in the short term after the Company enters a new market because
many of the fixed costs of providing service in new markets are incurred before
significant revenue can be expected from those markets.
The Company has experienced operating losses and generated negative
operating cash flow since inception and expects to continue to generate negative
operating cash flow through 1998, and to incur significant operating losses
during the next several years while it installs and expands its networks and
develops its business. There can be no assurance the Company's revenue or
customer base will grow or that the Company will be able to achieve or sustain
positive cash flow.
RESULTS OF OPERATIONS
Six months ended June 30, 1997
During the six months ended June 30, 1997, the Company generated $863,676
in operating revenues, had cost of operating revenues of $1,360,005, and
incurred selling, general and administrative expenses of $2,154,422 in
connection with the initial marketing of its services and the continued buildout
of its network. These expenses consisted primarily of payroll expenses,
provision for bad debts, professional fees and rents.
Depreciation expense for the period was $416,639 as a result of the
Company's assets placed in service in accordance with the planned buildout of
its network.
The Company had interest income of $270,812 for the six months ended June
30, 1997, as a result of earnings on investments made with the proceeds of its
prior private placements.
As a result, the Company incurred a net loss in the six month period of
$2,796,578. The loss is primarily attributable to the expenses incurred during
the period in connection with the continued development of the Company's
business.
Year ended December 31, 1996
During the year ended December 31, 1996, the Company generated $751 in
operating revenues as a result of commencing service during the month of
December. The Company had cost of operating revenues of
28
<PAGE> 34
$304,936 which represents primarily fixed costs. In addition, the Company
incurred operating expenses of $1,250,295 in connection with the commencement of
operations and the buildout of its network. These expenses consisted primarily
of payroll expenses, professional fees, expenses related to the introduction of
initial service and a one-time write-off of purchased software.
The Company earned interest income in the period of $63,122.
As a result, the Company incurred a net loss in the period of $1,491,358.
This loss is primarily attributable to the expenses incurred in connection with
the initial development of the Company's business.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have required substantial capital investment for
the purchase of telecommunications equipment and the design and development of
the Company's networks. Capital expenditures for the Company were $3.7 million
and $7.0 million in 1996 and the first six months of 1997, respectively. The
Company expects that it will continue to have substantial capital requirements
in connection with the (i) purchase of switches necessary for expansion of local
exchange services and provision of long distance services, and (ii) development
of new markets. Management expects capital expenditures to be $12.3 million for
the second half of 1997 and $40.3 million for 1998.
The Company has funded a substantial portion of these expenditures through
the private sales of equity securities. From its inception through June 30,
1997, the Company raised approximately $16.6 million from private sales of
Common Stock.
The substantial capital investment required to initiate the Company's
services and the funding of the Company's initial operations has resulted in
negative cash flow since the Company's inception. This negative cash flow is a
result of the requirement to establish the Company's switching network in
anticipation of connecting revenue generating customers. The Company expects to
continue to produce negative cash flow through 1999 due to expansion activities
associated with the development of the Company's markets. There can be no
assurance the Company will attain break-even cash flow in subsequent periods.
Until sufficient cash flow is generated, the Company will be required to utilize
its current and future capital resources to meet its cash flow requirements and
may be required to issue additional debt and/or equity securities.
At the closing of the sale of the Notes, the Company used approximately
$56.8 million of the net proceeds of the sale of the Notes to purchase a
portfolio of Government Securities that has been pledged as security to cover
the first six interest payments on the Notes and the Company used approximately
$3.1 million of the net proceeds to pay accounts payable incurred in connection
with the acquisition of equipment. In addition, the Company has granted the
holders of the Notes a security interest in certain of the Company's
Telecommunications Equipment.
The Company expects its available cash, including the proceeds from the
sale of the Notes and the Preferred Stock Offering or the closing of the Common
Stock Commitment, as the case may be, will be sufficient to fund its capital
plan and operations through 1999. If the Company's expansion occurs more rapidly
than currently anticipated or if the Company's available cash resources are not
sufficient to fund all of the Company's operating expenses and capital
expenditures, the Company will require additional capital before that time. In
addition, depending on market conditions, the Company may determine to raise
additional capital before such time. The Company may obtain additional funding
through the sale of public or private debt and/or equity securities or through
securing a bank credit facility. There can be no assurance as to the
availability or the terms upon which such financing might be available.
Moreover, the Indenture will impose certain restrictions upon the Company's
ability to incur additional indebtedness or issue preferred stock.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
128), which establishes standards for computing and presenting earnings per
share (EPS). It replaces the presentation of primary and fully diluted EPS with
a presentation of basic and diluted EPS. SFAS 128 is effective for financial
statements for both interim and
29
<PAGE> 35
annual periods ending after December 15, 1997. Earlier application is not
permitted. After adoption, all prior period EPS data should be restated to
conform to SFAS 128.
The Company will adopt SFAS 128 in the fourth quarter of 1997. The pro
forma impact of SFAS 128, on the six months ended June 30, 1997 and the year
ended December 31, 1996, is that basic and diluted EPS would have been equal to
net loss per share of common stock as presented in the respective statements of
operations.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, Disclosure of Information about Capital Structure (SFAS 129).
SFAS 129 establishes standards for disclosing information about an entity's
capital structure. The Company currently complies with the disclosure
requirements of this statement which is effective for periods ending after
December 15, 1997. Implementation will not impact the Company's financial
presentation of its capital structure.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income (SFAS 130). SFAS 130 requires companies
to classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
sections of a statement of financial position, and is effective for financial
statements issued for fiscal years beginning after December 15, 1997. The
Company is currently assessing the impact on the financial statements for the
six months ended June 30, 1997 (unaudited) and for the year ended December 31,
1996, and believes that SFAS 130 will not result in comprehensive income
different from net income as reported in the accompanying financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosure About Segments of an Enterprise and Related Information
(SFAS 131). SFAS 131 establishes additional standards for segment reporting in
financial statements and is effective for fiscal years beginning after December
15, 1997. The Company currently operates as one segment.
30
<PAGE> 36
BUSINESS
INDUSTRY HISTORY
The present structure of the U.S. telecommunications market resulted
largely from the divestiture of the "Bell System" in 1984 (the "Divestiture").
As a result of the Divestiture, seven regional bell operating companies
("RBOCs") were created to offer services in geographically defined areas called
local access transport areas ("LATA's"). The RBOC's were separated from the long
distance provider, AT&T, resulting in the creation of two distinct industries:
local phone service and long distance (also known as interexchange). Divestiture
did not result in competition in the local exchange market, but it did provide
for direct open competition for long distance. As a result, in the past 13
years, hundreds of competitors, including MCI and Sprint now have captured in
excess of 45% of the long distance market. During this time period, several
factors have served to promote competition in the local exchange market,
including the RBOCs and ILECs monopoly position and regulated pricing structure,
which provided little incentive for the ILECs to reduce prices, improve service
or upgrade their networks. Customers' desire for an alternative to the RBOC/ILEC
monopoly and the introduction of advanced technology products (such as cellular)
have spurred the desire of consumers for alternatives in the local phone market.
Established in the mid-1980's, "competitive access providers" or "CAPs"
were among the first competitors in the local exchange market. CAPs provided
non-switched services (i.e., dedicated special access and private line) by
installing fiber optic facilities connecting interexchange carrier's ("IXCs")
points of presence ("POPs") within a metropolitan area and, in some cases,
connecting customers (primarily large businesses and government agencies) with
IXCs. CAPs used the substantial capacity and economies of scale inherent in
fiber optic cable to offer service that was generally less expensive and of a
higher quality than the ILECs. In addition, CAPs offered shorter installation
and repair intervals and improved service reliability in comparison to the
ILECs. At the same time, large numbers of regional and/or national IXCs came
into existence to compete with AT&T in the interexchange market.
As CAPs proliferated during the latter part of the 1980's and early 1990's,
regulators in some states and at the federal level issued rulings which favored
competition and promoted the opening of markets to new entrants. These rulings
allowed CAPs to offer a number of new services, including, in certain states,
certain local network services.
In the late 1980's and early 1990's, CAPs could compete effectively only
for dedicated special access and private line services to customers in buildings
physically connected to separate, privately owned CAP networks. In the early
1990's, federal regulations permitted CAPs to interconnect their networks with
the ILEC networks at the ILEC central offices. CAPs then had the opportunity to
increase significantly the number of customers and markets served without
physically expanding their networks. By connecting to the ILEC central offices,
CAPs were able to use the extensive ILEC networks to reach additional customers,
thus conserving their own capital while significantly expanding their potential
markets.
By the summer of 1995, several states began opening their markets to local
exchange competition, thus permitting CAPs to become competitive local exchange
companies ("CLECs"). On February 8, 1996, the Act was signed into law. The Act
provides a framework by which all states must allow competition for local
exchange services. The Company believes the Act will benefit the Company by,
among other things, (i) increasing market access, (ii) requiring network
interconnections, (iii) establishing number portability and (iv) providing
standards for reciprocal compensation, unbundling of network elements and resale
of ILEC network services. The current law is intended to create incentives for
certain ILECs (including all RBOCs) to facilitate access to their networks by
CLECs in order to develop "meaningful competition" in the local exchange market.
Under the Act, the RBOCs will not be permitted to provide intrastate interLATA
service until they have demonstrated compliance with the foregoing to the FCC.
The estimated market for telecommunications services (local and long distance)
in the United States was approximately $165 billion in 1996.
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THE COMPANY
The Company is a rapidly growing, switched-based provider of
telecommunications services, offering competitive local exchange services to
small business and residential users. The Company focuses primarily on offering
basic telephone services, including switched local dialtone and enhanced calling
features such as voice mail, call waiting and call forwarding ("basic telephone
services"). These services are required by virtually all users of
telecommunications. Beginning in the fall of 1997, the Company intends to
integrate long distance services with its local service offerings. The Company
provides its basic telephone services through the leasing of unbundled network
elements provided by ILECs, and through the leasing of dedicated transport to
the Company's combined local and long distance Nortel DMS 500 switches. The
Company began its operations in Las Vegas in December 1996 and expects to be
operational in suburban Atlanta and Los Angeles by the end of 1997. At September
30, 1997, the Company had 12,482 access lines in service. Of the lines in
service, 7,564 were business and 4,918 were residential. During September 1997,
the Company sold 2,851 access lines and placed 684 net lines in service. Net
lines is the number equal to gross lines added less the number of previously
existing lines disconnected. The Company has used the results of its experience
in Las Vegas to better refine its strategy, products and customer service
procedures and to develop a sophisticated back office operation.
The Company intends to continue expanding its markets by targeting
residential and small business users in suburban areas of large metropolitan
markets. After the initiation of service in suburban Atlanta and Los Angeles,
the Company intends to expand its operations to an additional seven markets in
1998 and an additional seven markets in 1999. As of September 30, 1997, the
Company has obtained CLEC certification in four states (with one application
pending), has completed interconnection agreements with five ILECs (with an
additional four in negotiation), and has negotiated transport arrangements with
a long distance carrier.
The Company believes the implementation of its network architecture
represents a low risk, demand driven approach requiring less capital deployment
than that required for the build out of a fiber optic infrastructure. The
Company's network is comprised of leased, unbundled elements of the ILEC's
network coupled with the collocation of Company owned equipment in the ILEC's
central offices. The Company adds transport capacity on an incremental basis
with the addition of new customers, and utilizes compression technology to
reduce its transport costs. Management believes the Company's network
architecture and equipment installation plans will enable it to (i) increase the
size of its addressable market to reach a significant number of new potential
customers, and (ii) achieve efficient network operations and economies of scale
in sales and marketing.
Management believes offering superior customer service is critical to
achieving its goal of capturing market share. The Company is continually
enhancing its service approach which utilizes a well-trained team of customer
sales and service representatives to coordinate customer installation, billing
and service. A comprehensive back office support system is also a critical
component of the Company's service goal. The Company has installed a fully
automated, proprietary management information system which is designed to
provide comprehensive, integrated features addressing all aspects of its
business, including customer care and billing, general ledger, payroll, fixed
asset management, purchasing and personnel. The Company believes this system is
readily adaptable to changing circumstances and is scalable to support the
Company's operations throughout its expected growth.
The Company was incorporated as NevTel, Inc., a Nevada corporation in 1995.
In 1996, the Company changed its name to MGC Communications, Inc. Its principal
office is located at 3165 Palms Centre Drive, Las Vegas, Nevada 89103. The
Company's telephone number is (702) 310-1000.
Key components of the Company's operating strategy are described below.
BUSINESS STRATEGY
Early in Addressing Tier II Sectors of Tier I Markets. In order to gain
and sustain a competitive advantage, the Company intends to move quickly to
implement its switch-based, unbundled transport networks. MGC believes it is
currently the only CLEC utilizing as its exclusive network strategy the
employment of combined local and long distance switches and unbundled transport
and local loops to target
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small business and residential customers in suburban areas of Tier I markets.
The Company is targeting suburban areas because they have concentrated numbers
of basic telephone service users, such as small businesses (3-50 lines), pay
phone operators, multiple dwelling unit customers and single family residences.
The Company believes its only significant switch-based competition is the ILEC
in its target market segments.
Success Based Capital Deployment. Virtually all of the Company's planned
capital expenditures are related to switching and incremental infrastructure
resulting from additions of new revenue generating customers. Management
believes this provides for a low risk profile to the Company's planned capital
deployment and will provide an attractive return on invested capital.
Provide Simplified Product Offerings. MGC's target market segment is
comprised of basic telephone service users. While requiring sophistication for
their delivery, the Company's products and services are perceived as simple,
basic solutions. The Company has consciously narrowed its offerings, choosing
not to sell more complex telephone or data solutions or resell other complex
products at this time. Currently, the Company believes most CLECs which are
bundling such services are focused on larger businesses that require a wider
range of telecommunications products for their more sophisticated needs.
Provide Superior Customer Service. The Company believes superior customer
service will be critical to the success of its expansion plan. The Company's
proprietary customer-focused management information system allows immediate
access to the Company's customer data, enabling quick and effective responses to
customer requests and needs at any time. This system permits the Company to
present its customers with one fully integrated monthly billing statement for
all basic telephone services. In addition, by having a centralized call center
in Las Vegas, which will handle all inquiries and orders for new service, the
Company should be able to control personnel and their training to a greater
degree than if call centers were maintained in each market.
Targeted Sales and Marketing Effort. The Company's sales programs include
direct sales efforts, vendor and affinity programs, direct mail and
telemarketing. The Company has both local and national sales personnel. The
Company's national sales group concentrates on large basic telephone service
users such as multi-tenant buildings, pay phone operators and wholesale
customers. The local sales group coordinates activities with equipment vendors
and affinity groups and also assists with the national sales efforts. They also
make selective calls on business customers who have large basic telephone
service requirements which may not be solicited by the Company's national group.
Leverage Sophisticated Information System and Centralized Call Center. The
Company's proprietary management information system enables the user to record,
maintain and retrieve all customer information in one environment, including
such customer's services, equipment and billing.
Capitalize on Management Expertise. The Company has recruited a team of
experienced business executives with entrepreneurial backgrounds. Maurice J.
Gallagher, Jr., the Chairman, has been a founder of a number of start-up
businesses, including ValuJet, Inc. ("ValuJet") and BankServ, LLC ("BankServ").
Nield J. Montgomery, CEO and President, has over 34 years of telephone
experience, most recently with ICG. Other executives have held senior management
positions at major telecommunications companies, including, among others,
Sprint, Centel, NYNEX, Contel and GTE.
NETWORK STRATEGY
Accelerate Provision of Local Exchange Services. To accelerate
provisioning of local exchange services, the Company selects larger markets with
a relatively cooperative ILEC and a pro-competitive regulatory environment. The
Act significantly improved the opportunity for competition in the local exchange
market by mandating ILECs to enter into agreements with competitors such as the
Company for central office collocation and unbundling of local services. The
Company believes implementation of such pro-competitive policies creates
favorable opportunities to more aggressively pursue the provisioning of local
exchange services. The Company has interconnection agreements in place with
BellSouth, GTE, PacBell, Sprint Central Telephone of Nevada and Ameritech and
expects to have agreements with NYNEX in Massachusetts, Southwestern Bell in
Texas, Bell Atlantic in Pennsylvania and Central Telephone Company of Illinois.
The Company believes it is well-positioned to add switches and associated
services with minimal increases in support infrastructure.
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Low Cost Network Architecture. One of the most critical elements of
creating a low-cost structure is a service provider's decision as to the type of
network to build. MGC has chosen to exclusively build a switch-based network and
to lease the necessary transport and local loops on an incremental basis, as
demand dictates, from ILECs and CAP/CLECs. As a result, the Company will not be
burdened by the carrying costs of a constructed transport network. MGC believes
this low-cost approach will allow the Company to precisely target its capital
expenditures to the specifics of each market and developing conditions.
The Company believes it will be able to lease the necessary transport at
reasonable prices. Prior to the Act, the ILEC's fiber transport was subject to
tariffs and usually priced substantially higher than a competing CAP/CLEC. With
the passage of the Act and subsequent state initiatives and introduction of
facilities-based competition, management believes network elements have become
available at cost-based prices and basic transport services have become
available at competitive prices. Most of MGC's targeted markets have numerous
competing transport suppliers with attractive unbundled transport prices.
Control Customer Elements of the Networks. Connection to customers
represents an important component of MGC's network strategy. Network control
issues of the Company's architecture are different from those of other CLECs.
MGC does not have to contend with local governments or landlords to obtain
permits or consents to construct its network, but rather with the ILEC to
acquire local loops. While this interface can be challenging, it has proven to
be a manageable process to date. Once a line has been leased from an ILEC, MGC
achieves control of its network similar to that of other CLECs. Specifically,
all changes to features, additions and billing are under the direct control of
the Company with the exception of repairs which are infrequent and may require
the participation of the ILEC's network maintenance staff.
Create a Uniform Technological Platform. A critical component of the
Company's low cost formula is the ability to standardize its switch
configuration. Unlike a traditional long distance or local switch, the Nortel
DMS 500 switch enables the Company to provide local and long distance services
from a single platform. The Company believes having a standardized switch
platform will enable it to (i) deploy features and functions quickly in all of
its networks, (ii) expand switch capacity in a cost effective manner, (iii)
lower maintenance costs through reduced training and spare parts requirements
and (iv) pursue a "switch in the box" rapid network deployment solution (under
development with Nortel) which should allow the Company to rapidly enter new
markets. In addition, the scalability and capacity of its switches will allow
the Company to switch calls from more than one market, which enhances the
Company's ability to benefit from a clustered approach to the building of its
networks.
RECENT REGULATORY DEVELOPMENTS
The Act and the issuance by the FCC of rules governing local competition,
particularly those requiring the interconnection of all networks and the
exchange of traffic among the ILECs and CLECs, as well as pro-competitive
policies already developed by state regulatory commissions, have caused
fundamental changes in the structure of the local exchange markets. On July 18,
1997, the U.S. Court of Appeals for the Eighth Circuit issued a final decision
vacating the FCC's interconnection pricing rules and "most favored nation" rules
as well as certain other interconnection rules. See "Regulation." Despite this
action, the Company's analysis shows interconnection arrangements that have been
approved or mandated by state regulatory commissions have been consistent with
the intent of the Act and the Company's business plan. On October 14, 1997, the
U.S. Court of Appeals for the Eighth Circuit ruled that ILECs are under no
obligation to provide AT&T or anyone else with a rebundled package of individual
network elements. The Company believes that the impact of this ruling is neutral
to the Company in light of the Company's switch-based network strategy employing
unbundled network elements and may be beneficial in the short-term by delaying
entrance into the local service market by IXC's such as AT&T.
On May 16, 1997, the FCC released an order that fundamentally restructured the
"access charges" ILECs and CLECs charge to interexchange carriers and end user
customers. The Company believes the FCC's new access charge rules do not
adversely affect the Company's business plan, and they in fact present
significant opportunities for new entrants, including the Company. Aspects of
the access charge order may be changed in the future. At least ten parties have
filed appeals with federal courts and numerous parties have asked the FCC to
reconsider portions of its new rules.
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PRODUCTS AND SERVICES
The Company focuses primarily on offering basic telephone services,
including switched local dialtone and enhanced calling features such as voice
mail, call waiting and call forwarding ("basic telephone services"). These
services are required by virtually all users of telecommunications. Beginning in
the fall of 1997, the Company intends to integrate long distance services with
its local service offerings. The Company's specific product offerings are:
- Business Lines -- Single line business (with optional feature packages),
Centrex service, access trunks and customer owned coin operated telephone
lines ("COCOTs").
- Residential Lines -- Single and second line basic telephone service with
optional feature packages, including multiple dwelling unit lines.
- Long distance products consisting of Outbound 1+, Inbound 800/888 and
Calling Cards (commencing Fall 1997).
The Company has negotiated a contract with a vendor for long distance
services. The Company expects its cost per minute rate will make the Company's
long distance offering very competitive. The Company believes it will be able to
charge its local service customers a low cost long distance price because the
call is originating through the Company's switches, eliminating a portion of the
switched access charges. To obtain the Company's most attractive long distance
rates, customers will have to purchase the Company's switched local service. The
Company expects to offer everyday prices to its customers of ten cents per
minute or less for long distance calls and more attractive rates for customers
with greater volumes. The Company believes its low cost long distance will
generate business from all of the Company's customer segments.
In order to ensure that its products and services are identical to those
offered by the ILEC, the Company has made arrangements with the ILEC and other
carriers for the provision of interim number portability, operator and directory
services, 911 services and Yellow Page and White Page listings. Interim number
portability is available to customers that desire to retain existing telephone
numbers by charging a nominal fee for remote call forwarding. Operator services
are offered through a major IXC carrier or ILEC. Emergency 911 services are
provisioned through links to the ILEC switch which, in turn, is connected to a
911 service bureau. The Company's proprietary management information system
updates customer addresses and immediately supplies them to the appropriate
emergency authorities. In addition, the Company's interconnection agreements
with the ILEC in each of its markets will contain a provision requiring the ILEC
to list each of the Company's business customers in the Yellow Pages.
MARKETS
MGC is moving quickly to exploit its "early to market" strategy. The
Company expects to concentrate on Tier II Sectors of Tier I Markets. These Tier
II Sectors contain large populations of residential and small business,
including COCOT, prospects. By the end of 1997, the Company expects to activate
its second and third switches in the suburbs of Atlanta and Los Angeles,
respectively. During fiscal 1998 and 1999, the Company is targeting an
additional 14 markets in the states of California, Florida, Illinois,
Massachusetts and Texas.
These markets were chosen because of the cooperative profile of the ILECs
and their pro-competitive regulatory environments. The Company believes that
BellSouth in Georgia and Ameritech in the Chicago area are progressive RBOCs
which are publicly on record favoring deregulation and cooperation with
competition. Additionally, in the Park Ridge and Des Plaines area, adjacent to
O'Hare Airport, the Company expects to collocate its facilities with Sprint and
to work with Ameritech as well. In the Los Angeles region the Company will
collocate with GTE, but work with PacBell as well. Both incumbents have a large
presence in the Los Angeles basin.
The Company intends to continue expanding its markets by targeting
residential and small business users in suburban areas of large metropolitan
markets. The Company's ability to commence operations in each of the above
markets in accordance with its expansion plan is based on many factors over
which the Company
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may not have control, including the ability of the Company to: (i) negotiate
interconnection agreements at favorable rates, (ii) obtain all regulatory
approvals required, (iii) install switches at locations from which the Company
can access the relevant market, (iv) obtain timely and reasonably priced
collocation space in the ILEC central offices, and (v) employ qualified
personnel at each location. As a result, there can be no assurance the Company
will be able to establish its service in each of the above areas at the time
indicated, if at all. There can be no assurance the Company will not pursue
other markets in lieu of or in addition to the foregoing.
SALES AND MARKETING
The Company concentrates its sales and marketing efforts on users of basic
telephone services. The specific retail customer groups the Company pursues are:
- Small Business -- Targeted small business customers typically have
between three and 50 lines. The Company also targets COCOTs.
- Residential -- The Company solicits single family residential users,
including those located in multi-dwelling units.
Sales Programs -- Retail. The Company's highly focused marketing efforts
allow for efficiency in capital deployment by generating well-managed profitable
growth through increased market share with minimal customer churn. Retail sales
programs include direct sales efforts, vendor and affinity programs, direct mail
and telemarketing.
As of September 30, 1997, the Company employed 11 local sales personnel and
assistants and three national sales personnel. Within each local market, the
Company expects to employ five sales personnel and two sales assistants. The
national sales force is responsible for identifying and soliciting prospective
multi-dwelling unit owners and managers and COCOT customers. The local sales
personnel are responsible for coordinating activities with equipment vendors and
assisting the national sales effort for pay phones and multi-dwelling unit
programs. Such personnel also make selective calls to local business customers
who have been identified by the Company as possessing large basic telephone
requirements but have not otherwise been solicited by the Company's national
group.
To complement its local and national sales representatives, the Company
intends to use established telephone equipment vendors as agents to sell the
Company's local and long distance service in conjunction with equipment sales to
potential business customers. In Las Vegas, for instance, the Company is
currently selling local service through equipment vendors to whom it pays a
commission for each sale.
Affinity programs are being developed to work with organizations such as
schools, religious organizations, charities and local chambers of commerce
pursuant to which the Company and the selected organizations will jointly
promote the Company's services. The organizations will receive a royalty for
each member who purchases the Company's service.
Direct mail materials have been and will continue to be used to target
specific areas where the Company will have established service. These materials
introduce the Company's service, single billing convenience and lower cost for
both local and long distance service. In addition, telemarketing efforts will
also be used to solicit customers. The Company is testing a variety of
telemarketing alternatives for use with its targeted prospects.
The Company targets COCOTs and multi-dwelling unit sales on a national
basis from its headquarters in Las Vegas. In addition to offering low rates to
COCOTs, the Company has a proprietary management information system designed to
facilitate the verification of dial around compensation from IXCs. MGC currently
has contracts with several pay phone operators in Las Vegas.
The Company also targets apartments and multi-dwelling units by offering
owners and managers a turn-key telephone product for its occupants. To initiate
such service at an apartment complex, the Company will initially utilize the
ILEC's unbundled loop from the apartment to the Company's switch. Once
installed, the service will remain active for the next tenant. Under the
Company's multi-dwelling unit program, the tenant does not have to arrange for
the service independently, pay deposits (which can be managed through the
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deposit process with the apartments) or wait for installation. Additionally,
installation charges may be reduced from traditional amounts charged to
individual customers. After the Company and the apartment complex complete the
initial installation, the apartment owner/manager will be able to offer new
tenants telephone service the day the lease is signed. A call from the apartment
manager or the tenant will provide the necessary customer information to begin
service. Larger complexes (100 or more lines) will allow the Company to
economically install hardware at the apartment site and lease T1 spans to
transport the traffic directly to its switch, bypassing the ILEC's loops. For
example, by avoiding the leasing of unbundled local loops for a 125 unit
multi-dwelling complex, the Company, in Atlanta, would avoid paying monthly
lease charges to the ILEC of $1,777 and the aggregate cost of alternate
transport would be approximately $700 for a cost savings of $1,077 per month.
Sales Programs -- Wholesale. The Company also seeks wholesale customers
(i.e., long distance IXCs) who desire to resell the Company's local service
product offerings. The Company is selling this product through its national
sales force. In May 1997, the Company signed its first wholesale contract to
provide local service in Las Vegas to a long distance reseller.
Advertising. To better manage its resources, the Company strives to
generate a steady flow of service installation calls. As a result, the Company,
at this time, does not plan extensive general media advertising which it
believes could stimulate a deluge of calls and cause a subsequent erosion of
service and responsiveness of its customer service representatives ("CSRs"). The
Company's inauguration of service in Las Vegas generated interest in both the
print and broadcast media.
Additionally, the Company expects to benefit from its listing in the
information pages of the ILEC's directory. The Company intends to work closely
with the phone book publisher to insure timely and accurate placement of its
information.
NETWORK
Network Architecture. MGC has chosen to exclusively build a switch-based
network and to lease transport and local loops on an incremental basis, as
demand dictates, from ILECs and CAP/CLECs. As a result, the Company is not and
will not be burdened by the operating and financing expenses associated with
owning a fiber optic transport network. By using the ILEC's or CAP/CLEC's
network of interoffice fiber and loops through collocation, the Company seeks to
reach a broad market of customers for a fraction of the cost of a constructed
fiber network.
The Company's switch deployment plan includes the acquisition, where
possible, of sites within 1,000 feet of ILEC central offices, which allows the
Company to interconnect its network to the ILEC by a copper interface (as is the
case with the Company's site in Pomona, California, a suburb of Los Angeles).
The copper interface is substantially less expensive than a fiber interface and
collocated equipment. If a site within 1,000 feet is not secured, the Company
will interconnect via a fiber interface and collocated equipment. The Company
generally plans to control its switch sites through ownership of the property,
rather than leasing. The Company believes that property ownership is desirable
for control of its long term future. To date, the Company has acquired title
only to its facility in Pomona, California.
Las Vegas Network. MGC's Las Vegas network demonstrates the network
concept. The Company installed a Nortel DMS 500 digital switch with
approximately 7,000 lines of capacity and connections (via leased transport from
Sprint, the ILEC) to nine of the 19 Sprint COs in Las Vegas at an equipment cost
of approximately $3.3 million. This project was completed in seven months and
the switch became operational in December 1996. In response to its initial
success in provisioning access lines, the Company has expanded its capacity. By
the end of June 1997, the Company spent an additional $2.6 million to increase
network capacity to approximately 18,100 lines and connected an additional six
COs (for a total of 15 of the 19 COs in the Las Vegas metropolitan area).
This network design, which leverages Sprint's facilities, provides the
Company with a broad reach. The initial $3.3 million invested gave MGC access to
an addressable market of approximately 450,000 lines. The
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June expansion increased the Company's addressable market to approximately 95%
of Las Vegas' 800,000 lines.
In Las Vegas, the Company has signed an interconnection agreement with a
term of two years. In the Las Vegas market, MGC utilizes Sprint (the ILEC),
NextLink and ACSI for transport. The Company seeks to select the transport
provider that can best interconnect its locations through redundant network at
the lowest possible price.
The Company believes it will be able to lease the necessary transport at
reasonable prices in markets in addition to Las Vegas. Prior to passage of the
Act in February 1996, ILEC's fiber transport was subject to tariffs and usually
priced substantially higher than a competing CAP/CLEC. With the passage of the
Act, ILECs were required to lease their network elements at cost based prices.
MGC seeks to find two to three competing transport suppliers in its markets with
attractive competitive prices.
The Company believes the traditional copper loop connection from the ILEC
central office to the end user (the "last mile") is getting considerable
attention from manufacturers looking for more economic solutions. Beyond the
traditional copper based T1 span and the more recent direct fiber connections,
wireless radio including 38GHz and 2.4GHz are becoming practical and, often,
less costly. The Company believes "last mile" solutions, including an array of
new technology with significant bandwidth improvement, is on the horizon. The
Company's network architecture anticipates this evolution and avoids capital
investment that may prove technically and economically obsolete.
Switch Hardware. The Company's switching platform is the Nortel DMS 500.
MGC has executed a contract with Nortel providing for the purchase of 20 DMS 500
switches (two of which have already been delivered). The contract specifies
industry standard warranties. The DMS 500 system offers a flexible and cost
effective means of establishing a single point of presence in, and the ability
to provide revenue generating services to, both the local and long distance
markets. The DMS 500 combines the DMS 100 local switch functionality with long
distance toll and tandem switching capability.
The Company's early-to-market strategy requires an accelerated switch
deployment schedule. Reducing the customization of the building to house the
switch is one method. With this in mind, the Company is pursuing a number of
alternative solutions including working with Nortel to supply it with a "switch
in a box." The switch would be installed at Nortel's factory in a series of
self-contained units, with all the necessary environmental, fire and other
elements pre-installed, which could be trucked to and inserted in a facility
through a standard eight foot door and be operational within a short period of
time. By using this approach or other modifications to traditional installation,
the Company believes it can move quickly to open new markets and be operational
in as short as four months from the date of site selection. The Company may
employ more than one switch in a particular market.
Interconnection Agreements. The Company has interconnection agreements
with Sprint for operation in Las Vegas (it expects to expand this agreement for
operations in Chicago), BellSouth for operation in Georgia, GTE in Southern
California, PacBell in California and Ameritech in Illinois. The Company
believes it has secured favorable agreements which will allow it to operate
profitably in these jurisdictions, but there can be no assurance to that effect.
The Company has authority to operate as a CLEC in Illinois, Georgia, Nevada and
California and has made application for such authority in Florida.
OPERATIONS
Customer Service. The Company strives to provide customer service superior
to the ILEC in each of its markets. This includes:
- Personnel. CSRs and sales personnel who are well trained and attentive
to customers' needs. CSRs are available 24 hours a day, seven days a
week, 365 days a year.
- Phones. Prioritizing the answering of phones such that calls are
answered after a limited number of rings.
- Coordination. Coordinating the installation with both the customer and
the ILEC, if involved.
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- Customer Information. Keeping the customer informed if there is an
installation or repair problem and dedicating the necessary resources to
resolve the problem as soon as possible.
- Billing. Providing the customer a timely bill which is accurate, simple
to read and understand and comprehensive.
Centralization. The Company has a centralized customer service center,
including a centralized call center, which operates seven days per week 24 hours
a day. Centralization allows the Company to control personnel and their training
to a greater degree than with call centers in each city and thereby provides
consistent, high quality customer service with lower overhead costs.
Automation. The Company believes automation of internal processes
contributes greatly to the overall success of a service provider and billing is
a critical element of any telephone company's operation. The Company's
management information system has been designed to allow a CSR to quickly take
all the necessary information from a customer in a logical, conversational
manner, establish the appropriate billing and credit information and
electronically process the order with the ILEC for the local loop. It creates
the correct emergency 911 address update for new customers and supplies the
information to the appropriate emergency authorities. Concurrently, it will
establish the related cost elements with the order to track the expense of the
facility leased from the ILEC.
Thereafter, the system will track the progress of the order based on
electronic or facsimile updates from the ILEC. The installation desk will follow
the customer's order, ensuring the installation date is met. Additionally, CSRs
will be able to handle all other customer service inquiries, including billing
questions, repair calls or directory assistance information. All this
information is available in the integrated system available to the CSR.
In addition, the Company's proprietary management information system has
been designed to track and bill all forms of local service, including line and
feature charges and long distance charges. Additionally, the billing system can
provide sophisticated solutions for business bills. Companies desiring a single
bill for many locations, summary bills only without detail or any other
combination can be accommodated. Lastly, the Company expects to be able to
deliver billing information in a number of media besides paper including
electronic files, Internet inquiry or on-line inquiry.
LOW COST FOCUS
To offer service to its targeted segments of the market and insure long
term profitability, the Company has created a low cost structure and focus. The
key components of this strategy are:
Low Cost Network Architecture. One of the most critical elements of
creating a low cost structure is a service provider's decision as to the
type of network to build. MGC has chosen to exclusively build a
switch-based network. MGC believes this is the lowest cost approach. To
accomplish this, the Company has made the decision to lease the necessary
transport and local loops on an incremental basis, as demand dictates, from
ILECs and CAP/CLECs. As a result, the Company will not be burdened by the
carrying cost of a constructed transport network. This approach allows the
Company to precisely target its capital expenditures to the specifics of
each market and developing conditions.
Standardized Switch/Installation. The Company plans to use only
Nortel switches, all configured in the same manner and where possible
delivered in a portable environment such as a container. The Company
believes this approach will reduce the time to install its switches.
Simple Product. The Company's product offerings are based on basic
telephone services. This simplified approach allows the Company to
standardize training, order processing and interfaces with the different
ILECs. The Company does not expect to offer complex telecommunications
packages.
Automation. An important component in producing a low cost
environment is automation of the processes involved. The Company has
installed a proprietary management information system designed to be a
comprehensive, integrated system that addresses all aspects of its
business, including customer care
39
<PAGE> 45
and billing, general ledger, payroll, fixed asset management, purchasing
and personnel. This system is scalable and has been designed to support the
Company's operation as it grows.
Credit Policy. The Company's early lack of formal credit or deposit
procedures resulted in an unacceptable level of uncollectible accounts and
resulting bad debt. During third quarter 1997, a total of 2,471 lines were
disconnected, the majority of which were terminated for non-payment. To
minimize its bad debt exposure, the Company is implementing a policy in Las
Vegas generally requiring new customers to prepay for specified services
and usage estimates. Receipt of the prepayment will generally be required
prior to service being activated. Additional personnel have been dedicated
to collections and credit monitoring to seek to reduce the Company's bad
debt. The new credit policy is expected to allow the Company to maintain
its focus on low cost delivery of basic telephone services.
Efficient Customer Service. The Company has a centralized customer
service center, including a centralized call center, which operates seven
days per week 24 hours per day. The centralized calling center handles all
inquiries and orders for new service. This centralization allows the
Company to control personnel and their training to a greater degree than
with call centers in each city.
COMPETITION
The Company believes the only significant switch-based competitor for its
targeted markets (small businesses and residential users in suburban areas of
large metropolitan markets) is the ILEC in each market. However, the CAP/CLECs
and other telecommunications suppliers in each of the metropolitan areas in
which the Company will be present could also elect to compete for the Company's
targeted market.
General competition in each of the service categories provided by the
Company is discussed below.
Local Services. In each of its geographic markets, the Company faces
significant competition for the local services it offers from RBOCs and other
ILECs, which currently dominate their local telecommunications markets. These
companies all have long-standing relationships with their customers and have
financial, personnel and technical resources substantially greater than those of
MGC.
The Company will also face competition in most markets in which it will
operate from one or more CAP/CLECs operating fiber optic networks. Other local
service providers have operations or are initiating operations within one or
more of the Company's service areas. MGC expects WorldCom, MCI, Teleport
Communications Group, Inc. ("Teleport"), and certain cable television providers,
all of which are substantially larger and have substantially greater financial
resources than the Company, to enter some or all of the markets the Company will
serve. MGC also understands other entities have indicated their desire to enter
the local exchange services market within specific metropolitan areas served or
targeted by MGC.
In addition, a continuing trend toward consolidation and strategic
alliances within the telecommunications industry could result in significant new
competition for the Company. AT&T and MCI have begun to enter the local services
market. Other potential competitors of the Company include utility companies,
other long distance carriers and wireless telephone systems. The Company cannot
predict the number of competitors that will emerge as a result of existing or
new federal and state regulatory or legislative actions.
Competition in all of the Company's market areas is based on quality,
reliability, customer service and responsiveness, service features and price.
The Company intends to keep its prices at levels below those of the ILECs while
providing, in the opinion of the Company, a higher level of service and
responsiveness to its customers.
Although the ILECs are generally subject to greater pricing and regulatory
constraints than other local network service providers, ILECs are achieving
increasing pricing flexibility for their local services as a result of recent
legislative and regulatory developments. The ILECs have continued to lower
rates, resulting in downward pressure on prices for certain services.
Long Distance Services. The Company will compete with AT&T, MCI and others
in the long distance services market. Many of the Company's competitors have
long-standing relationships with their customers and have financial, personnel
and technical resources substantially greater than those of MGC. In providing
these services, the Company will focus on quality service and economy to
distinguish itself in a very competitive marketplace.
40
<PAGE> 46
GOVERNMENT REGULATIONS
Government Regulation and Requirements
Overview. The Company's services are subject to varying degrees of
federal, state and local regulation. The FCC exercises jurisdiction over all
facilities of, and services offered by, telecommunications common carriers such
as the Company, to the extent those facilities are used to provide, originate or
terminate interstate or international communications. The state regulatory
commissions retain jurisdiction over most of the same facilities and services to
the extent they are used to originate or terminate intrastate communications. In
addition, many of the regulations issued by these regulatory bodies may be
subject to judicial review, the result of which the Company is unable to
predict.
Federal Regulation. The Company must comply with the requirements of
common carriage under the Communications Act of 1934 (the "Communications Act"),
as amended. Comprehensive amendments to the Communications Act were made by the
Act, which was signed into law on February 8, 1996. The Act effected plenary
changes in regulation at both the federal and state levels that affect virtually
every segment of the telecommunications industry. The stated purpose of the Act
is to promote competition in all areas of telecommunications and to reduce
unnecessary regulation to the greatest extent possible. While it will take years
for the industry to feel the full impact of the Act, it is already clear the
legislation provides the Company with both opportunities and challenges.
The Act gives the FCC the authority to forebear from regulating companies
if it finds such regulation does not serve the public interest, and directs the
FCC to review its regulations for continued relevance on a regular basis. As a
result of this directive, a number of the regulations that historically applied
to CLECs have been and may continue to be eliminated in the future. While it is
therefore expected that a number of regulations that were developed prior to the
Act will be eliminated in time, those which apply to the Company at present are
discussed below.
The Act greatly expands the FCC's interconnection requirements on the
ILECs. The Act requires the ILECs to: (i) provide physical collocation, which
allows companies such as MGC and other interconnectors to install and maintain
their own network termination equipment in ILEC central offices, and virtual
collocation only if requested or if physical collocation is demonstrated to be
technically unfeasible; (ii) unbundle components of their local service networks
so other providers of local service can compete for a wider range of local
services customers; (iii) establish "wholesale" rates for their services to
promote resale by CLECs and other competitors; (iv) establish number
portability, which will allow a customer to retain its existing phone number if
it switches from the ILEC to a competitive local service provider; (v) establish
dialing parity, which ensures customers will not detect a quality difference in
dialing telephone numbers or accessing operators or emergency services; and (vi)
provide nondiscriminatory access to telephone poles, ducts, conduits and
rights-of-way. In addition, the Act requires ILECs to compensate competitive
carriers for traffic originated by the ILECs and terminated on the competitive
carrier's networks. The FCC is charged with establishing national guidelines to
implement the Act. The FCC issued its Interconnection Order on August 8, 1996,
which established detailed rules regarding rates, terms and conditions for
interconnection between CLECs and ILECs. The Interconnection Order was appealed
to the U.S. Court of Appeals for the Eighth Circuit. On July 18, 1997, the Court
issued a final decision vacating the interconnection pricing rules and "most
favored nation" rules as well as certain other interconnection rules. It is
expected that the Eighth Circuit decision will be appealed to the United States
Supreme Court, although it is not possible at this time to determine how or when
the Supreme Court will respond to these appeals. MGC does not believe the Eighth
Circuit decision will have any significant impact on its operation. On October
14, 1997, the U.S. Court of Appeals for the Eighth Circuit ruled that ILECs are
under no obligation to provide AT&T or anyone else with a rebundled package of
individual network elements. The Company believes that the impact of this ruling
is neutral to the Company in light of the Company's switch-based network
strategy employing unbundled network elements and may be beneficial in the
short-term by delaying entrance into the local service market by IXC's such as
AT&T.
41
<PAGE> 47
On May 16, 1997, the FCC released an order that fundamentally restructured
the "access charges" ILECs charge to interexchange carriers and end user
customers. The Company's analysis of the FCC's order leads it to believe the
FCC's new access charge rules do not adversely affect the Company's business
plan, and they do in fact present significant opportunities for new entrants,
including the Company. Aspects of the order may be changed in the future. At
least ten parties have filed appeals with federal courts, and numerous parties
have asked the FCC to reconsider portions of its new rules.
As part of its pro-competitive policies, the Act frees the RBOCs from the
judicial order that prohibited their provision of interLATA services.
Specifically, the Act permits RBOCs to provide long distance services outside
their local service regions immediately, and will permit them to provide
in-region interLATA service upon demonstrating to the FCC and state regulatory
agencies they have adhered to the FCC's interconnection regulations. As of
August 31, 1997, ILECs in two states have filed applications for in-region long
distance authority with the FCC -- Ameritech in Michigan and Southwestern Bell
in Oklahoma. The FCC recently denied Ameritech's application.
As a result of provisions of the Act, the Company has taken the steps
necessary to be a provider of local exchange services. As of September 30, 1997,
MGC had obtained local certification in four states and had applications pending
for local certification in one additional state. In addition, the Company has
successfully negotiated interconnection agreements that meet the interconnection
provisions contained in the Act with five ILECs and is in negotiation for
interconnection agreements with four additional ILECs. At the same time, the Act
also makes competitive entry more attractive to RBOCs, other ILECs and
interexchange carriers and other companies, and likely will increase the level
of competition the Company faces.
The Act's interconnection requirements also apply to interexchange carriers
and all other providers of telecommunications services, although the terms and
conditions for interconnection provided by these carriers are not regulated as
strictly as interconnection provided by the ILECs. This may provide the Company
with the ability to reduce its own access costs by interconnecting directly with
non-ILECs, but may also cause the Company to incur additional administrative and
regulatory expenses in replying to interconnection requests.
While the Act reduces regulation to which non-dominant local exchange
carriers are subject, it also reduces the level of regulation that applies to
the ILECs, and increases their ability to respond quickly to competition from
the Company and others. For example, in accordance with the Act, the FCC has
applied "streamlined" tariff regulation to the ILECs, which greatly accelerates
the time required for changes to tariffed service rates to take effect, and
eliminates the requirement that ILECs obtain FCC authorization before
constructing new domestic facilities. These actions will allow ILECs to change
service rates more quickly in response to competition. Similarly, the FCC is
expected to release an order later this year that may provide significant new
pricing flexibility to ILECs. To the extent such increased pricing flexibility
is provided, the Company's ability to compete with ILECs for certain service may
be adversely affected.
On May 8, 1997, in compliance with the requirements of the Act, the FCC
released an order establishing a new Universal Service support fund, which
provide subsidies to carriers that provide service to under-served individuals
and customers in high cost areas, and to companies that provide
telecommunications services and wiring for schools and libraries. The Company is
required to contribute into the Universal Service fund, but may also obtain
subsidies for services it provides. The new Universal Service rules will be
administered jointly by the FCC and state regulatory authorities, many of which
are still in the process of establishing their administrative rules. The net
revenue effect of these regulations on the Company cannot be determined at this
time.
State Regulation
The Company has received CLEC certification in Nevada, Georgia, Illinois
and California and is in the process of applying for certification in Florida.
State authorizations vary in their regulatory intensity. State laws and
regulations that prohibit or have the effect of prohibiting, local and
long-distance telecommunications competition may be preempted under the Act.
In most states, the Company is required to file tariffs setting forth the
terms, conditions, and prices for services which are classified as intrastate.
In some states, the Company's tariff can list a range of prices for
42
<PAGE> 48
particular services, and in others, such prices can be set on an individual
customer basis. The Company is not at this time subject to price cap or to rate
of return regulation in Nevada or any of its planned expansion markets.
Under the Act, implementation of the Company's plans to compete in local
markets is and will continue to be, to a certain extent, controlled by the
individual states. The Company continues to support efforts at the state
government level to more quickly implement competition in their markets under
the new federal law and to permit CAPs/CLECs to operate on the same basis and
with the same rights as the ILECs, sometimes referred to as "co-carrier status."
Currently, a number of state regulatory agencies have authorized varying degrees
of co-carrier privileges to new competitors. As of January 1, 1996, over
one-half of the states have taken regulatory and legislative action to open
local communications markets to various degrees of local exchange competition
and co-carrier status, including the five states in which the Company operates
or currently plans to operate (California, Illinois, Georgia, Massachusetts, and
Nevada).
Since early 1995, several CAPs/CLECs have entered into co-carrier
agreements with ILECs which address CLEC/ILEC interconnection issues, such as
reciprocal compensation and number portability. While the Act mandates the
implementation of interconnection arrangements, there can be no assurance such
negotiations will enable the Company to secure its desired co-carrier
arrangements in a timely fashion or upon reasonable rates and terms.
PROPERTIES
In Las Vegas, the Company has a five year lease with a five year option for
the 8,000 square feet housing its switch site. The Company has entered into an
agreement to lease up to 24,000 square feet of additional space which is
expected to be ready in November 1997. This space will house the Company's
corporate headquarters, national customer service operations, national sales
personnel, Las Vegas sales personnel and general administration. This building
is owned by two of the Company's principal stockholders and directors, Maurice
J. Gallagher, Jr. and Timothy P. Flynn. See "Certain Transactions." Management
believes the terms and conditions of this transaction are equal to or better
than market rates. Additionally, Messrs. Gallagher and Flynn have agreed to work
with the Company to construct additional facilities when needed. The Company
leases two other offices in the Las Vegas area under short term leases. These
offices house the Company's general office space and customer service personnel
and will be vacated when the new facility is ready for occupancy.
The Company has entered into a lease for its Atlanta switch site in the
suburb of Toco Hills. The Company has a ten year lease with two five year
options for 6,400 square feet. This site has sufficient space for the Company's
switch and adequate office space to house its local sales staff and
administrative support.
The Company purchased a 3,800 square foot facility for $260,000 in Pomona,
California to house its switch and technical staff.
The Company places great importance on each switch facility and seeks to
insure maximum security and environmental control. MGC believes this can be
achieved through standalone structures. This approach minimizes the risk of fire
or other hazards from adjacent tenants or properties.
PERSONNEL
As of September 30, 1997, there were 111 employees of the Company, the
majority of whom were located in Las Vegas. The Company expects to substantially
increase its employee count over the next two years.
MGC has non-disclosure and non-compete agreements with all of its executive
employees. None of MGC's employees is represented by a collective bargaining
agreement.
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings of a material
nature.
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<PAGE> 49
MANAGEMENT
The following table sets forth, as of September 30, 1997, the name, age and
position within the Company of each executive officer and director of the
Company. Their respective backgrounds are described following the table.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Nield J. Montgomery.................. 53 Chief Executive Officer, President,
Director
Maurice J. Gallagher, Jr. ........... 48 Chairman of the Board of Directors
Mitchell Allee....................... 56 Vice President -- Information Technology,
Chief Information Officer
John Boersma......................... 37 Vice President -- Operations
Michael E. Burke..................... 53 Vice President -- Engineering and
Operations
Michael D. English................... 50 President -- Eastern Region
Timothy P. Flynn..................... 47 Director
Jack Hancock......................... 67 Director
Kent F. Heyman....................... 42 Vice President and General Counsel
Thomas G. Keough..................... 53 Vice President -- Sales and Marketing
Linda M. Sunbury..................... 36 Vice President -- Administration
Mark W. Peterson..................... 43 President -- Western Region
David A. Rahm ....................... 43 Vice President -- Network Development
</TABLE>
NIELD J. MONTGOMERY has been the Chief Executive Officer and President and
a member of the Board of Directors of the Company since he participated in its
founding. Mr. Montgomery has over 34 years of telephone experience, most
recently serving as General Manager -- Switch Implementation for ICG from April
1994 to June 1995. In that capacity, he was responsible for developing strategy
and deploying telephone switches nationally to position it to enter the local
phone service business. Prior to that, Mr. Montgomery served as General
Marketing and Sales Manager for Sprint/Centel (successor to Centel Nevada)
("Centel"). During his 13 year Centel career from 1989 to 1993, he served in
senior executive positions directing engineering, operations, business office,
sales, and marketing functions. Before joining Centel, Mr. Montgomery held a
variety of management positions with NYNEX from 1969 to 1980.
MAURICE J. GALLAGHER, JR. has served as the Chairman of the Board of
Directors since its founding. Mr. Gallagher was instrumental in organizing the
Company with Mr. Montgomery. Mr. Gallagher was a founder of ValuJet in 1993 and
has served as a Director of ValuJet since 1993. Mr. Gallagher also held prior
positions (President and Chief Financial Officer) with ValuJet from 1993 to 1994
and served as Vice Chairman from 1994 to 1997. Prior to ValuJet, Mr. Gallagher
was a founder and President of WestAir Holding, Inc. ("WestAir"), a commuter
airline headquartered in Fresno, California. WestAir was sold to Mesa Airlines
("Mesa") in June 1992. Mr. Gallagher was a member of the Mesa Board of Directors
from June 1992 through March 1993 and has served as a director of Submicron
Systems, Inc. since April 1997.
MITCHELL ALLEE has served as Vice President -- Information Technology and
Chief Information Officer of the Company since July 1997. Although Mr. Allee is
expected to devote the majority of his time to the Company, pursuant to an
independent contractor agreement, he will continue to direct CMS Solutions
("CMS"), a company which he owns and serves as president. Since its founding in
1985, CMS has been a software development company specializing in high volume
financial transaction software. CMS clients have ranged from the smallest Public
Utility District in California to Unocal Corporation where CMS developed a
nationwide chemical distribution and accounting system. CMS also developed a
ticketless reservation system for ValuJet.
JOHN BOERSMA has served as Vice President -- Operations of the Company
since May 1997. He served as Vice President of Carrier Relations for ICG Telecom
Group, Inc. ("ICG Telecom") from 1996 to 1997. He was responsible for ICG
Telecom's relationship with local exchange carriers and implementation, purchase
agreements and service quality and served as Vice President, Northern California
Operations from April 1994 to September 1996. He joined Bay Area Transport, now
a part of ICG Telecom, in 1986 and held various
44
<PAGE> 50
positions having responsibility for overall financial and operational
performance, marketing management, new business development, regulatory affairs,
and information systems development. He served on the CLEC Industry Board of
Directors and served as the chairman of the association's Tariff Committee from
1991 until 1993.
MICHAEL E. BURKE has served as Vice President -- Engineering and Operations
of the Company since 1996. Mr. Burke has over 27 years of engineering and
engineering project management experience in the telecommunications industry,
and served from 1990 to 1995 as a member of the Board of Directors and as Vice
President -- Network Design for Contel of California. Mr. Burke also served in
various engineering management roles with Continental Telephone Company (from
1971 to 1995), California Pacific Utilities (from 1970 to 1971), and General
Telephone Company of California (from 1963 to 1970).
MICHAEL D. ENGLISH has served as President -- Eastern Region of the Company
since 1996. Mr. English has over 23 years of telephone industry experience,
serving from 1993 to 1996 as Vice President at Metro Access Networks. Prior to
joining Metro Access Networks, Mr. English served in 1993 as a consultant to
Time Warner Communications. Mr. English was President and Chief Executive
Officer at Virginia MetroTEL from 1993 to 1994, and served during 1992 as Vice
President at FiberCom, a subsidiary of BTI. From 1988 to 1992, Mr. English
served as President and Chairman of FiberLan, Inc. ("FiberLan"), a subsidiary of
BellSouth and Siecor. He joined FiberLan in 1985 as Vice President. Mr. English
also previously served in senior management positions in strategic planning and
switch engineering at BellSouth (from 1984 to 1985), AT&T (from 1978 to 1981),
and Southern Bell (from 1973 to 1978 and 1981 to 1983).
TIMOTHY P. FLYNN has served as Member of the Board of Directors of the
Company since 1996. Mr. Flynn also serves as a member of the Board of Directors
of ValuJet. He has served in such position since he participated in its founding
in 1993. Prior to ValuJet, Mr. Flynn was Chairman of the Board and CEO of
WestAir. He and Mr. Gallagher purchased WestAir Airlines in 1983 and operated it
through June 1992 when it was sold to Mesa. Mr. Flynn was a member of the Board
of Directors of Mesa from June 1992 through March 1993. Mr. Flynn and Mr.
Gallagher are affiliated in a number of other transactions.
JACK L. HANCOCK has served as a Member of the Board of Directors of the
Company since 1996. Mr. Hancock was Vice President of Systems Technology and
Executive Vice President, Product and Technology for PacBell (from 1988 to
1993). Prior to joining PacBell, Mr. Hancock was Executive Vice President for
Information Systems, Strategic Planning, and Human Resources at Wells Fargo Bank
(from 1982 to 1987). Before that, he was Senior Vice President for Management
Information Systems at Chemical Bank (from 1978 to 1981). He is a member of the
Boards of Directors of several public and private companies, including Union
Bank of California (from 1994 to present) and Wittaker Corporation (from 1994 to
present).
KENT F. HEYMAN has served as Vice President and General Counsel of the
Company since June 1996. Mr. Heyman has 17 years of legal experience, most
recently as chairman of the litigation department and Senior Trial Counsel of
the Dowling, Magarian, Aaron & Heyman Law Firm. Mr. Heyman has served as a
California Superior Court Judge pro tempore presiding over trial, settlement
conference and other proceedings from 1990 to 1996.
THOMAS G. KEOUGH has served as Vice President -- Sales and Marketing of the
Company since December 1996 and is responsible for all marketing and sales, and
customer service activities. He has over 20 years experience as a marketing and
sales executive, serving most recently as Executive Vice President and Director
of Sales for Jetstream Aircraft, a subsidiary of British Aerospace from 1992 to
1996. Mr. Keough also served in senior marketing and sales management roles with
Beech Aircraft (from 1989 to 1992), Bombardier (from 1988 to 1989), Saab
Aircraft of America (from 1983 to 1988), and DeHavilland (from 1976 to 1983).
LINDA M. SUNBURY has served as Vice President -- Administration of the
Company since June 1996. Ms. Sunbury has over 12 years accounting and
administrative experience, having held similar positions in the airline
industry. Most recently, Ms. Sunbury was Vice President of Administration for
Business Express, Inc. ("Business Express") dba the Delta Connection from 1994
to 1996. While Ms. Sunbury was at Business Express, creditors of Business
Express filed an involuntary petition for bankruptcy in January 1996. Business
45
<PAGE> 51
Express subsequently reorganized and emerged from bankruptcy in April 1997.
Prior to that, Ms. Sunbury served as Controller for West Air Commuter Airlines,
Inc. dba United Express from 1988 to 1994. Ms. Sunbury began her career with the
accounting firm of KPMG Peat Marwick LLP where she was employed from 1983 to
1988.
MARK W. PETERSON has served as President -- Western Region of the Company
since March 1997. He previously served as head of corporate affairs for both
WestAir Airlines, dba United Express in Fresno, California from 1988 to 1992 and
for AirCal Airlines in Newport Beach, California from 1978 to 1982. He also
served as a marketing communications manager with Bank of America in San
Francisco, worked as marketing consultant in Northern California from 1985 to
1986, and was an instructor in business communications at California State
University, Chico.
DAVID A. RAHM has served as Vice President of Network Development of the
Company since May 1996. Mr. Rahm served as general counsel of Chadmoore Wireless
Group, Inc. from 1995 to 1996. Prior to that, Mr. Rahm served as Director of
Administration, Acting Director of Production and General Counsel of Sigma Game,
Inc. from 1993 to 1994. Mr. Rahm also served as Assistant Vice President,
Manager of Marketing, Credit, Leasing and Administration for Lodgistix, Inc.
from 1980 to 1990.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal year ended December 31, 1996, the
cash compensation paid by the Company, as well as certain other compensation
paid or accrued for such year, for the Company's Chief Executive Officer. No
Executive Officer received compensation in excess of $100,000 in 1996. No
compensation was paid to any Executive Officers of the Company prior to April 1,
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------------- -------------------------
OTHER ANNUAL
COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
--------------------------- ---- --------- ------------ ------- ----------------
<S> <C> <C> <C> <C> <C>
Nield J. Montgomery..................... 1996 $45,077(1) -- 600,000 --
President and Chief Executive Officer
</TABLE>
- ---------------
(1) $2,000 of such compensation was paid in April 1996, prior to the
commencement of the Company's operations, in the form of 800,000 shares of
Common Stock in the Company.
The following table shows the names and current annual compensation levels
of the Chief Executive Officer and the four most highly compensated Executive
Officers based upon a full year of employment.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION SALARY
- --------------------------- --------
<S> <C>
Nield J. Montgomery......................................... $150,000
President and Chief Executive Officer
Thomas G. Keough............................................ 110,000
Vice President -- Sales & Marketing
John Boersma................................................ 105,000
Vice President -- Operations
Michael E. Burke............................................ 100,000
Vice President -- Engineering & Operations
Michael D. English.......................................... 100,000
President -- Eastern Region
</TABLE>
EMPLOYMENT AND STOCK PURCHASE/REPURCHASE AGREEMENTS
Nield J. Montgomery. The Company's employment agreement with Mr.
Montgomery provides for a base salary of $150,000 per year, effective September
1, 1997, and discretionary bonuses. Prior to the commencement of revenue
producing operations in December 1996, Mr. Montgomery's base salary was
46
<PAGE> 52
$5,000 per month. Mr. Montgomery is required to devote his full time and efforts
to the business of the Company during the term of his employment agreement which
expires in September 2000. Mr. Montgomery's employment may be terminated by
either the Company or Mr. Montgomery at any time. Mr. Montgomery has agreed not
to participate in a business offering local, long distance and related telephone
services during the term of his employment and for a period of 18 months
following termination. If Mr. Montgomery's employment is terminated by the
Company without cause, he will be entitled to severance pay of $150,000 payable
over a period of 12 months. Under the terms of Mr. Montgomery's employment
agreement, the other stockholders have certain rights to repurchase a portion of
Mr. Montgomery's stock in the Company if his employment is terminated on or
before April 1, 2001.
John Boersma. The Company's employment agreement with Mr. Boersma provides
for a base salary of $105,000 per year and a bonus of up to 50% of his base
salary based on his and the Company's performance. Mr. Boersma's employment may
be terminated at any time during its term by either the Company or Mr. Boersma.
Mr. Boersma has agreed not to participate in a business offering local, long
distance and related telephone services in the State of Nevada during the term
of his employment and for a period of six months following termination. In
addition, Mr. Boersma has exercised certain rights to acquire 50,000 shares of
Common Stock at $2.00 per share and an additional 100,000 shares of Common Stock
at $2.50 per share. Such shares are subject to repurchase at their cost if Mr.
Boersma's employment with the Company is terminated prior to May 19, 2000. The
Company has agreed to finance over a period of three years the purchase price of
the shares purchased at $2.50 per share.
Mitchell Allee. Mitchell Allee has exercised certain rights to acquire
200,000 shares of Common Stock at $2.00 per share and an additional 175,000
shares of Common Stock at $2.50 per share. The Company has agreed to finance
over a period of three years the purchase price of the shares purchased at $2.50
per share. A prorated portion of such shares is subject to repurchase at their
cost if Mr. Allee's engagement with the Company is terminated (other than as a
result of his death or disability) prior to June 2000.
STOCK OPTION PLAN
The Company has adopted the NevTEL, Inc. Stock Option Plan (the "Plan"). A
total of 2,400,000 shares of Common Stock are reserved for issuance under the
Plan. As of September 30, 1997, options to purchase 1,739,600 shares have been
granted under the Plan. No options issued under the Plan have been exercised and
as of September 30, 1997, options to purchase 56,000 shares have lapsed. At such
date, options to purchase 1,683,600 shares were outstanding under the Plan at an
average exercise price of $1.52 per share and options for up to 716,400
additional shares may be granted under the Plan.
Options granted under the Plan may be either incentive stock options or
nonqualified options.
The Plan contemplates that options may be granted to directors, key
employees and consultants of the Company. The exercise price of the options
granted under the Plan will be determined by the Company's Board of Directors or
by the Compensation Committee of the Board of Directors. The terms of the
options and the dates after which they become exercisable are established by the
Compensation Committee or the Board of Directors, subject to the terms of the
Plan. Options granted under the Plan generally vest over a five year period.
The Company has from time to time granted stock options under the Plan in
order to provide certain officers, directors, employees and consultants with a
competitive total compensation package and to reward them for their contribution
to the Company's performance. These grants of stock options are designed to
align the individual's interest with that of the Stockholders of the Company.
BONUS PLAN
The Company's Bonus Plan is predicated on established EBITDA targets and
individual goals and achievements of key corporate personnel.
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<PAGE> 53
OPTION GRANTS IN LAST FISCAL YEAR
The table below sets forth information regarding all stock options granted
in the 1996 fiscal year under the Company's Plan to the Chief Executive Officer
of the Company named in the Compensation Table above:
<TABLE>
<CAPTION>
% OF POTENTIAL REALIZED
TOTAL MARKET VALUE AT
NUMBER OF OPTIONS PRICE ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OR FAIR OF STOCK PRICE
UNDERLYING EMPLOYEES VALUE APPRECIATION (1)
OPTIONS IN FISCAL EXERCISE ON DATE --------------------
GRANTED YEAR PRICE OF GRANT EXPIRATION DATE 5% 10%
---------- ---------- -------- ---------- ---------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Nield J. Montgomery....... 600,000 70% $0.50 $0.25 April 1, 2006 -- $89,061
</TABLE>
- ---------------
(1) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the Securities and Exchange Commission and therefore
are not intended to forecast possible future appreciation, if any, of the
price of the Company's Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table shows aggregate exercises of options during 1996 and
the values of options held by the Company's Chief Executive Officer as of
December 31, 1996.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY OPTIONS
UNEXERCISED OPTIONS DECEMBER 31, 1996
SHARES ACQUIRED VALUE DECEMBER 31, 1996 (1)
NAME ON EXERCISE REALIZED (UNEXERCISABLE) (UNEXERCISABLE)
- ---- --------------- -------- --------------------- --------------------
<S> <C> <C> <C> <C>
Nield J. Montgomery......... -- -- 600,000 $900,000
</TABLE>
- ---------------
(1) Based upon a value for the Company's Common Stock on December 31, 1996,
estimated for these purposes to be $2.00 per share.
DIRECTOR COMPENSATION
The Company's outside Directors (Messrs. Flynn and Hancock) receive meeting
fees of $500 per meeting of the Board of Directors or committees of the Board of
Directors attended in person in addition to reimbursement of their expenses in
attending meetings of the Board of Directors.
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<PAGE> 54
PRINCIPAL STOCKHOLDERS
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of September 30, 1997, certain
information with respect to the Company's Common Stock owned beneficially by
each director, by all Executive Officers and directors as a group and by each
person known by the Company to be a beneficial owner of more than 5% of the
outstanding Common Stock of the Company. Except as noted in the footnotes, each
of the persons listed has sole investment and voting power with respect to the
shares of Common Stock included in the table.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNERSHIP(1)
------------------------ ------------------ ------------
<S> <C> <C>
Maurice J. Gallagher, Jr.(2)(3)........................ 5,245,000 35.6%
Timothy P. Flynn(2)(4)................................. 1,441,500 9.8%
Robert L. and Carol A. Priddy(2)(5).................... 1,437,500 9.8%
Nield J. Montgomery(6)................................. 1,380,000 9.3%
Circle F Ventures, LLC(7).............................. 1,250,000 8.5%
Jack L. Hancock(8)..................................... 54,000 *
All Executive Officers and Directors as a Group (13
persons)(2)(3)(6)(8)(9).............................. 9,495,000 63.6%
</TABLE>
- ---------------
* Less than 1% of total.
(1) The percent of outstanding Common Stock owned is determined by assuming that
in each case the person only, or group only, exercised his or its rights to
purchase all shares of Common Stock underlying presently exercisable stock
options.
(2) Includes presently exercisable warrants issued as a commitment fee in
connection with the Common Stock Commitment. See "Certain Transactions."
(3) Includes options to purchase 20,000 shares of Common Stock which are
presently exercisable and 5,187,500 shares of Common Stock owned by the
various partnerships or trusts with respect to which Mr. Gallagher is a
general partner and/or beneficiary. Mr. Gallagher's address is 6900
Westcliff Drive, Suite 505, Las Vegas, Nevada 89128.
(4) Includes options to purchase 4,000 shares which are presently exercisable.
Mr. Flynn's address is 6900 Westcliff Drive, Suite 505, Las Vegas, Nevada
89128.
(5) The Priddys' address is 9410 Laguna Niguel Drive, Las Vegas, Nevada 89134.
(6) Includes options to purchase 120,000 shares which are presently exercisable.
Mr. Montgomery's address is 3165 Palms Centre Drive, Las Vegas, Nevada
89103.
(7) Includes 250,000 shares owned by managing members of Circle F Ventures, LLC.
Circle F Ventures, LLC's address is 14988 N. 78th Way, Scottsdale, Arizona
85260.
(8) Includes options to purchase 4,000 shares which are presently exercisable.
(9) Includes options to purchase 42,000 shares owned by Executive Officers not
named above which are presently exercisable.
49
<PAGE> 55
CERTAIN TRANSACTIONS
The Company has entered into an agreement to lease up to 24,000 square feet
of office space from two of the Company's directors and principal stockholders,
Maurice J. Gallagher, Jr. and Timothy P. Flynn. The rental rate is $1.65 per
square foot which includes common area maintenance charges of $.20 per square
foot. Management believes that the terms and conditions of this lease
arrangement are at least as favorable to the Company as those which the Company
could have received from an unaffiliated third party.
The Company has entered into an agreement with Palms Centre Drive, Inc.
("PCDI"), a company owned and operated by Mitchell Allee, an officer and
stockholder of the Company, to provide, support and maintain the Company's
proprietary management information computer system. The agreement provides that
PCDI shall design and install the system at a cost of $600,000 payable in
monthly installments of $100,000 per month beginning July 1, 1997. Management
believes that the terms of the agreement with PCDI are at competitive prices and
terms.
Certain persons have deposited an aggregate of $15.0 million in escrow (the
"Common Stock Commitment"), which funds will be applied to the purchase of
shares of Common Stock at a price to be agreed upon between the Company and such
investors, which price shall be not less than $3.50 per share nor more than
$5.00 per share, in the event the Preferred Stock Offering is not closed within
60 days after the Issue Date. As a commitment fee for the Common Stock
Commitment, the Company has issued to all such persons contributing to the
escrow funds warrants to purchase an aggregate of 150,000 shares of Common Stock
at $.01 per share. Such warrants will be exercisable at any time prior to
October 1, 2004. If the Preferred Stock Offering closes within 60 days after the
Issue Date, the persons contributing to the escrow will have the right to apply
the funds in escrow to the purchase of Convertible Preferred Stock on the same
basis as the Preferred Stock Offering.
A significant portion of the Common Stock Commitment has been provided by
the following Directors and more than 5% stockholders of the Company: Maurice J.
Gallagher, Jr. -- $3.75 million, Timothy P. Flynn -- $3.75 million and Robert L.
Priddy -- $3.75 million. As a commitment fee for their Common Stock Commitment,
such persons received warrants to purchase shares of Common Stock at $.01 per
share as follows: Gallagher -- 37,500 shares, Flynn -- 37,500 shares and
Priddy -- 37,500 shares. In addition, such persons will have the right to apply
the funds placed in escrow in connection with the Common Stock Commitment to the
purchase of Convertible Preferred Stock on the same terms as the Preferred Stock
Offering (if the Preferred Stock Offering closes within 60 days after the Issue
Date) or to the purchase of Common Stock at a price which shall be agreed upon
between the Company and such persons, which price shall be not less than $3.50
per share nor more than $5.00 per share (if the Preferred Stock Offering does
not close within 60 days after the Issue Date).
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<PAGE> 56
DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Outstanding Notes were issued under an Indenture dated as of September
29, 1997 (the "Indenture") between the Company and Marine Midland Bank, trustee
(the "Trustee"). The Exchange Notes will also be issued under the Indenture, and
the Indenture will be qualified under the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act") upon the effectiveness of the Registration
Statement of which this Prospectus is a part. The form and terms of the Exchange
Notes will be same as the Outstanding Notes, except that the issuance of the
Exchange Notes has been registered under the Securities Act and thus the
Exchange Notes will not bear legends restricting their transferability. The
Exchange Notes will evidence the same indebtedness as the Outstanding Notes,
will be entitled to the benefits of the Indenture, and will be treated as a
single class under the Indenture with any Outstanding Notes. The Exchange Notes
and Outstanding Notes will be considered collectively to be a single class for
all purposes of this "Description of the Exchange Notes" (except under the
caption "-- Registration Rights; Liquidated Damages"), and all references herein
to "Notes" shall be deemed to refer collectively to the Outstanding Notes and
any Exchange Notes, unless the context otherwise requires.
The definitions of certain terms used in the following summary are set
forth below under "-- Certain Definitions." As of the date of this Prospectus,
the Company has no subsidiaries. However, under certain circumstances, the
Company will be able to designate future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture. As used in this section, the
term "Company" refers only to MGC Communications, Inc. and not to its
Subsidiaries.
RANKING
The Notes will rank senior in right of payment to all subordinated
Indebtedness of the Company. The Notes will rank pari passu in right of payment
with all existing and future senior borrowings, including borrowings under the
Credit Facility, except with respect to the assets securing the Notes. Holders
of other secured Indebtedness of the Company will, however, have claims that are
prior to the claims of the holders of the Notes with respect to the assets
securing such other Indebtedness.
Certain of the Company's operations may in the future be conducted through
its Subsidiaries and, therefore, the Company may become dependent upon the cash
flow of its Subsidiaries to meet its obligations, including its obligations
under the Notes. The Notes will be effectively subordinated to all indebtedness
and other liabilities and commitments (including trade payables and lease
obligations) of the Company's Subsidiaries. Any right of the Company to receive
assets of any of its Subsidiaries upon the latter's liquidation or
reorganization (and the consequent right of the holders of the Notes to
participate in those assets) will be effectively subordinated to the claims of
that Subsidiary's creditors, except to the extent that the Company is itself
recognized as a creditor of such Subsidiary, in which case the claims of the
Company would still be subordinate to any security in the assets of such
Subsidiary and any indebtedness of such Subsidiary senior to that held by the
Company. As of June 30, 1997, the total amount of outstanding liabilities of the
Company, including trade payables, was approximately $5.8 million.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $160.0 million and
will mature on October 1, 2004. Interest on the Notes will accrue at 13% per
annum and will be payable semi-annually in arrears on April 1 and October 1 of
each year, commencing on April 1, 1998, to holders of record on the immediately
preceding March 15 and September 15. Interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the Issue Date. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months. The Notes will be issued in registered
form, without coupons, and in denominations of $1,000 and integral multiples
thereof.
51
<PAGE> 57
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to October
1, 2001. Thereafter, the Notes will be subject to redemption at the option of
the Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on October 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2001........................................................ 106.50%
2002........................................................ 103.25%
2003 and thereafter......................................... 100.00%
</TABLE>
Notwithstanding the foregoing, in the event of the sale by the Company
prior to October 1, 2000 of its Capital Stock (other than Disqualified Stock) in
one or more Equity Offerings, up to a maximum of 35% of the aggregate principal
amount of the Notes originally issued will, at the option of the Company, be
redeemable from the net cash proceeds of one or more Equity Offerings (but only
to the extent the proceeds of such Equity Offering consist of cash or readily
marketable cash equivalents) at a redemption price equal to 113% of the
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date, provided that at least 65% of
the aggregate principal amount of the Notes originally issued remain outstanding
immediately after the occurrence of such redemption and that such redemption
occurs within 90 days of the date of the closing of such Equity Offering.
MANDATORY REDEMPTION
The Company will not be required to make mandatory redemption or sinking
fund payments with respect to the Notes.
SECURITY
Interest Reserve
The Indenture provides that, upon the closing of the sale of the Notes, the
Company must purchase and pledge to the Trustee for the benefit of the holders
of the Notes the Pledged Securities in such amount as will be sufficient upon
receipt of scheduled interest and principal payments on such Pledged Securities,
in the opinion of any nationally recognized firm of independent public
accountants selected by the Company, to provide payment in full of the first six
scheduled interest payments due on the Notes. The Company has used approximately
$56.8 million of the net proceeds of the sale of the Notes to acquire the
Pledged Securities. The Pledged Securities have been pledged by the Company to
the Trustee for the benefit of the holders of Notes pursuant to the Pledge
Agreement and will be held by the Trustee in the Pledge Account. Pursuant to the
Pledge Agreement, immediately prior to an interest payment date on the Notes,
the Company may either deposit with the Trustee from funds otherwise available
to the Company cash sufficient to pay the interest scheduled to be paid on such
date or the Company may direct the Trustee to release from the Pledge Account
proceeds sufficient to pay interest then due. In the event that the Company
exercises the former option, the Company may thereafter direct the Trustee to
release to the Company proceeds or Pledged Securities from the Pledge Account in
a like amount. A failure by the Company to pay interest on the Notes in a timely
manner through October 1, 2000 will constitute an immediate Event of Default
under the Indenture, with no grace or cure period.
Interest earned on the Pledged Securities will be added to the Pledge
Account. In the event that the funds or Pledged Securities held in the Pledge
Account exceed the amount sufficient, in the opinion of a nationally recognized
firm of independent public accountants selected by the Company, to provide for
payment in full of the first 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
52
<PAGE> 58
to release to the Company at the Company's request any such excess amount. The
Notes will be secured by a first priority security interest in the Pledged
Securities and in the Pledge Account and, accordingly, the Pledged Securities
and the Pledge Account will also secure repayment of the principal amount of the
Notes to the extent of such security.
Under the Pledge Agreement, assuming that the Company makes the first six
scheduled interest payments on the Notes in a timely manner, all of the Pledged
Securities will be released from the Pledge Account.
Telecommunications Equipment
Pursuant to the Indenture and related documents, including the Security
Agreement, between the Company and the Trustee, the Trustee, for its benefit and
the benefit of the holders of the Notes, has received or will receive a security
interest in: (i) all Telecommunications Equipment currently owned by the Company
other than Telecommunications Equipment located in Las Vegas, Nevada or the
surrounding suburban area and all Telecommunications Equipment acquired by the
Company after the Issue Date (other than Telecommunications Equipment located or
to be located in Las Vegas, Nevada or the surrounding suburban area) and prior
to such time as the aggregate dollar value of the Company's purchases of
Telecommunications Equipment subsequent to the Issue Date (excluding
Telecommunications Equipment located or to be located in Las Vegas, Nevada or
the surrounding suburban area) equals or exceeds $100.0 million; (ii) the
proceeds of any sale or other disposition of such Telecommunications Equipment
(including any insurance proceeds from the loss or destruction of such
Telecommunications Equipment); and (iii) any additional Telecommunications
Related Assets acquired by the Company with the proceeds of any such sale or
other disposition of Telecommunications Equipment (collectively, the
"Collateral").
If the Notes become due and payable prior to their stated maturity or are
not paid in full at the stated maturity thereof, the Trustee, on behalf of the
holders of the Notes, in addition to any other rights or remedies available to
it under the Indenture, may take such action as it deems advisable to protect
and enforce the rights of the Trustee and such holders in the Collateral,
including the institution of foreclosure proceedings. Any proceeds received by
the Trustee from the disposition of the Collateral will be applied by the
Trustee, first to pay certain expenses of the Trustee and the holders of the
Notes, second to pay interest with respect to the Notes, third to pay unpaid
principal of the Notes, fourth to pay costs and expenses of, and all premiums
on, and all other amounts due under, the Notes, and finally, to pay any
remainder to the Company or as a court of competent jurisdiction otherwise
directs.
The right of the Trustee to repossess and dispose of the Collateral upon
the occurrence of an Event of Default is likely to be significantly impaired by
applicable bankruptcy law if a bankruptcy proceeding were to be commenced by or
against the Company prior to the Trustee's having disposed of the Collateral.
Under Title XI of the United States Code (the "Bankruptcy Code"), a secured
creditor such as the Trustee is prohibited from disposing of security
repossessed from a debtor in a bankruptcy case without bankruptcy court
approval. Moreover, the Bankruptcy Code prohibits a secured creditor from
disposing of collateral even though the debtor is in default under the
applicable debt instruments if the secured creditor is given "adequate
protection." The meaning of the term "adequate protection" may vary according to
circumstances, but it is intended in general to protect the value of the secured
creditor's interest in the collateral and may include cash payments or the
granting of additional security, if and at such times as the court in its
discretion determines, for any diminution in the value of the collateral as a
result of the stay of disposition during the pendency of the bankruptcy case. In
view of the lack of a precise definition of the term "adequate protection" and
the broad discretionary powers of a bankruptcy court, it is impossible to
predict how long payments under the Notes could be delayed following
commencement of a bankruptcy case, whether or when the Trustee could dispose of
the Collateral or whether or to what extent holders would be compensated for any
delay in payment or loss of value of the Collateral through the requirement of
"adequate protection."
In addition, notwithstanding anything to the contrary described above,
unless an Event of Default shall have occurred and be continuing, the Company
will have the right to remain in possession of and retain exclusive control of
the Collateral, will have the right to freely utilize the Collateral (including
the right to
53
<PAGE> 59
lease such Collateral) and will have the right to collect, invest and dispose of
any income thereon. Upon any foreclosure by the Trustee, on behalf of holders of
the Notes, on any Collateral that has been made the subject of a lease by the
Company, the Trustee's ability to dispose of such Collateral may be restricted
by the terms of such lease arrangement. See "Risk Factors -- Failure to Maintain
Perfected Security Interest."
Collateral may be released from the liens of the Indenture in connection
with an Asset Sale of Telecommunications Equipment, in which case the Company
will be required to comply with the covenant described below under "-- Certain
Covenants -- Asset Sales."
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer (the "Change of Control Offer") to each holder of Notes to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
such holder's Notes at a purchase price equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase (the "Change of Control Payment"). The Change of
Control Offer must be commenced within 30 days following a Change of Control,
must remain open for at least 30 and not more than 40 days (unless required by
applicable law) and must comply with the requirements of Rule 14e-1 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and any other
applicable securities laws and regulations.
Except as described above with respect to a Change of Control, the
Indenture will not contain provisions that permit the holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
Due to the leveraged structure of the Company and the effective
subordination of the Notes to other secured Indebtedness of the Company and
future Indebtedness of the Company's Subsidiaries, the Company may not have
sufficient funds available to purchase the Notes tendered in response to a
Change of Control Offer. In addition, the agreements relating to future
Indebtedness of the Company's Subsidiaries may contain prohibitions or
restrictions on the Company's ability to effect a Change of Control Payment.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Notes to require the Company to repurchase such Notes as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of the
assets of the Company to another Person may be uncertain.
OFFER TO PURCHASE WITH EXCESS ASSET SALE PROCEEDS
When the cumulative amount of Excess Proceeds (as defined below under
"Certain Covenants -- Asset Sales") exceeds $5.0 million, the Company will make
an offer to all holders of Notes and Pari Passu Notes (an "Excess Proceeds
Offer"), to purchase the maximum principal amount of Notes and Pari Passu Notes
that may be purchased out of such Excess Proceeds, at an offer price in cash in
an amount equal to 100% of the outstanding principal amount of the Notes and
100% of the accreted value or 100% of the outstanding principal amount, as
applicable, of the Pari Passu Notes, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date fixed for the closing of such
offer, in accordance with the procedures specified in the Indenture.
If the aggregate principal amount and/or accreted value, as the case may
be, of Notes and Pari Passu Notes surrendered by holders thereof exceeds the
amount of Excess Proceeds, the Trustee will select the Notes and Pari Passu
Notes to be purchased on a pro rata basis. To the extent that the aggregate
amount of Notes and Pari Passu Notes tendered pursuant to an Excess Proceeds
Offer is less than the amount of Excess Proceeds, the Company may use such
deficiency for general purposes. Upon completion of an Excess Proceeds Offer,
the amount of Excess Proceeds will be reset at zero.
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<PAGE> 60
SELECTION OF NOTES FOR REDEMPTION OR OFFERS TO PURCHASE
If less than all of the Notes are to be redeemed or to be purchased
pursuant to any purchase offer required under the Indenture at any time,
selection of Notes for redemption or purchase will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed, or, if the Notes are not so listed, on a
pro rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate, provided that no Notes with a principal amount of $1,000 or less
shall be redeemed or purchased in part. A new Note in principal amount equal to
the unredeemed or unpurchased portion will be issued in the name of the holder
thereof upon cancellation of the original Note. On and after the redemption or
purchase date, interest will cease to accrue on the Notes or portions of them
called for redemption or purchase.
NOTICE OF REDEMPTION
Notice of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each holder of Notes to be
redeemed at its registered address. If any Note is to be redeemed in part only,
the notice of redemption that relates to such Note shall state the portion of
the principal amount to be redeemed.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company and its Restricted Subsidiaries may
not, directly or indirectly:
(i) declare or pay any dividend or make any distribution on account of
any Equity Interests of the Company or any of its Restricted Subsidiaries
other than dividends or distributions payable (A) in Equity Interests of
the Company that are not Disqualified Stock or (B) to the Company or any
Restricted Subsidiary;
(ii) purchase, redeem, defease, retire or otherwise acquire for value
("Retire" and correlatively, a "Retirement") any Equity Interests of the
Company or any of its Restricted Subsidiaries or other Affiliate of the
Company (other than any such Equity Interests owned by the Company or any
Restricted Subsidiary);
(iii) Retire for value any Indebtedness of (A) the Company that is
subordinate in right of payment to the Notes or (B) any Restricted
Subsidiary, except, with respect to clause (A) or (B) above, at final
maturity or in accordance with the mandatory redemption or repayment
provisions set forth in the original documentation governing such
Indebtedness; or
(iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of such
Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing
or would occur as a consequence thereof;
(b) after giving effect to such Restricted Payment on a pro forma
basis as if such Restricted Payment had been made at the beginning of
the applicable four-quarter period, the Company could incur at least
$1.00 of additional Indebtedness pursuant to the Consolidated Cash Flow
Leverage Ratio test described under "-- Incurrence of Indebtedness and
Issuance of Disqualified Stock;" and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issue Date (including any Restricted Payments
made pursuant to clauses (i), (v) and (vi) of the next paragraph), minus
any Restricted Payment Credits, is less than the sum of
(x) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the Issue Date to the
end of the Company's most recently ended fiscal
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<PAGE> 61
quarter for which internal financial statements are available at the
time of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, less 100% of such deficit), plus
(y) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale of Equity Interests of the Company or
of debt securities or Disqualified Stock of the Company that have
been converted into such Equity Interests (other than Equity
Interests (or convertible debt securities) sold to a Restricted
Subsidiary of the Company and other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock) after
the Issue Date (other than any such Equity Interests, the proceeds of
which were used as set forth in clause (ii) below), plus
(z) $2.0 million.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would have
complied with the provisions of the Indenture;
(ii) the Retirement of (A) any Equity Interests of the Company or any
Restricted Subsidiary of the Company, (B) Indebtedness of the Company that
is subordinate to the Notes or (C) Indebtedness of a Restricted Subsidiary
of the Company, in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of, Equity Interests of the Company (other than Disqualified
Stock);
(iii) the Retirement of any Indebtedness of the Company subordinated
in right of payment to the Notes in exchange for, or out of the proceeds
of, the substantially concurrent incurrence of Indebtedness of the Company
(other than Indebtedness to a Restricted Subsidiary of the Company), but
only to the extent that such new Indebtedness is permitted under the
covenant described below under the caption, "-- Incurrence of Indebtedness
and Issuance of Disqualified Stock" and (1) is subordinated in right of
payment to the Notes at least to the same extent as, (2) has a Weighted
Average Life to Maturity at least as long as, and (3) has no scheduled
principal payments due in any amount earlier than, any equivalent amount of
principal under the Indebtedness so Retired;
(iv) the Retirement of any Indebtedness of a Restricted Subsidiary of
the Company in exchange for, or out of the proceeds of, the substantially
concurrent incurrence of Indebtedness of the Company or any Restricted
Subsidiary but only to the extent that such incurrence is permitted under
the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock" and only to the extent
that such Indebtedness (1) is not secured by any assets of the Company or
any Restricted Subsidiary to a greater extent than the Indebtedness so
Retired was so secured, (2) has a Weighted Average Life to Maturity at
least as long as the Indebtedness so Retired and (3) if the Indebtedness so
Retired was an obligation of the Company, is pari passu or subordinated in
right of payment to the Notes at least to the same extent as the
Indebtedness so Retired;
(v) the Retirement of any Equity Interests of the Company or any
Restricted Subsidiary of the Company held by any member of the Company's
(or any of its Subsidiaries') management pursuant to any management equity
subscription agreement or stock option agreement; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $250,000 in any twelve-month
period plus the aggregate cash proceeds received by the Company during such
twelve-month period from any reissuance of Equity Interests by the Company
to members of management of the Company and its Subsidiaries;
(vi) the Retirement of any Equity Interests of the Company held by
Nield J. Montgomery, Mitchell Allee or John Boersma pursuant to the terms
of agreements between the Company and each such individual in effect on the
Issue Date upon or following any termination of employment of any of them;
provided that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $500,000 in any
twelve-month period; and
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(vii) the payment of cash in lieu of fractional shares (a) payable as
dividends on Equity Interests of the Company or (b) issuable upon
conversion of or in exchange for securities convertible into or
exchangeable for Equity Interests of the Company or (c) issuable as a
result of a corporate reorganization, provided that, in the case of (a) and
(b), the issuance of such Equity Interests or securities and, in the case
of (c), such corporate reorganization, was permitted under the terms of the
Indenture;
provided, however, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (i), (ii), (iii), (iv), (v), (vi) and
(vii), no Default or Event of Default shall have occurred and be continuing.
The Indenture also provides that a Permitted Investment that ceases to be a
Permitted Investment pursuant to the definition thereof, shall become a
Restricted Investment, deemed to have been made on the date that it ceases to be
a Permitted Investment.
The Board of Directors may designate any Subsidiary to be an Unrestricted
Subsidiary if such designation would not cause a Default or an Event of Default,
provided, however, the Company may not designate any Subsidiary which holds any
permit or license which is material to the operations of the Company and its
Restricted Subsidiaries taken as a whole as an Unrestricted Subsidiary. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
such Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
greatest of (x) the net book value of such Investments at the time of such
designation, (y) the fair market value of such Investments at the time of such
designation and (z) the original fair market value of such Investments at the
time they were made. Such designation will only be permitted if such Restricted
Payment would be permitted at such time.
The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under the covenant entitled "-- Incurrence of Indebtedness and
Issuance of Disqualified Stock," and (ii) no Default or Event of Default would
be in existence following such designation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "-- Restricted Payments" were computed, which
calculations may be based upon the Company's latest available financial
statements. The Trustee shall have no duty or obligation to confirm or verify
the calculations set forth in such Officers' Certificate.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture provides that:
(i) the Company and its Restricted Subsidiaries may not, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable for the payment of (collectively, "incur"
and, correlatively, "incurred" and "incurrence") any Indebtedness
(including, without limitation, Acquired Debt) and
(ii) the Company and its Restricted Subsidiaries may not issue any
Disqualified Stock,
provided, however, that the Company and/or any of its Restricted Subsidiaries
may incur Indebtedness (including, without limitation, Acquired Debt) or issue
shares of Disqualified Stock if, after giving effect to the incurrence of such
Indebtedness or the issuance of such Disqualified Stock, the Consolidated Cash
Flow Leverage Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date of such incurrence or issuance (A) does not exceed 5.5 to 1
if such incurrence or issuance occurs on or prior to October 1, 2000 and (B)
does not exceed 5.0 to 1 if
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such incurrence or issuance occurs after October 1, 2000, in each case,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period. If the Company incurs any Indebtedness or issues or redeems
any Preferred Stock subsequent to the commencement of the period for which such
ratio is being calculated but prior to the event for which the calculation of
the ratio is made, then the ratio will be calculated giving pro forma effect to
any such incurrence of Indebtedness, or such issuance or redemption of Preferred
Stock, as if the same had occurred at the beginning of the applicable period. In
making such calculation on a pro forma basis, interest attributable to
Indebtedness 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.
The foregoing limitation will not apply to (with each exception to be given
independent effect):
(a) the incurrence by the Company and/or any of its Restricted
Subsidiaries of Indebtedness under the Credit Facility in an aggregate
principal amount at any one time outstanding (with letters of credit being
deemed to have a principal amount equal to the maximum potential liability
of the Company and/or any of its Restricted Subsidiaries thereunder) not to
exceed $25.0 million, less the aggregate amount of all Net Proceeds of
Asset Sales applied to permanently reduce the commitments with respect to
such Indebtedness pursuant to the covenant described above under the
caption "-- Asset Sales;"
(b) the incurrence by the Company and/or any of its Restricted
Subsidiaries of Vendor Indebtedness, provided that the aggregate amount of
such Vendor Indebtedness incurred does not exceed 80% of the total cost of
the Telecommunications Related Assets financed therewith (or 100% of the
total cost of the Telecommunications Related Assets financed therewith if
such Vendor Indebtedness was extended for the purchase of tangible physical
assets and was so financed by the vendor thereof or an affiliate of such
vendor);
(c) the incurrence by the Company and/or any of its Subsidiaries of
the Existing Indebtedness;
(d) the incurrence by the Company and/or any of its Restricted
Subsidiaries of Indebtedness in an aggregate amount not to exceed $5.0
million at any one time outstanding;
(e) the incurrence by the Company of (1) Indebtedness (other than
secured Acquired Debt) in an aggregate principal amount not to exceed 2.0
times the sum of the net cash proceeds received by the Company after the
closing of the Preferred Stock Offering or, if the Preferred Stock Offering
is not closed, the closing of the Common Stock Commitment from the issuance
and sale of Equity Interests of the Company (that are not Disqualified
Stock), plus the fair market value of Equity Interests (other than
Disqualified Stock) issued after consummation of a Qualified Equity
Offering in connection with an acquisition of a Telecommunications Business
or Telecommunications Related Assets and (2) subsequent to consummation of
a Qualified Equity Offering, secured Acquired Debt, in an aggregate
principal amount not to exceed (i) the net cash proceeds received by the
Company from the issuance and sale of Equity Interests of the Company
(other than Disqualified Stock) subsequent to the consummation of a
Qualified Equity Offering plus (ii) the fair market value of Equity
Interests (other than Disqualified Stock) issued in connection with any
acquisition of a Telecommunications Business or Telecommunications Related
Assets subsequent to the consummation of a Qualified Equity Offering;
provided, however, to the extent the Company incurs secured Acquired Debt
pursuant to the provisions of this clause (2), its ability to incur
Indebtedness pursuant to clause (1) of this clause (e) shall be reduced by
an amount equal to two times the aggregate principal amount of secured
Acquired Debt so incurred;
(f) the incurrence (a "Permitted Refinancing") by the Company and/or
any of its Restricted Subsidiaries of Indebtedness issued in exchange for,
or the proceeds of which are used to refinance, replace, refund or defease
("Refinance" and correlatively, "Refinanced" and "Refinancing")
Indebtedness, other than Indebtedness incurred pursuant to clause (a)
above, but only to the extent that:
(1) the net proceeds of such Refinancing Indebtedness do not exceed
the principal amount of and premium, if any, and accrued interest on the
Indebtedness so Refinanced (or if such Indebtedness was issued at an
original issue discount, the original issue price plus amortization of
the
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original issue discount at the time of the repayment of such
Indebtedness) plus the fees, expenses and costs of such Refinancing and
prepayment premiums, if any, in connection therewith;
(2) the Refinancing Indebtedness shall have a final maturity no
earlier than, and a Weighted Average Life to Maturity equal to or
greater than, the final maturity and Weighted Average Life to Maturity
of the Indebtedness being Refinanced; and
(3) if the Indebtedness being Refinanced is subordinated in right
of payment to the Notes, the Refinancing Indebtedness shall be
subordinated in right of payment to the Notes on terms at least as
favorable to the holders of Notes as those contained in the
documentation governing the Indebtedness being so Refinanced;
(g) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Restricted Subsidiaries; and
(h) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate or foreign currency risk with respect to
any floating rate Indebtedness that is permitted by the terms of the
Indenture to be outstanding.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness or Disqualified Stock meets the criteria of more
than one of the categories described in clauses (a) through (h) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item in any manner that
complies with this covenant and such item will be treated as having been
incurred pursuant to only one of such clauses or pursuant to the first paragraph
herein. Accrual of interest or dividends, the accretion of accreted value or
liquidation preference and the payment of interest or dividends in the form or
additional Indebtedness, Common Stock or Preferred Stock will not be deemed to
be an incurrence of Indebtedness for purposes of this covenant.
Asset Sales
The Indenture provides that the Company and its Restricted Subsidiaries may
not, whether in a single transaction or a series of related transactions
occurring within any twelve-month period,
(i) sell, lease, convey, dispose or otherwise transfer any assets
(including by way of a Sale and Leaseback Transaction) other than sales,
leases, conveyances, dispositions or other transfers (A) in the ordinary
course of business, (B) to the Company by any Restricted Subsidiary of the
Company or from the Company to any Restricted Subsidiary of the Company,
(C) that constitute a Restricted Payment, Investment or dividend or
distribution permitted under the covenant described below under the caption
"Restricted Payments" or (D) that constitute the disposition of all or
substantially all of the assets of the Company pursuant to the covenant
described above under the caption "Merger, Consolidation or Sale of Assets"
or
(ii) issue or sell Equity Interests in any of its Restricted
Subsidiaries (other than an issuance or sale of Equity Interests of any
such Restricted Subsidiary to the Company or a Restricted Subsidiary),
if, in the case of either (i) or (ii) above, in a single transaction or a series
of related transactions occurring within any twelve-month period, such assets or
securities
(x) have a Fair Market Value in excess of $2.0 million (excluding the
Fair Market Value of Telecommunications Equipment sold to ILECs in
connection with establishing virtual collocation arrangements with such
ILECs) or
(y) are sold or otherwise disposed of for net proceeds in excess of
$2.0 million (each of the foregoing, an "Asset Sale"), unless:
(a) no Default or Event of Default exists or would occur as a
result thereof;
(b) the Company, or such Restricted Subsidiary, as the case may be,
receives (except in the case of sales of Telecommunications Equipment to
ILECs in connection with establishing virtual
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collocation arrangements with such ILECs) consideration at the time of
such Asset Sale at least equal to the Fair Market Value (evidenced by a
resolution of the Board of Directors of the Company set forth in an
Officers' Certificate delivered to the Trustee), of the assets or
securities issued or sold or otherwise disposed of; and
(c) at least 85% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of cash, provided,
however, that (A) the amount of (x) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet or
in the notes thereto) of the Company or any Restricted Subsidiary of the
Company (other than liabilities that are by their terms subordinated to
the Notes) that are assumed by the transferee of any such assets and (y)
any notes, obligations or other securities received by the Company or
any such Restricted Subsidiary from such transferee that are immediately
converted by the Company or such Restricted Subsidiary into cash, shall
be deemed to be cash (to the extent of the cash received in the case of
subclause (y)) for purposes of this clause (c); and (B) an amount equal
to the Fair Market Value (determined as set forth in clause (b) above)
of Telecommunications Related Assets received by the Company or any such
Restricted Subsidiary from the transferee that will be used by the
Company or any such Restricted Subsidiary in the operation of a
Telecommunications Business in the United States will be deemed to be
cash for purposes of this clause (c).
The foregoing provisions will not apply to a sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company, which will
be governed by the provisions of the Indenture described below under "-- Merger,
Consolidation, or Sale of Assets."
The Indenture also provides that within 365 days after the receipt of net
proceeds of any Asset Sale, the Company (or such Restricted Subsidiary, as the
case may be) may apply the Net Proceeds from such Asset Sale to (i) permanently
reduce the amounts permitted to be borrowed by the Company under the terms of
any of its Senior Indebtedness or (ii) the purchase of Telecommunications
Related Assets or Voting Stock of any Person engaged in the Telecommunications
Business in the United States (provided that such Person concurrently becomes a
Restricted Subsidiary of the Company). Any Net Proceeds from any Asset Sales
that are not so applied or invested will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be
required to make an Excess Proceeds Offer in accordance with the terms set forth
under "-- Offer to Purchase with Excess Asset Sale Proceeds."
Liens
The Indenture provides that the Company and its Restricted Subsidiaries may
not, directly or indirectly, create, incur, assume or suffer to exist any Lien
on any asset now owned or hereafter acquired, or any income or profits therefrom
or assign or convey any right to receive income therefrom, except for Permitted
Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company and its Restricted Subsidiaries may
not, directly or indirectly, create or otherwise cause to become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(i) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries on its Capital Stock or with respect to
any other interest or participation in, or measured by, its profits, or pay
any Indebtedness owed to the Company or any of its Restricted Subsidiaries;
(ii) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(iii) transfer any of its properties or assets to the Company or any
of its Restricted Subsidiaries;
except for such encumbrances or restrictions existing as of the Issue
Date or under or by reason of:
(a) Existing Indebtedness;
(b) applicable law;
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(c) any instrument governing Acquired Debt as in effect at the time
of acquisition (except to the extent such Indebtedness was incurred in
connection with, or in contemplation of, such acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired;
(d) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices;
(e) Indebtedness in respect of a Permitted Refinancing, provided
that the restrictions contained in the agreements governing such
Refinancing Indebtedness are not materially more restrictive than those
contained in the agreements governing the Indebtedness being refinanced;
(f) with respect to clause (iii) above, purchase money obligations
for property acquired in the ordinary course of business, Vendor
Indebtedness incurred in connection with the purchase or lease of
Telecommunications Related Assets or performance bonds or similar
security for performance which liens securing such obligations do not
cover any asset other than the asset acquired or, in the case of
performance bonds or similar security for performance, the assets
associated with the Company's performance;
(g) Indebtedness incurred under clause (a) of the covenant entitled
"-- Incurrence of Indebtedness and Issuance of Disqualified Stock;"
(h) the Indenture and the Notes; or
(i) in the case of clauses (a), (c), (e), (f), (g) and (h) above,
any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are not materially
more restrictive with respect to such dividend and other payment
restrictions than those contained in such instruments as in effect on
the date of their incurrence or, if later, the Issue Date.
Use of Proceeds
The Indenture provides that the Company may use the gross proceeds from the
sale of the Notes only for the following purposes:
(i) to pay the fees and expenses of the issuance of the Notes
including any discount or commission to the Initial Purchasers of the
Notes;
(ii) to acquire Telecommunications Related Assets (other than Voting
Stock), including the payment of the purchase price and related sales and
use taxes therefor and shipping, handling, storage, transportation, testing
and insurance charges, design, integration and site preparation expenses
and installation and service/warranty costs associated with the acquisition
of any Telecommunications Related Assets;
(iii) to acquire the Voting Stock of any Person engaged in the
Telecommunications Business in the United States to the extent that the
purchase price paid by the Company or any Restricted Subsidiary for such
Voting Stock is allocated (as determined by a resolution of the Board of
Directors) to the purchase of Telecommunications Equipment at a purchase
price not in excess of fair market value;
(iv) to purchase the Pledged Securities; and
(v) for working capital purposes.
The Company will deliver to the Trustee an Officer's Certificate with each
annual compliance certificate certifying that the proceeds of the Notes were
applied in accordance with this covenant.
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Security Interests
The Indenture provides that, until the date upon which the Trustee has been
granted a first priority security interest in Telecommunications Equipment
purchased after the Issue Date having a purchase price at least equal to $100.0
million, upon the acquisition of any Telecommunications Equipment, other than
Telecommunications Equipment located or to be located in Las Vegas, Nevada or
the surrounding suburban area, the Company will, and will cause its Restricted
Subsidiaries to, take such action as is required to vest in the Trustee a first
priority security interest in such Telecommunications Equipment, for the benefit
of the holders of Notes, and thereupon all provisions of the Indenture relating
to Collateral shall be deemed to relate to and include such Telecommunications
Equipment. On the Closing Date and from time to time thereafter, the Company
will, and will cause each Restricted Subsidiary to, execute such security
instruments and financing statements as may be reasonably necessary to vest in
the Trustee such security interest. In addition, with respect to any
telecommunications switch that constitutes Collateral, the Company will post a
notice on, or in the location housing, such telecommunications switch,
identifying the Company or the relevant Restricted Subsidiary as the owner of
such telecommunications switch and stating that such telecommunications switch
is subject to the security interest under the Indenture. The release of any lien
on Telecommunications Equipment upon the sale thereof to any ILEC in connection
with the establishment of a virtual collocation with such ILEC shall not
eliminate the credit of the purchase price of such Telecommunications Equipment
against the $100.0 million requirement set forth in the first sentence of this
paragraph, provided that upon any reacquisition by the Company of title to such
Telecommunications Equipment the first priority security interest granted to the
Trustee in such Telecommunications Equipment shall be reinstated.
Impairment of Security Interest
The Indenture provides that the Company will, and will cause its Restricted
Subsidiaries to, on or prior to the Closing Date, file UCC-1s in each state in
the United States in which any Collateral is located covering all such
Collateral, to file UCC-1s in additional states from time to time as may be
necessary to cover Collateral acquired after the Issue Date and to file such
UCC-3 continuation statements from time to time as may be necessary to continue
the effectiveness of such filings and the Company will not, and will not permit
any of its Restricted Subsidiaries to, grant to any Person (other than the
Trustee on behalf of holders of the Notes) any security interest in the
Collateral.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving entity), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, another
corporation, Person or entity unless:
(i) the Company is the surviving entity or the entity or Person formed
by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition has been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia;
(ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person
to which such sale, assignment, transfer, lease, conveyance or other
disposition has been made assumes all the obligations of the Company under
the Notes, the Indenture, the Pledge Agreement and the Security Agreement
pursuant to a supplemental indenture in form reasonably satisfactory to the
Trustee;
(iii) immediately after such transaction no Default or Event of
Default exists;
(iv) except in connection with a Merger with or into a wholly owned
subsidiary of the Company, the Company, or any entity or Person formed by
or surviving any such consolidation or merger, or to which such sale,
assignment, transfer, lease, conveyance or other disposition has been made,
at the time of such transaction after giving pro forma effect thereto as if
such transaction had occurred at the beginning of
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the applicable fiscal quarter (including any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction (A) could incur at least $1.00 of additional Indebtedness
pursuant to the Consolidated Cash Flow Leverage Ratio test described under
"-- Incurrence of Indebtedness and Issuance of Disqualified Stock" and (B)
has Consolidated Net Worth in an amount which is equal to or greater than
the Consolidated Net Worth of the Company immediately prior to such
transaction;
(v) such transaction would not result in the loss, material impairment
or adverse modification or amendment of any authorization or license of the
Company or its Restricted Subsidiaries that would have a material adverse
effect on the business or operations of the Company and its Restricted
Subsidiaries taken as a whole; and
(vi) the Company has delivered to the Trustee an Officer's Certificate
and an Opinion of Counsel each to the effect that, with respect to the
transaction, items (i) through (v) as stated above have been satisfied.
Transactions with Affiliates
The Indenture provides that the Company and its Restricted Subsidiaries may
not sell, lease, transfer or otherwise dispose of any of their respective
properties or assets to, or purchase any property or assets from, or enter into
any contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless:
(i) such Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person;
(ii) such Affiliate Transaction is approved by a majority of the
disinterested directors on the Board of Directors of the Company;
(iii) the Company delivers to the Trustee, with respect to any
Affiliate Transaction involving aggregate payments in excess of $1.0
million, a resolution of a committee of independent directors of the
Company set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clauses (i) and (ii) above; and
(iv) the Company delivers to the Trustee, with respect to any
Affiliate Transaction involving aggregate payments in excess of $5.0
million, an opinion of an Independent Appraiser that such Affiliate
Transaction complies with clause (i) above;
provided that
(a) transactions pursuant to any employment, stock option or stock
purchase agreement entered into by the Company or any of its Restricted
Subsidiaries, or any grant of stock, in the ordinary course of business
that are approved by the Board of Directors of the Company,
(b) transactions between or among the Company and its Restricted
Subsidiaries,
(c) transactions permitted by the provisions of the Indenture
described above under the covenant "-- Restricted Payments,"
(d) loans and advances to employees and officers of the Company or
any of its Restricted Subsidiaries in the ordinary course of business in
an aggregate principal amount not to exceed $1.0 million at any one time
outstanding, and
(e) transactions pursuant to existing contracts to which the
Company is a party in accordance with the terms of such contracts as
they exist on the Issue Date,
shall not be deemed Affiliate Transactions.
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Business Activities
The Indenture provides that the Company and its Restricted Subsidiaries may
not, directly or indirectly, engage in any business other than the
Telecommunications Business.
The Indenture will provide that, until such time as the Company's
Consolidated EBITDA is positive for each of two consecutive fiscal quarters, the
Company and its Restricted Subsidiaries may not, directly or indirectly (through
the acquisition of Voting Stock, corporate reorganization or otherwise),
purchase, lease, acquire, install or operate more than twenty telecommunications
switches (including telecommunications switches already installed but excluding
remote switches); provided, however, that the 20 switch limitation shall be
increased by the number of telecommunications switches that could be purchased
with the net proceeds to the Company from the sale of any Equity Interests
(other than Disqualified Stock) subsequent to the closing of the Preferred Stock
Offering or, if the Preferred Stock Offering is not closed, the closing of the
Common Stock Commitment.
Limitations on Sale and Leaseback Transactions
The Indenture provides that the Company and its Restricted Subsidiaries may
not, directly or indirectly, enter into, assume, Guarantee or otherwise become
liable with respect to any Sale and Leaseback Transaction, provided that the
Company or any Restricted Subsidiary of the Company may enter into any such
transaction if (i) the Company or such Restricted Subsidiary would be permitted
under the covenants described above under "-- Incurrence of Indebtedness and
Issuance of Disqualified Stock" and "-- Liens" to incur secured Indebtedness in
an amount equal to the Attributable Debt with respect to such transaction, (ii)
the consideration received by the Company or such Restricted Subsidiary from
such transaction is at least equal to the Fair Market Value of the property
being transferred, and (iii) the Net Proceeds received by the Company or such
Restricted Subsidiary from such transaction are applied in accordance with the
covenant described above under the caption "-- Asset Sales."
Reports
The Indenture provides that the Company will file with the Trustee within
15 days after it files them with the Securities and Exchange Commission (the
"Commission") copies of the annual and quarterly reports and the information,
documents, and other reports that the Company is required to file with the
Commission pursuant to Section 13(a) or 15(d) of the Exchange Act ("SEC
Reports"). In the event the Company is not required or shall cease to be
required to file SEC Reports, pursuant to the Exchange Act, the Company will
nevertheless continue to file such reports with the Commission (unless the
Commission will not accept such a filing) and the Trustee. Whether or not
required by the Exchange Act to file SEC Reports with the Commission, so long as
any Notes are outstanding, the Company will furnish copies of the SEC Reports to
the holders of Notes at the time the Company is required to file the same with
the Trustee and make such information available to investors who request it in
writing. In addition, the Company has agreed that, for so long as any Notes
remain outstanding, it will furnish to the holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Payments for Consent
The Indenture provides that neither the Company nor any of its Affiliates
shall, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any holder of any Notes for or
as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered to
be paid or agreed to be paid to all holders of the Notes that consent, waive or
agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
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EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default:
(i) default in payment when due of interest on or Liquidated Damages,
if any, with respect to the Notes as to any interest payment date falling
on or prior to October 1, 2000, and default for 30 days in payment when due
of interest on, or Liquidated Damages, if any, with respect to, the Notes
as to any interest payment date thereafter;
(ii) default in payment when due of principal or premium, if any, on
the Notes at maturity, upon redemption or otherwise;
(iii) failure by the Company to perform or comply with the provisions
of the covenants described above under "-- Offer to Purchase Upon Change of
Control," "-- Asset Sales," "-- Restricted Payments," "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock" or "-- Merger,
Consolidation or Sale of Assets;"
(iv) failure by the Company for 30 days after notice to the Company
from the Trustee or to the Company and the Trustee by the holders of at
least 25% in principal amount of the Notes then outstanding to comply with
its other agreements in the Indenture or the Notes;
(v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Restricted Subsidiaries), whether such Indebtedness or Guarantee now
exists, or is created after the Issue Date, which default (x) is caused by
a failure to pay when due principal, premium, if any, or interest on such
Indebtedness within the grace period provided in such Indebtedness (a
"Payment Default"), and the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness of the
Company or any Significant Subsidiary under which there has been a Payment
Default or the maturity of which has been accelerated as provided in clause
(y), aggregates $5.0 million or more or (y) results in the acceleration
(which acceleration has not been rescinded) of such Indebtedness prior to
its express maturity and the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more;
(vi) failure by the Company or any of its Significant Subsidiaries to
pay final judgments (other than any judgment as to which a reputable
insurance company has accepted full liability in writing) aggregating in
excess of $5.0 million which judgments are not paid, discharged or stayed
within 45 days after their entry; and
(vii) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries.
In addition to the foregoing, it shall be an Event of Default under the
Indenture if any of the provisions of the Indenture relating to the Security
Documents or the Security Documents shall cease to be in full force and effect
or shall cease to give the secured parties the Liens, rights, powers and
privileges purported to be created thereby.
If any Event of Default occurs and is continuing under the Indenture, the
Trustee, by notice to the Company, or the holders of at least 25% in principal
amount of the then outstanding Notes, by notice to the Company and the Trustee,
may declare all the Notes to be due and payable immediately. Upon such
declaration, the principal of, premium, if any, and accrued and unpaid interest
and Liquidated Damages, if any, on the Notes shall be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries, the foregoing amount shall ipso
facto become due and payable without further action or notice. No premium is
payable upon acceleration of the Notes except that in the case of an Event of
Default that is the result of an action or inaction by the Company or any of its
Restricted Subsidiaries intended to avoid restrictions on or premiums related to
redemptions of the Notes contained in the Indenture
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or the Notes, the amount declared due and payable will include the premium that
would have been applicable on a voluntary prepayment of the Notes or, if
voluntary prepayment is not then permitted, the premium set forth in the
Indenture. Holders of the Notes may not enforce the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations, holders of
a majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payments of principal or
interest) if it determines that withholding notice is in such holders' interest.
The holders of a majority in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee, may, on behalf of the holders of all of
the Notes, waive any existing Default or Event of Default and its consequences
under the Indenture, except a continuing Default or Event of Default in the
payment of interest or Liquidated Damages or premium on, or the principal of,
the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason of
such obligations or their creation. Each holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Notes and have the liens
and security interests created by the Security Agreement released ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
Notes, except for:
(a) the rights of holders of outstanding Notes to receive from the
trust described below payments in respect of the principal of, premium, if
any, and interest on and Liquidated Damages with respect to such Notes when
such payments are due, or on the redemption date, as the case may be;
(b) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost
or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(c) the rights, powers, trust, duties and immunities of the Trustee,
and the Company's obligations in connection therewith; and
(d) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the Indenture and have the liens and security interests created
by the Security Agreement released ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including nonpayment, bankruptcy, receivership,
rehabilitation 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:
(i) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the holders of the Notes, cash in U.S. dollars,
non-callable U.S. government obligations, or a combination thereof, in
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such amounts as will be sufficient (after taking into account the amount,
if any, remaining in the Pledge Account), in the opinion of a nationally
recognized firm of independent public accountants selected by the Company,
to pay the principal of, premium, if any, and interest on and Liquidated
Damages with respect to the outstanding Notes, on the stated maturity or on
the applicable optional redemption date, as the case may be, of such
principal or installment of principal of, premium, if any, or interest on
or Liquidated Damages with respect to the outstanding Notes;
(ii) in the case of Legal Defeasance, the Company must deliver to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the
Issue Date, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company must deliver to
the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the holders of the outstanding
Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(vi) the Company must have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day (or such other applicable
date) following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally;
(vii) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the holders of Notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors
of the Company or others; and
(viii) the Company must deliver to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for in the Indenture relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the Indenture or the
Notes may be amended or supplemented with the consent of the holders of at least
a majority in principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for Notes), and any
existing default or compliance with any provision of the Indenture or the Notes
may be waived with the consent of the holders of a majority in principal amount
of the then outstanding Notes (including consents obtained in connection with a
tender offer or exchange offer for Notes).
Without the consent of each holder affected, however, an amendment or
waiver may not (with respect to any Note held by a non-consenting holder):
(i) reduce the principal amount of Notes whose holders must consent to
an amendment, supplement or waiver;
(ii) reduce the principal or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes (other
than provisions relating to the covenants described under the caption
"-- Offer to Purchase upon Change of Control" and "-- Offer to Purchase
with Excess Asset Sale Proceeds");
(iii) reduce the rate of or change the time for payment of interest on
any Notes;
(iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default
that resulted from such acceleration);
(v) make any Note payable in money other than that stated in the
Notes;
(vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Notes to receive
payments of principal of, premium, if any, or interest on the Notes;
(vii) waive a redemption payment with respect to any Note (other than
a payment required by one of the covenants described above under the
captions "-- Offer to Purchase upon Change of Control" and "-- Offer to
Purchase with Excess Asset Sale Proceeds");
(viii) make any change in the foregoing amendment and waiver
provisions; or
(ix) amend the Pledge Agreement or the Security Agreement or otherwise
affect the interests of any Holder in the Pledged Securities or the
Collateral, in each case in any manner that adversely affects the rights of
any Holder or the Trustee.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(c) to provide for the assumption of the Company's obligations to
holders of the Notes in the case of a merger or consolidation;
(d) to make any change that would provide any additional rights or
benefits to the holders of the Notes or that does not adversely affect the
legal rights under the Indenture of any such holder; or
(e) to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture
Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should the Trustee become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property
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received in respect of any such claim as security or otherwise. The Trustee will
be permitted to engage in other transactions with the Company; however, if the
Trustee acquires any conflicting interest, it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue as Trustee or
resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture will provide that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its powers, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture, the Pledge Agreement
or the Security Agreement at the request of any holder of Notes, unless such
holder shall have offered to the Trustee security and indemnity satisfactory to
it against any loss, liability or expense. No holder of any Note will have any
right to institute any proceeding with respect to the Indenture, the Pledge
Agreement or the Security Agreement or for any remedy under any thereof, unless
(i) such holder gives to the Trustee written notice of a continuing Event of
Default, (ii) holders of at least 25% in principal amount of the then
outstanding Notes make a written request to pursue the remedy, (iii) such
holders of the Notes provide to the Trustee satisfactory indemnity and (iv) the
Trustee does not comply within 60 days. Otherwise, no holder of any Note will
have any right to institute any proceeding with respect to the Indenture, the
Pledge Agreement or the Security Agreement or for any remedy under any thereof,
except: (i) a holder of a Note may institute suit for enforcement of payment of
the principal of and premium, if any, or interest on or Liquidated Damages with
respect to such Note on or after the respective due dates expressed in such Note
(including upon acceleration thereof) or (ii) the institution of any proceeding
with respect to the Indenture, the Pledge Agreement or the Security Agreement or
any remedy under any thereof, including without limitation acceleration, by the
holders of a majority in principal amount of the outstanding Notes, provided
that, upon institution of any proceeding or exercise of any remedy such holders
provide the Trustee with prompt notice thereof.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchasers have entered into the Registration
Rights Agreement on September 29, 1997. Pursuant to the Registration Rights
Agreement, the Company has agreed to file with the Commission the Exchange Offer
Registration Statement on the appropriate form under the Securities Act. Upon
the effectiveness of the Exchange Offer Registration Statement, the Company will
offer to the holders of Transfer Restricted Securities pursuant to the Exchange
Offer who are able to make certain representations the opportunity to exchange
their Transfer Restricted Securities for a new issue of senior notes of the
Company (the "Exchange Notes") registered under the Securities Act, with terms
substantially identical to those of the Notes. If (i) the Company is not
required to file the Exchange Offer Registration Statement or permitted to
consummate the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy or (ii) any holder of Transfer Restricted
Securities notifies the Company within the specified time period that (A) it is
prohibited by law or Commission policy from participating in the Exchange Offer,
(B) that it may not resell the Exchange Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and the prospectus contained
in the Exchange Offer Registration Statement is not appropriate or available for
such resales or (C) that it is a broker-dealer and owns Notes acquired directly
from the Company or an affiliate of the Company, the Company will file with the
Commission a Shelf Registration Statement to cover resales of the Notes by the
holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. The Company
will use its best efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the Commission. For purposes of
the foregoing, "Transfer Restricted Securities" means each Note until (i) the
date on which such has been exchanged by a Person other than a broker-dealer for
an Exchange Note in the Exchange Offer, (ii) following the exchange by a
broker-dealer in the Exchange Offer of a Note for an Exchange Note, the date on
which such an Exchange Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Note has been effectively registered under the Securities Act and disposed
of in accordance with the Shelf Registration Statement or (iv) the date on which
such Note is distributed to the public pursuant to Rule 144 under the Securities
Act.
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The Registration Rights Agreement provides that (i) the Company will file
an Exchange Offer Registration Statement with the Commission on or prior to 30
days after the Closing Date, (ii) the Company will use its best efforts to have
the Exchange Offer Registration Statement declared effective by the Commission
on or prior to 120 days after the Closing Date, (iii) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, the Company will
commence the Exchange Offer and use its best efforts to issue, on or prior to 30
business days after the date on which the Exchange Offer Registration Statement
was declared effective by the Commission, Exchange Notes in exchange for all
Notes tendered prior thereto in the Exchange Offer and (iv) if obligated to file
the Shelf Registration Statement, the Company will use its best efforts to file
the Shelf Registration Statement with the Commission on or prior to 30 days
after such filing obligation arises (and in any event within 150 days after the
Closing Date) and to cause the Shelf Registration to be declared effective by
the Commission on or prior to 90 days after such obligation arises (and in any
event within 240 days after the Closing Date). If (a) the Company fails to file
any of the Registration Statements required by the Registration Rights Agreement
on or before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), (c) the
Company fails to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement, or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights Agreement, (each such
event referred to in clauses (a) through (d) above a "Registration Default"),
then the Company will pay Liquidated Damages to each holder of Transfer
Restricted Securities, with respect to the first 90-day period immediately
following the occurrence of such Registration Default in an amount equal to $.05
per week per $1,000 principal amount of Notes constituting Transfer Restricted
Securities held by such holder. The amount of the Liquidated Damages will
increase by an additional $.05 per week per $1,000 principal amount of Notes
constituting Transfer Restricted Securities with respect to each subsequent
90-day period until all Registration Defaults have been cured, up to a maximum
amount of Liquidated Damages of $.50 per week per $1,000 principal amount of
Notes constituting Transfer Restricted Securities. All accrued Liquidated
Damages will be paid by the Company on each Interest Payment Date. Following the
cure of all Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture, the
Registration Rights Agreement, the Pledge Agreement and the Security Agreement
without charge by writing to the Company at 3165 Palms Centre Drive, Las Vegas,
Nevada 89103, Attention: General Counsel.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
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"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise, provided, however,
that beneficial ownership of 25% or more of the voting securities of a Person
shall be deemed to be control.
"Attributable Debt" means, with respect to any Sale and Leaseback
Transaction, the present value at the time of determination (discounted at a
rate consistent with accounting guidelines, as determined in good faith by the
Company) of the payments during the remaining term of the lease (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended) or until the earliest date on which the lessee may
terminate such lease without penalty or upon payment of a penalty (in which case
the rental payments shall include such penalty), after excluding all amounts
required to be paid on account of maintenance and repairs, insurance, taxes,
assessments, water, utilities and similar charges.
"Beneficial Owner" means a beneficial owner as defined in Rules 13d-3 and
13d-5 under the Exchange Act (or any successor rules), including the provision
of such Rules that a Person shall be deemed to have beneficial ownership of all
securities that such Person has a right to acquire within 60 days; provided that
a Person will not be deemed a beneficial owner of, or to own beneficially, any
securities if such beneficial ownership (1) arises solely as a result of a
revocable proxy delivered in response to a proxy or consent solicitation made
pursuant to, and in accordance with, the Exchange Act and (2) is not also then
reportable on Schedule 13D or Schedule 13G (or any successor schedule) under the
Exchange Act.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock and (iii) in the case of a partnership, partnership interests
(whether general or limited) and any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, such partnership.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, of all or substantially all of the assets of the Company
and its Restricted Subsidiaries, taken as a whole, to any Person or group (as
such term is used in Section 13(d)(3) and 14(d)(2) of the Exchange Act), (ii)
the adoption of a plan relating to the liquidation or dissolution of the
Company, (iii) any Person or group (as defined above) other than the Permitted
Holders is or becomes the Beneficial Owner, directly or indirectly, of more than
50% of the total Voting Stock or Total Common Equity of the Company, including
by way of merger, consolidation or otherwise or (iv) the first day on which a
majority of the members of the Board of Directors of the Company are not
Continuing Directors.
"Closing Date" means September 29, 1997.
"Closing Price" on any Trading Day with respect to the per share price of
any shares of Capital 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 Capital 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 Nasdaq National Market but the issuer
is a Foreign Issuer (as defined in Rule 3b-4(b) under the Exchange Act) and the
principal securities exchange on which such shares are listed or admitted to
trading is a Designated Offshore Securities Market (as defined in Rule 902(a)
under the Securities Act), the average of the reported closing bid and
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asked prices regular way on such principal exchange, or, if such shares are not
listed or admitted to trading on any national securities exchange or quoted on
Nasdaq National Market and the issuer and principal securities exchange do not
meet such requirements, 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.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Common Stock Commitment" means the binding commitment of certain investors
to purchase shares of Common Stock of the Company at a price to be agreed upon
by the Company and such investors, which price shall be not less than $3.50 per
share nor more than $5.00 per share, for an aggregate purchase price of $15.0
million if the Preferred Stock Offering has not been consummated before the
sixtieth day following the Issue Date.
"Consolidated Cash Flow Leverage Ratio" with respect to any Person means
the ratio of the Consolidated Indebtedness of such Person to the Consolidated
EBITDA of such Person for the relevant period; provided, however, that (1) if
the Company or any Restricted Subsidiary of the Company has incurred any
Indebtedness (including Acquired Debt) or if the Company has issued any
Disqualified Stock or if any Restricted Subsidiary of the Company has issued any
Preferred Stock since the beginning of such period that remains outstanding on
the date of such determination or if the transaction giving rise to the need to
calculate the Consolidated Cash Flow Leverage Ratio is an incurrence of
Indebtedness (including Acquired Debt) or the issuance of Disqualified Stock by
the Company, Consolidated EBITDA and Consolidated Indebtedness for such period
will be calculated after giving effect on a pro forma basis to (A) such
Indebtedness, Disqualified Stock or Preferred Stock, as applicable, as if such
Indebtedness had been incurred or such stock had been issued on the first day of
such period, (B) the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new Indebtedness or
sale of stock as if such discharge had occurred on the first day of such period,
and (C) the interest income realized by the Company or its Restricted
Subsidiaries on the proceeds of such Indebtedness or of such stock sale, to the
extent not yet applied at the date of determination, assuming such proceeds
earned interest at the rate in effect on the date of determination from the
first day of such period through such date of determination, (2) if since the
beginning of such period the Company or any Restricted Subsidiary of the Company
has made any sale of assets (including, without limitation, any Asset Sales or
pursuant to any Sale and Leaseback Transaction), Consolidated EBITDA for such
period will be (A) reduced by an amount equal to Consolidated EBITDA (if
positive) directly attributable to the assets which are the subject of such sale
of assets for such period or (B) increased by an amount equal to Consolidated
EBITDA (if negative) directly attributable thereto for such period and (3) if
since the beginning of such period the Company or any Restricted Subsidiary of
the Company (by merger or otherwise) has made an Investment in any Restricted
Subsidiary of the Company (or any Person which becomes a Restricted Subsidiary
of the Company) or has made an acquisition of assets, including, without
limitation, any acquisition of assets occurring in connection with a transaction
causing a calculation of Consolidated EBITDA to be made hereunder, which
constitutes all or substantially all of an operating unit of a business,
Consolidated EBITDA for such period will be calculated after giving pro forma
effect thereto (including the incurrence of any Indebtedness (including Acquired
Debt)) as if such Investment or acquisition occurred on the first day of such
period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the pro forma calculations will be determined
in good faith by a responsible financial or accounting Officer of the Company,
provided, however, that such Officer shall assume (i) the historical sales and
gross profit margins associated with such assets for any consecutive 12-month
period ended prior to the date of purchase (provided that the first month of
such 12-month period will be no more than 18 months prior to such date of
purchase) and (ii) other expenses as if such assets had been owned by the
Company since the first day of such period. If any Indebtedness (including,
without limitation, Acquired Debt) bears a floating rate of interest and is
being given pro forma effect, the interest on such Indebtedness will be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period.
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"Consolidated EBITDA" as of any date of determination means the
Consolidated Net Income for such period (but without giving effect to
adjustments, accruals, deductions or entries resulting from purchase accounting,
extraordinary losses or gains and any gains or losses from any Asset Sales),
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) provision for taxes based on income or profits of such Person and
its Subsidiaries or, in the case of the Company, its Restricted Subsidiaries for
such period, (ii) Consolidated Interest Expense, (iii) depreciation,
amortization (including amortization of goodwill and other intangibles) and
other non-cash charges (excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period and
excluding non-cash interest and dividend income) of such Person and its
Subsidiaries or, in the case of the Company, its Restricted Subsidiaries for
such period, in each case, on a consolidated basis and determined in accordance
with GAAP. Notwithstanding the foregoing, the provision for taxes on the income
or profits of, and the depreciation, amortization, interest expense and other
non-cash charges of, a Subsidiary or, in the case of the Company, a Restricted
Subsidiary of the referent Person shall be added to Consolidated Net Income to
compute Consolidated EBITDA only to the extent (and in same proportion) that the
Net Income of such Subsidiary or, in the case of the Company, such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary, or, in the
case of the Company, such Restricted Subsidiary or loaned to the Company by any
such Subsidiary, or, in the case of the Company any such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Subsidiary or,
in the case of the Company, any such Restricted Subsidiary or its stockholders.
"Consolidated Indebtedness" means, with respect to any Person, as of any
date of determination, the aggregate amount of Indebtedness of such Person and
its Subsidiaries or, in the case of the Company, its Restricted Subsidiaries as
of such date calculated on a consolidated basis in accordance with GAAP
consistently applied.
"Consolidated Interest Expense" means, for any Person, for any period, the
aggregate of the following for such Person for such period determined on a
consolidated basis in accordance with GAAP: (a) the amount of interest in
respect of Indebtedness (including amortization of original issue discount,
amortization of debt issuance costs, and non-cash interest payments on any
Indebtedness, the interest portion of any deferred payment obligation and after
taking into account the effect of elections made under any Interest Rate
Agreement, however denominated with respect to such Indebtedness), (b) the
amount of Redeemable Dividends (to the extent not already included in
Indebtedness in determining Consolidated Interest Expense for the relevant
period) and (c) the interest component of rentals in respect of any Capital
Lease Obligation paid, in each case whether accrued or scheduled to be paid or
accrued by such Person during such period to the extent such amounts were
deducted in computing Consolidated Net Income, determined on a consolidated
basis in accordance with GAAP. For purposes of this definition interest on a
Capital Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by such Person to be the rate of interest implicit in such
Capital Lease Obligation in accordance with GAAP consistently applied.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries or, in the
case of the Company, its Restricted Subsidiaries for such period, on a
consolidated basis, determined in accordance with GAAP; provided that:
(i) the Net Income of any Person that is not a Subsidiary or, in the
case of the Company, a Restricted Subsidiary or that is accounted for by
the equity method of accounting shall be included only to the extent of the
amount of dividends or distributions paid in cash to the referent Person or
a Subsidiary or, in the case of the Company, a Restricted Subsidiary
thereof,
(ii) the Net Income of any Subsidiary or, in the case of the Company,
any Restricted Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or other distributions by that
Subsidiary, or Restricted Subsidiary, as the case may be, of that Net
Income is not at the date of determination permitted without any prior
governmental approval (which has not been obtained) or,
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directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or Restricted
Subsidiary, as the case may be, or its stockholders,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded,
(iv) the cumulative effect of a change in accounting principles shall
be excluded, and
(v) the Net Income of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to the Company or one of its Restricted
Subsidiaries.
"Consolidated Net Worth" means the total amount shown on the balance sheet
of the Company and its consolidated Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company for which internal financial statements are then
available, prior to the taking of any action for the purpose of which the
determination is being made, as (i) the par or stated value of all outstanding
Capital Stock of the Company plus (ii) paid-in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (a) any accumulated deficit and (b) any amounts attributable to
Disqualified Stock.
"Contingent Investment" means, with respect to any Person, any guarantee by
such Person of the performance of another Person or any commitment by such
Person to invest in another Person. Any Investment that consists of a Contingent
Investment shall be deemed made at the time that the guarantee of performance or
the commitment to invest is given, and the amount of such Investment shall be
the maximum monetary obligation under such guarantee of performance or
commitment to invest. To the extent that a Contingent Investment is released or
lapses without payment under the guarantee of performance or the commitment to
invest, such Investment shall be deemed not made to the extent of such release
or lapse. With respect to any Contingent Investment, the payment of the
guarantee of performance or the payment under the commitment to invest shall not
be deemed to be an additional Investment.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the Issue Date or (ii) was nominated for election or elected to
such Board of Directors with the affirmative vote of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Facility" means any credit facility entered into by and among the
Company and one or more commercial banks or financial institutions, providing
for senior term or revolving credit borrowings of a type similar to credit
facilities typically entered into by commercial banks and financial
institutions, including any related notes, Guarantees, collateral documents,
instruments and agreements executed in connection therewith, as such credit
facility and related agreements may be amended, extended, refinanced, renewed,
restated, replaced or refunded from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock to the extent that, and only
to the extent that, by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the date on which the Notes mature,
provided, however, that any Capital Stock which would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require the Company to repurchase or redeem such Capital Stock upon the
occurrence of a Change of Control occurring prior to the final maturity of the
Notes shall not constitute Disqualified Stock if the change in control
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions applicable to the Notes contained in
the covenant described under "-- Offer to Purchase Upon a Change of Control" and
such Capital Stock specifically provides that the Company will not repurchase or
redeem any such stock pursuant
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to such provisions prior to the Company's repurchase of such Notes as are
required to be repurchased pursuant to the covenant described under "-- Offer to
Purchase Upon Change of Control."
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500.0 million or its equivalent
in foreign currency, whose debt is rated "A" (or higher) according to S&P or
Moody's at the time as of which any investment or rollover therein is made.
"Eligible Receivable" means any Receivable not more than 90 days past due
under its scheduled payment terms.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock or that are measured by the value of Capital
Stock (but excluding any debt security that is convertible into or exchangeable
for Capital Stock).
"Equity Offering" means an underwritten offering of Capital Stock (other
than Disqualified Stock) of the Company registered under the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act), and the rules and regulations thereunder.
"Existing Indebtedness" means all Indebtedness of the Company and its
Restricted Subsidiaries in existence on the Issue Date.
"Fair Market Value" means with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect on the Issue Date.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under Interest Rate Agreements.
"ILEC" means the incumbent local exchange carrier.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing the balance
deferred and unpaid of the purchase price of any property (including pursuant to
capital leases) or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable, if and to the extent any
of the foregoing (other than Hedging Obligations or letters of credit) would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, all indebtedness of others secured by a Lien on any asset of such
Person (whether or not such indebtedness is assumed by such Persons), all
obligations to purchase, redeem, retire, defease or otherwise acquire for value
any Disqualified Stock or any warrants, rights or options to acquire such
Disqualified Stock valued, in the case of Disqualified Stock, at the greatest
amount payable in respect thereof on a liquidation (whether voluntary or
involuntary) plus accrued and unpaid dividends, the liquidation value of any
Preferred Stock issued by Subsidiaries of such Person or by Restricted
Subsidiaries of the Company, as the case may be, plus accrued and unpaid
dividends, and also
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includes, to the extent not otherwise included, the Guarantee of items that
would be included within this definition and any amendment, supplement,
modification, deferral, renewal, extension or refunding of any of the above;
notwithstanding the foregoing, in no event will performance bonds or similar
security for performance be deemed Indebtedness so long as such performance
bonds or similar security for performance would not appear as a liability on a
balance sheet of such Person prepared in accordance with GAAP; and provided
further, that the amount of any Indebtedness in respect of any Guarantee shall
be the maximum principal amount of the Indebtedness so guaranteed.
"Independent Appraiser" means a nationally recognized accounting, appraisal
or investment banking firm experienced in the review of similar types of
transactions which does not have, and whose directors, officers and employees or
Affiliates do not have, a direct or indirect financial interest in the Affiliate
Transaction and which, in the opinion of the Board of Directors, is otherwise
independent and qualified to perform the task for which it is to be engaged.
"Interest Rate Agreements" means (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans,
Guarantees, Contingent Investments, advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities of any other Person and
all other items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP; provided, however, that any investment
to the extent made with Capital Stock of the Company (other than Disqualified
Stock) shall not be deemed an "Investment" for purposes of the Indenture.
"Issue Date" means September 29, 1997.
"Joint Venture" means a Person in the Telecommunications Business in which
the Company holds less than a majority of the shares of Voting Stock or an
Unrestricted Subsidiary in the Telecommunications Business.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Marketable Securities" means:
(i) Government Securities;
(ii) any certificate of deposit maturing not more than 270 days after
the date of acquisition issued by, or time deposit of, an Eligible
Institution;
(iii) commercial paper maturing not more than 270 days after the date
of acquisition issued by a corporation (other than an Affiliate of the
Company) with a rating at the time as of which any investment therein is
made, of "A-1" (or higher) according to S&P or "P-1" (or higher) according
to Moody's;
(iv) any banker's acceptances or money market deposit accounts issued
or offered by an Eligible Institution; and
(v) any fund investing exclusively in investments of the types
described in clauses (i) through (iv) above.
"Moody's" means Moody's Investors Service, Inc. and its successors.
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"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to Sale and Leaseback Transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or, in
the case of the Company, any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries or,
in the case of the Company, any of its Restricted Subsidiaries and (ii) any
extraordinary gain (but not loss), together with any related provision for taxes
on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale, net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the asset or assets that are
the subject of such Asset Sale and any reserve for adjustment in respect of the
sale price of such asset or assets. Net Proceeds shall exclude any non-cash
proceeds received from any Asset Sale, but shall include such proceeds when and
as converted by the Company or any Restricted Subsidiary of the Company to cash.
"Pari Passu Notes" means any notes issued by the Company which, by their
terms and the terms of any indenture governing such notes, have an obligation to
be repurchased by the Company upon the occurrence of an Asset Sale.
"Permitted Holder" means (i) Circle F Ventures, LLC or any of its
Affiliates, (ii) any of Maurice J. Gallagher, Jr., Timothy P. Flynn, Robert L.
Priddy or Nield J. Montgomery or their respective spouses or lineal descendants
and their respective spouses (collectively, the "Individual Family Holders")
whether acting in their own name or as a majority of persons having the power to
exercise the voting rights attached to, or having investment power over, shares
held by others, (iii) any Affiliate of any member of the Individual Family
Holders, (iv) any trust principally for the benefit of one or more members of
the Individual Family Holders (whether or not any member of the Individual
Family Holders is a trustee of such trust) and (v) any charitable foundation
whose majority of members, trustees or directors, as the case may be, are
persons referred to in (ii) above.
"Permitted Investment" means (a) any Investments in the Company or any
Restricted Subsidiary of the Company; (b) any Investments in Marketable
Securities; (c) Investments by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment (i) such Person becomes a
Restricted Subsidiary of the Company or (ii) such Person is merged, consolidated
or amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary of the
Company; (d) any Investments in property or assets to be used in (A) any line of
business in which the Company or any of its Restricted Subsidiaries was engaged
on the Issue Date or (B) any Telecommunications Business; (e) up to $20.0
million at any one time outstanding in Investments in Joint Ventures, provided,
however, that Investments in Joint Ventures which are not also Unrestricted
Subsidiaries shall not exceed $10.0 million at any one time outstanding; (f)
Investments pursuant to any agreement or obligation of the Company or a
Restricted Subsidiary, in effect on the Issue Date or on the date a Subsidiary
becomes a Restricted Subsidiary (provided that any such agreement was not
entered into in contemplation of such Subsidiary becoming a Restricted
Subsidiary), to make such Investments; (g) Investments in prepaid expenses,
negotiable instruments held for collection and lease, utility and workers'
compensation, performance and other similar deposits; (h) Hedging Obligations
permitted to be incurred by the covenant entitled "Incurrence of Indebtedness
and Issuance of Preferred Stock"; (i) bonds, notes, debentures or other
securities received as a result of Asset Sales permitted under the covenant
entitled "Asset Sales"; and (j) loans and advances to employees and officers of
the Company or any of its Restricted Subsidiaries permitted under the covenant
entitled "Transactions with Affiliates."
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"Permitted Liens" means (i) Liens securing Indebtedness (including Capital
Lease Obligations) permitted to be incurred pursuant to clauses (a) and (b) of
the second paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock"; (ii) Liens in favor of the Company; (iii) Liens on
property of a Person existing, at the time such Person is merged into or
consolidated with the Company or any Restricted Subsidiary of the Company;
provided that such Liens were not incurred in contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company; (iv) Liens on property existing at
the time of acquisition thereof by the Company or any Restricted Subsidiary of
the Company, provided that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vi)
Liens existing, on the Issue Date; (vii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings timely instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor;
(viii) Liens incurred in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company with respect to obligations that do not
exceed $3.0 million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Restricted Subsidiary; (ix) Liens on Telecommunications Related Assets existing
during the time of the construction thereof; (x) Liens on Receivables to secure
Indebtedness permitted to be incurred by the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock," but only to the extent that the
outstanding amount of the Indebtedness secured by such Liens would not represent
more than 80% of Eligible Receivables; (xi) Liens on Telecommunications
Equipment required to be incurred pursuant to the covenant entitled "Security
Interests"; and (xii) Liens to secure any Permitted Refinancing of any
Indebtedness secured by Liens referred to in the foregoing clauses (i), (iii),
(iv), (v), (vi) or (x); but only to the extent that such Liens do not extend to
any other property or assets and the principal amount of the Indebtedness
secured by such Liens is not increased by more than the fees and expenses
incurred in connection with such refinancing.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Pledge Account" means an account established with the Trustee pursuant to
the terms of the Pledge Agreement for the deposit of the Pledged Securities
purchased by the Company with a portion of the proceeds from the sale of the
Notes.
"Pledge Agreement" means the Collateral Pledge and Security Agreement,
dated as of the date of the Indenture, by and between the Trustee and the
Company, governing the disbursement of funds from the Pledge Account.
"Pledged Securities" means the securities purchased by the Company with a
portion of the proceeds from the sale of the Notes, which shall consist of
Government Securities, to be deposited in the Pledge Account.
"Preferred Stock" as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to payment of dividends or as to the distribution of assets upon
any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Preferred Stock Offering" means the offering of Convertible Preferred
Stock of the Company to generate aggregate gross proceeds of at least $15.0
million.
"Qualified Equity Offering" means an Equity Offering in which the net
proceeds to the Company are not less than $25.0 million.
"Receivables" means, with respect to any Person, all of the following
property and interests in property of such person or entity, whether now
existing or existing in the future or hereafter acquired or arising:
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(i) accounts; (ii) accounts receivable, including, without limitation, all
rights to payment created by or arising from sales of goods, leases of goods or
the rendition of services no matter how evidenced, whether or not earned by
performance; (iii) all unpaid seller's or lessor's rights including, without
limitation, rescission, replevin, reclamation and stoppage in transit, relating
to any of the foregoing after creation of the foregoing or arising therefrom;
(iv) all rights to any goods or merchandise represented by any of the foregoing,
including, without limitation, returned or repossessed goods; (v) all reserves
and credit balances with respect to any such accounts receivable or account
debtors; (vi) all letters of credit, security, or Guarantees for any of the
foregoing; (vii) all insurance policies or reports relating to any of the
foregoing; (viii) all collection of deposit accounts relating to any of the
foregoing; (ix) all proceeds of any of the foregoing; and (x) all books and
records relating to any of the foregoing.
"Redeemable Dividend" means, for any dividend with regard to Disqualified
Stock and Preferred Stock, the quotient of the dividend divided by the
difference between one and the maximum statutory federal income tax rate
(expressed as a decimal number between 1 and 0) then applicable to the issuer of
such Disqualified Stock or Preferred Stock.
"Registration Rights Agreement" means the Registration Rights Agreement
between the Company and the Initial Purchasers.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment Credit" means the sum of (i) any cash received by the
Company as repayment of a Restricted Payment and (ii) the lesser of (x) the net
book value of any Restricted Investment at the time it becomes a Permitted
Investment, (y) the fair market value of such Restricted Investment at the time
it becomes a Permitted Investment and (z) the original fair market value of such
Restricted Investment at the time it was made.
"Restricted Subsidiary" means any subsidiary of the Company that is not
designated by the Board of Directors as an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which any property (other than
Capital Stock) is sold by such Person or a Subsidiary, or, in the case of the
Company, a Restricted Subsidiary of such Person and is thereafter leased back
from the purchaser or transferee thereof by such Person or one of its
Subsidiaries or, in the case of the Company, one of its Restricted Subsidiaries.
"Security Agreement" means the Security Agreement, dated as of the date of
the Indenture, by and between the Company and the Trustee, as collateral agent.
"Security Documents" means the Security Agreement and any other agreements,
instruments or documents entered into or delivered in connection with the
Security Agreement, as such agreements, instruments or documents may from time
to time be amended in accordance with their terms.
"Senior Indebtedness" means any Indebtedness permitted to be incurred by
the Company under the terms of the Indenture, unless the instrument under which
such Indebtedness is incurred expressly provides that it is subordinated in
right of payment to the Notes. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness will not include (i) any liability for federal,
state, local or other taxes owed or owing by the Company, (ii) any Indebtedness
of the Company to any of its Subsidiaries or other Affiliates, (iii) any trade
payables or (iv) any Indebtedness that is incurred in violation of the
Indenture.
"Significant Subsidiary" means (i) any Restricted Subsidiary that would be
a "Significant Subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof and (ii) any Subsidiary which holds any permit or license which
is material to the operations of the Company and its Restricted Subsidiaries
taken as a whole.
"Subsidiary" of any Person means (i) any corporation, association or
business entity of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or
79
<PAGE> 85
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of such Person or a combination thereof and (ii) any partnership
(a) the sole general partner or the managing general partner of which is such
Person or a Subsidiary of such Person or (b) the only general partners of which
are such Person or one or more Subsidiaries of such Person or any combination
thereof.
"Telecommunications Business" means, when used in reference to any Person,
that such Person is engaged primarily in the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data through
owned or leased transmission facilities and (ii) creating, developing or
marketing communications related network equipment, software and other devices
for use in a Telecommunications Business.
"Telecommunications Equipment" means telecommunications switches and
related equipment and inventory, including, without limitation, all remote
switching nodes, modems, line cards, transport hardware and equipment or
hardware necessary to install and operate the telecommunications switches.
"Telecommunications Related Assets" means all assets, rights (contractual
or otherwise) and properties, whether tangible or intangible, real or personal,
used or to be used, in connection with a Telecommunications Business.
"Total Common Equity" of any Person means, as of any date of determination
the product of (i) the aggregate number of outstanding primary shares of Common
Stock of such Person on such day (which shall not include any options or
warrants on, or securities convertible or exchangeable into, shares of Common
Stock of such Person) and (ii) the average Closing Price of such Common Stock
over the 20 consecutive Trading Days immediately preceding such day. If no such
Closing Price exists with respect to shares of any such class, the value of such
shares for purposes of clause (ii) of the preceding sentence shall be determined
by the Board of Directors of the Company in good faith and evidenced by a
resolution of the Board of Directors filed with the Trustee.
"Trading Day," with respect to a securities exchange or automated quotation
system, means a day on which such exchange or system is open for a full day of
trading.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a resolution of the
Board of Directors.
"Vendor Indebtedness" means any Indebtedness of the Company or any
Restricted Subsidiary incurred in connection with the acquisition or
construction of Telecommunications Related Assets.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or Persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
principal amount of such Indebtedness into (b) the total of the product obtained
by multiplying (x) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including payment at
final maturity, in respect thereof, by (y) the number of years (calculated to
the nearest one-twelfth) that will elapse between such date and the making of
such payment; provided, that with respect to Capital Lease Obligations, that
maturity shall be calculated after giving effect to all renewal options by the
lessee.
80
<PAGE> 86
UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE EXCHANGE OF NOTES
The following summary of all material federal income tax consequences of
the exchange of Notes is based on the opinion of Ellis, Funk, Goldberg, Labovitz
& Dokson, P.C., counsel to the Company, which opinion has been filed as an
exhibit to the Registration Statement. Such opinion is based upon the provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), the final,
temporary and proposed regulations promulgated thereunder, and administrative
rulings and judicial decisions in effect as of the date hereof, all of which are
subject to change (possibly with retroactive effect) or different
interpretations. The following summary is not binding on the Internal Revenue
Service ("IRS") and there can be no assurance that the IRS will take a similar
view with respect to the tax consequences described below. No ruling has been or
will be requested by the Company from the IRS on any tax matters relating to the
Notes or the Exchange Offer. This discussion is for general information only and
does not purport to address the possible federal income tax consequences or any
state, local or foreign tax consequences of the acquisition, ownership and
disposition of the Notes or the Exchange Notes other than the exchange of
Outstanding Notes for Exchange Notes in this Exchange Offer.
This summary deals only with holders that hold Notes as capital assets and
does not address tax considerations applicable to investors that may be subject
to special tax rules, such as banks, tax exempt organizations, insurance
companies, dealers in securities or currencies, persons that hold Notes as a
position in a "straddle" for tax purposes, persons that hold Notes that are a
hedge or that are hedged against currency risks or that are part of a conversion
transaction, or persons that have a "functional currency" other than the U.S.
dollar. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
APPLICATION OF THE FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR
SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE,
LOCAL OR FOREIGN TAXING JURISDICTION.
The exchange of the Outstanding Notes for Exchange Notes pursuant to the
Exchange Offer should not be treated as an "exchange" because the Exchange Notes
should not be considered to differ materially in kind or extent from the
Outstanding Notes. Rather, the Exchange Notes received by a holder of the
Outstanding Notes should be treated as a continuation of the Outstanding Notes
in the hands of such holder. As a result, there should be no federal income tax
consequences to holders exchanging the Outstanding Notes for the Exchange Notes
pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Based on positions taken by the staff of the Commission set forth in
no-action letters issued to Exxon Capital Holdings Corp. and Morgan Stanley &
Co. Inc., among others, the Company believes that Exchange Notes issued pursuant
to the Exchange Offer in exchange for Outstanding Notes may be offered for
resale, resold and otherwise transferred by holders thereof (other than any
holder which is (i) an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act, (ii) a broker-dealer who acquired Notes directly from
the Company, or (iii) broker-dealers who acquired Notes as a result of
market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions for the Securities Act provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business, and such holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of such Exchange Notes; provided that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer
will be subject to a prospectus delivery requirement with respect to resales of
such Exchange Notes. To date, the staff of the Commission has taken the position
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to transactions involving an exchange of securities
such as the exchange pursuant to the Exchange Offer (other than a resale of an
unsold allotment from the sale of the Outstanding Notes to the Initial
Purchasers thereof) with the Prospectus contained in the Exchange Offer
Registration Statement. Pursuant to the Registration Rights Agreement, the
Company has agreed to permit Participating Broker-Dealers and other persons, if
any, subject to similar prospectus delivery requirements to use this Prospectus
in
81
<PAGE> 87
connection with the resale of such Exchange Notes. The Company has agreed that,
for a period of 365 days after the effective date of the Registration Statement,
it will make this Prospectus, and any amendment or supplement to this
Prospectus, available to any broker-dealer that requests such documents.
Each holder of Outstanding Notes who wishes to exchange its Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company as set forth in "The Exchange Offer -- Terms and
Conditions of the Letter of Transmittal." In addition, each holder who is a
broker-dealer and who receives Exchange Notes for its own account in exchange
for Outstanding Notes that were acquired by it as a result of market-making
activities or other trading activities, will be required to acknowledge that it
will deliver a prospectus in connection with any resale by it of such Exchange
Notes.
Holders who tender Outstanding Notes in the Exchange Offer with the
intention to participate in a distribution of the Exchange Notes may not rely
upon the Morgan Stanley or similar no-action letters.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such Exchange Notes. 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.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Outstanding Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act, as
set forth in the Registration Rights Agreement.
LEGAL MATTERS
Certain legal matters regarding the validity of the Exchange Notes offered
hereby and the United States federal income tax consequences of the Exchange
Offer will be passed upon for the Company by Ellis, Funk, Goldberg, Labovitz &
Dokson, P.C., Atlanta, Georgia. Certain shareholders of Ellis, Funk, Goldberg,
Labovitz & Dokson, P.C. own approximately 60,000 shares of common stock of the
Company.
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1995
and for the year ended December 31, 1996, have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
82
<PAGE> 88
INDEX TO FINANCIAL STATEMENTS
MGC COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of June 30, 1997 (unaudited) and December
31, 1996 and 1995......................................... F-3
Statements of Operations for the six months ended June 30,
1997 (unaudited), for the year ended December 31, 1996,
and for the period from October 16, 1995 (inception) to
June 30, 1997 (unaudited)................................. F-4
Statements of Stockholders' Equity for the period from
October 16, 1995 (inception) to December 31, 1996 and for
the period from January 1, 1997 to June 30, 1997
(unaudited)............................................... F-5
Statements of Cash Flows for the six months ended June 30,
1997 (unaudited), for the year ended December 31, 1996,
and for the period from October 16, 1995 (inception) to
June 30, 1997 (unaudited)................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 89
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MGC Communications, Inc.:
We have audited the accompanying balance sheets of MGC Communications, Inc.
(a development stage company) as of December 31, 1996 and 1995 (Note 1), and the
related statements of operations and cash flows for the year ended December 31,
1996 and the statement of stockholders' equity for the period October 16, 1995
(inception) through December 31, 1996. The 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 audits 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 MGC Communications, Inc. (a
development stage company) as of December 31, 1996 and 1995, and the results of
its operations and its cash flows for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Las Vegas, Nevada
August 18, 1997
F-2
<PAGE> 90
MGC COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1997 1996 1995
----------- ----------- ------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 7,859,638 $ 7,896,847 $ --
Amounts receivable for shares issued (note 4)........... 20,000 1,153,589 --
Accounts receivable:
Trade, less allowance for doubtful accounts of
$43,062 (unaudited) at June 30, 1997............... 265,285 314 --
Other................................................ 166,187 9,143 --
----------- ----------- ------
Total accounts receivable....................... 431,472 9,457 --
Other current assets.................................... 38,743 23,175 --
----------- ----------- ------
Total current assets............................ 8,349,853 9,083,068 --
Property and equipment, net (note 3)...................... 9,802,406 3,249,786 --
Other assets (note 4)..................................... 31,921 5,678 1,000
----------- ----------- ------
Total assets.................................... $18,184,180 $12,338,532 $1,000
=========== =========== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade................................................ $ 788,732 $ 76,267 $ --
Property and equipment............................... 4,743,476 1,371,798 --
Accrued expenses:
Payroll and related expenses......................... 231,331 98,549 --
Other................................................ 63,577 276 --
----------- ----------- ------
Total current liabilities....................... 5,827,116 1,546,890 --
----------- ----------- ------
Commitments and contingencies (notes 5, 7 and 8)
Stockholders' equity (note 4):
Common stock, $0.001 par value, 25,000,000 shares
authorized, 14,141,000 (unaudited), 11,960,000, and
400,000 shares issued and outstanding................ 14,141 11,960 400
Paid-in capital in excess of par value.................. 16,630,859 12,271,040 600
Deficit accumulated during the development stage........ (4,287,936) (1,491,358) --
----------- ----------- ------
Total stockholders' equity...................... 12,357,064 10,791,642 1,000
----------- ----------- ------
Total liabilities and stockholders' equity...... $18,184,180 $12,338,532 $1,000
=========== =========== ======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 91
MGC COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
SIX OCTOBER 16,
MONTHS ENDED YEAR ENDED 1995
JUNE 30, DECEMBER 31, (INCEPTION) TO
1997 1996 JUNE 30, 1997
------------ ------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Telecommunication services:
Operating revenues.................................... $863,676.... $ 751 $ 864,427
Cost of operating revenues (excluding depreciation
shown below)....................................... 1,360,005 304,936 1,664,941
----------- ----------- -----------
Gross profit (loss)........................... (496,329) (304,185) (800,514)
----------- ----------- -----------
Operating expenses:
Selling, general and administrative................... 2,154,422 841,060 2,995,482
Depreciation and amortization......................... 416,639 53,766 470,405
Write-off of purchased software (note 7).............. -- 355,469 355,469
----------- ----------- -----------
2,571,061.. 1,250,295 3,821,356
----------- ----------- -----------
Loss from operations.......................... (3,067,390) (1,554,480) (4,621,870)
Other income (expense):
Interest income....................................... 270,812 63,122 333,934
----------- ----------- -----------
Net loss...................................... $(2,796,578) $(1,491,358) $(4,287,936)
=========== =========== ===========
Net loss per share of common stock...................... $ (0.20) $ (1.27) $ (0.90)
=========== =========== ===========
Weighted average shares outstanding..................... 13,800,551 1,178,932 4,756,607
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 92
MGC COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM OCTOBER 16, 1995 (INCEPTION) TO DECEMBER 31, 1996
AND FOR THE PERIOD FROM JANUARY 1, 1997 TO JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK CAPITAL IN DURING THE TOTAL
PRICE PER -------------------- EXCESS OF DEVELOPMENT STOCKHOLDERS'
SHARE SHARES AMOUNT PAR VALUE STAGE EQUITY
--------- ---------- ------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 16, 1995
(inception) -- Issuance of common
stock for incorporation costs
contributed by stockholder (note
4)................................ 0.0025 400,000 $ 400 $ 600 $ -- $ 1,000
---------- ------- ----------- ----------- -----------
Balance at December 31, 1995........ 400,000 400 600 -- 1,000
Issuance of common stock for
services contributed by
stockholder (note 4).............. 0.0025 800,000 800 1,200 -- 2,000
Issuance of common stock for cash
(note 4).......................... 0.50 6,160,000 6,160 3,073,840 -- 3,080,000
Issuance of common stock for cash
(note 4).......................... 2.00 4,600,000 4,600 9,195,400 -- 9,200,000
Net loss............................ -- -- -- (1,491,358) (1,491,358)
---------- ------- ----------- ----------- -----------
Balance at December 31, 1996........ 11,960,000 11,960 12,271,040 (1,491,358) 10,791,642
Issuance of common stock for cash
(unaudited) (note 4).............. 2.00 2,181,000 2,181 4,359,819 -- 4,362,000
Net loss (unaudited)................ -- -- -- (2,796,578) (2,796,578)
---------- ------- ----------- ----------- -----------
Balance at June 30, 1997
(unaudited)....................... 14,141,000 $14,141 $16,630,859 $(4,287,936) $12,357,064
========== ======= =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 93
MGC COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS OCTOBER 16,
ENDED YEAR ENDED 1995
JUNE 30, DECEMBER 31, (INCEPTION) TO
1997 1996 JUNE 30, 1997
----------- ------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(2,796,578) $(1,491,358) $(4,287,936)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization...................... 416,639 53,766 470,405
Provision for doubtful accounts.................... 161,650 -- 161,650
Write-off of purchased software.................... -- 355,469 355,469
Stock issued for services rendered................. -- 2,000 2,000
Changes in assets and liabilities:
Increase in accounts receivable.................. (583,665) (9,457) (593,122)
Increase in other current assets................. (15,568) (23,175) (38,743)
Increase in other assets......................... (26,343) (4,878) (31,221)
Increase in accounts payable -- trade............ 712,465 76,267 788,732
Increase in accrued expenses..................... 196,083 98,825 294,908
----------- ----------- -----------
Net cash used in operating activities......... (1,935,317) (942,541) (2,877,858)
Cash flows from investing activities:
Purchase of property and equipment.................... (3,597,481) (2,287,023) (5,884,504)
Cash flows from financing activities:
Proceeds from issuance of common stock................ 5,495,589 11,126,411 16,622,000
----------- ----------- -----------
Net (decrease) increase in cash............... (37,209) 7,896,847 7,859,638
Cash and cash equivalents at beginning of period........ 7,896,847 -- --
----------- ----------- -----------
Cash and cash equivalents at the end of period.......... $ 7,859,638 $ 7,896,847 $ 7,859,638
=========== =========== ===========
Non-cash transactions:
Stock issued for services rendered.................... $ -- $ 2,000 $ 2,000
=========== =========== ===========
Stock issued for incorporation costs contributed by
stockholder on October 16, 1995.................... $ -- $ -- $ 1,000
=========== =========== ===========
Increase in property and equipment purchases included
in accounts payable -- property and equipment...... $ 3,371,678 $ 1,371,798 $ 4,743,476
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 94
MGC COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 AND
DECEMBER 31, 1996 AND 1995
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED.)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
DESCRIPTION OF BUSINESS
MGC Communications, Inc. (the Company), a Nevada Corporation, was organized
on October 16, 1995 as a competitive local exchange carrier to provide low cost
alternative local telecommunication services to residential and small business
users through the utilization of Company owned switches and network architecture
leased from incumbent local exchange carriers. The Company's revenue operations
commenced in December 1996.
PERIOD FROM OCTOBER 16, 1995 (INCEPTION) TO DECEMBER 31, 1995
Statements of operations and cash flows for the period from October 16,
1995 (inception) to December 31, 1995 have been omitted as no revenues or
expenses were recognized and no cash transactions occurred during the period.
One non-cash transaction occurred during the period ended December 31, 1995 in
which the Company issued 400,000 shares of $.001 par value common stock valued
at $.0025 per share to the founding shareholder as reimbursement for
incorporation costs.
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial statements as of June 30, 1997 and for the six months ended
June 30, 1997 are unaudited, but include all adjustments, consisting of normal
recurring adjustments, which management considers necessary for a fair
presentation.
REVENUE RECOGNITION
The Company recognizes operating revenues from telecommunication services
in the period the related services are provided.
COST OF OPERATING REVENUES
The Company includes all direct and indirect costs in cost of operating
revenues except depreciation which is reported separately on the statement of
operations.
CASH AND CASH EQUIVALENTS
The Company considers short-term investments with a remaining maturity of
three months or less at the date of purchase to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful
life of the asset, which is generally 3-7 years.
The costs of major remodeling and improvements on leased offices are
capitalized as leasehold improvements. Leasehold improvements are depreciated on
the straight-line method over the shorter of the life of the applicable lease or
the useful life of the asset.
F-7
<PAGE> 95
MGC COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997 AND
DECEMBER 31, 1996 AND 1995
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED.)
INCOME TAXES
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109), whereby deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
LOSS PER SHARE
Loss per share is computed by dividing net loss by the weighted average
number of common shares outstanding. Usually equivalent shares in the form of
stock options or other common stock equivalents are included in the calculation
only when the effects are dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 Disclosure About Fair
Value of Financial Instruments (SFAS 107) requires all entities to disclose the
fair value of financial instruments, both assets and liabilities recognized and
not recognized on the balance sheet, for which it is practicable to estimate
fair value. SFAS 107 defines fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current transaction between
willing parties. At June 30, 1997 (unaudited) and December 31, 1996, the
carrying value of all financial instruments (accounts receivable, accrued
expenses and accounts payable) approximates fair value due to the short term
nature of the instruments.
LONG-LIVED ASSETS
As required by Statement of Financial Accounting Standards No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of (SFAS 121), management evaluates the carrying value of all
long-lived assets to determine recoverability based generally on an analysis of
non-discounted cash flows. Management believes no material impairment in the
value of long-lived assets exists at June 30, 1997 (unaudited) or December 31,
1996.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
128), which establishes standards for computing and presenting earnings per
share (EPS). It replaces the presentation of primary and fully diluted EPS with
a presentation of basic and diluted EPS. SFAS 128 is effective for financial
statements for both interim and annual periods ending after December 15, 1997.
Earlier application is not permitted. After adoption, all prior period EPS data
should be restated to conform to SFAS 128.
The Company will adopt SFAS 128 in the fourth quarter of 1997. The pro
forma impact of SFAS 128, on the six months ended June 30, 1997 and the year
ended December 31, 1996, is that basic and diluted EPS would have been equal to
net loss per share of common stock as presented in the respective statements of
operations.
F-8
<PAGE> 96
MGC COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997 AND
DECEMBER 31, 1996 AND 1995
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED.)
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, Disclosure of Information about Capital Structure (SFAS 129).
SFAS 129 establishes standards for disclosing information about an entity's
capital structure. The Company currently complies with the disclosure
requirements of this statement which is effective for periods ending after
December 15, 1997. Implementation will not impact the Company's financial
presentation of its capital structure.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income (SFAS 130). SFAS 130 requires companies
to classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
sections of a statement of financial position, and is effective for financial
statements issued for fiscal years beginning after December 15, 1997. The
Company is currently assessing the impact on the financial statements for the
six months ended June 30, 1997 (unaudited) and for the year ended December 31,
1996, and believes that SFAS 130 will not result in comprehensive income
different from net income as reported in the accompanying financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosure About Segments of an Enterprise and Related Information
(SFAS 131). SFAS 131 establishes additional standards for segment reporting in
financial statements and is effective for fiscal years beginning after December
15, 1997. The Company currently operates as one segment.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(2) DEVELOPMENT STAGE COMPANY AND PLAN OF OPERATIONS
The Company is a development stage company wherein the Company's activities
consist primarily of acquiring telecommunications equipment, designing and
developing the Company's networks, negotiating agreements with incumbent local
exchange carriers for the utilization of their transport network architecture
and raising capital. The Company began its operations in December 1996 by
operating its first telephone switch in Las Vegas, Nevada. The Company plans to
be operational in an additional two, seven, and seven suburban metropolitan
areas by the end of 1997, 1998, and 1999, respectively. Expansion and
development of the Company's business and services and the development of new
markets require significant capital expenditures. The Company expects to fund
its capital requirements through existing resources, debt or equity financing
and internally generated funds.
To the extent the Company is unable to achieve its funding plan, management
has contingency plans which include curtailing capital expenditure activities,
reducing infrastructure costs associated with expansion and development plans,
achieving profitable operations as soon as practicable and raising additional
capital from certain of the existing majority shareholders as may be necessary.
F-9
<PAGE> 97
MGC COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997 AND
DECEMBER 31, 1996 AND 1995
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED.)
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
(UNAUDITED)
<S> <C> <C>
Switching equipment........................................ $6,207,248 $2,812,531
Leasehold improvements..................................... 444,779 429,247
Computer hardware and software............................. 456,268 51,418
Office equipment........................................... 24,365 --
---------- ----------
7,132,660 3,293,196
Less accumulated depreciation.............................. (459,949) (43,410)
---------- ----------
6,672,711 3,249,786
Switching equipment under construction..................... 3,129,695 --
---------- ----------
Net property and equipment....................... $9,802,406 $3,249,786
========== ==========
</TABLE>
(4) COMMON STOCK
On December 6, 1996, the Board of Directors approved a four-hundred-for-one
stock split, effected in the form of a stock dividend distributed on December
31, 1996 to shareholders of record as of June 8, 1996. All share and per share
data presented in the financial statements and notes thereto have been
retroactively restated to give effect to this stock split.
During 1995, in exchange for expending cash to incorporate the Company, a
shareholder received 400,000 shares of $.001 par value common stock valued at
$.0025 per share. The Company capitalized the value of the issued shares as
organization costs included in other assets in the accompanying financial
statements, which costs are being amortized over 60 months using the
straight-line method of accounting.
In April 1996, the Company issued 800,000 shares of $.001 par value common
stock valued at $.0025 per share in exchange for services rendered by a
stockholder.
During 1996, NevTEL LLC (the "LLC") was formed for the purpose of funding
the development stage of MGC Communications, Inc. In June 1996, the Company and
LLC entered into an agreement whereby LLC would acquire 6,160,000 shares of
$.001 par value common stock of the Company for $.50 per share. The agreement
called for LLC to advance funds for operational expenses incurred by the Company
(to be applied against the purchase price of the stock) until the Company
produced operating revenues, at which time the remaining purchase price would be
remitted to the Company, the Company's common stock would be issued to LLC
owners and LLC would terminate. The agreement stipulated that the funds advanced
for operational expenses were to be paid back to LLC if the Company did not
generate operating revenue by December 31, 1996. The Company began revenue
generating activities in December 1996. The shares were issued to LLC owners on
December 31, 1996, at which time LLC terminated and the remaining purchase price
was owed to the Company. Such amount was transferred to the Company in February
1997 and is classified as amounts receivable for shares issued at December 31,
1996.
In December 1996, the Company offered 6,781,000 shares of $.001 par value
common stock at $2.00 per share through private placement. In connection with
this offering, the Company issued 2,181,000 (unaudited)
F-10
<PAGE> 98
MGC COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997 AND
DECEMBER 31, 1996 AND 1995
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED.)
shares and 4,600,000 shares of $.001 par value common stock and received
proceeds of $4,342,000 (unaudited) and $9,200,000 during the six months ended
June 30, 1997 and the year ended December 31, 1996, respectively. The remaining
$20,000 of proceeds was received subsequent to June 30, 1997 (unaudited).
In June 1997, the Company approved agreements with two key members of
management granting them rights, expiring September 30, 1997, to purchase a
total of 250,000 shares at $2.00 per share and 275,000 shares, at $2.50 per
share. In both cases, the Company retains the right to repurchase these shares
at their cost in the event of termination prior to certain dates and has agreed
to finance the purchase price of the shares purchasable at $2.50 per share over
a period of three years.
(5) STOCK OPTION PLAN
In June 1996, the Company adopted a stock option plan which allows the
Board of Directors, through the Stock Option Committee, to grant incentives to
employees in the form of incentive stock options and non-qualified stock
options. As of June 30, 1997 (unaudited) and December 31, 1996, the Company has
reserved 2,400,000 shares of common stock to be issued under the plan.
Under the plan, substantially all options have been granted to employees at
a price exceeding the then-current market price, as estimated by management, and
vest primarily over a 5-year period. All options expire within ten years of the
date of grant.
Stock option transactions during 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1995............................ -- --
Granted..................................................... 1,353,100 $0.81
Canceled.................................................... (50,000) $1.00
---------
Outstanding at December 31, 1996............................ 1,303,100 $0.81
Granted (unaudited)......................................... 319,000 $3.93
Canceled (unaudited)........................................ (2,000) $3.25
---------
Outstanding at June 30, 1997 (unaudited).................... 1,620,100 $1.42
=========
Exercisable at December 31, 1996............................ 19,600 $2.00
=========
Exercisable at June 30, 1997 (unaudited).................... 211,600 $0.76
=========
</TABLE>
The weighted average fair value of each of the options issued during the
year ended December 31, 1996, substantially all of which have been granted at a
price exceeding the then current market price as estimated by management, was
estimated to be $0.55 using an option pricing model with the following
assumptions: dividend yield of 0%; expected option life of 6.5 years; and risk
free interest rate of 6.12%.
F-11
<PAGE> 99
MGC COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997 AND
DECEMBER 31, 1996 AND 1995
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED.)
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICE 1996 LIFE PRICE 1996 PRICE
- ----------- -------------- ----------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$0.50 700,000 9.25 years $0.50 -- N/A
$1.00 503,500 9.60 years $1.00 -- N/A
$2.00 99,600 9.92 years $2.00 19,600 $2.00
--------- ------
$0.50-$2.00 1,303,100 9.44 years $0.81 19,600 $2.00
========= ======
</TABLE>
The Company applied Accounting Principles Board (APB) Opinion No. 25 in
accounting for its plan. No compensation expense was recognized for the six
months ended June 30, 1997 (unaudited) and for the year ended December 31, 1996.
Had the Company determined compensation cost based on the minimum value method
under SFAS 123, the Company's net loss for the year ended December 31, 1996
would have increased by approximately $10,000.
(6) INCOME TAXES
The Company has incurred net operating losses for both financial reporting
and income tax purposes since inception. As of June 30, 1997 and December 31,
1996, the Company has net operating loss carryforwards for income tax reporting
purposes totaling approximately $4,215,840 (unaudited) and $787,906,
respectively. The deferred tax asset arising from such net operating loss
carryforward and temporary differences aggregates approximately $1,498,819
(unaudited) and $521,621 at June 30, 1997 and December 31, 1996, respectively. A
valuation allowance is provided for amounts of the deferred tax asset for which
it cannot be concluded that future realization is more likely than not. Inasmuch
as the Company has not achieved profitable operations, a valuation allowance has
been provided for 100% of such deferred tax asset.
(7) COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
During the year ended December 31, 1996, the Company entered into a lease
agreement for its offices and switching facility in Las Vegas. During the six
months ended June 30, 1997, the Company entered into lease agreements for
additional offices in Las Vegas and its offices and switching facility in
Atlanta. Minimum
F-12
<PAGE> 100
MGC COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997 AND
DECEMBER 31, 1996 AND 1995
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED.)
future obligations on the leases in effect as of June 30, 1997 (unaudited) and
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
LEASES IN EFFECT AS OF:
--------------------------
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
(UNAUDITED)
<S> <C> <C>
Payments during the year ending December 31:
1997..................................................... $ 149,865 $ 67,146
1998..................................................... 147,285 69,156
1999..................................................... 151,704 71,226
2000..................................................... 156,255 73,362
2001..................................................... 122,596 37,224
Thereafter............................................... 517,032 --
---------- --------
$1,244,737 $318,114
========== ========
</TABLE>
Rent expense was $52,665 (unaudited) and $33,078 for the six-months ended
June 30, 1997 and the year ended December 31, 1996, respectively.
LAWSUITS
During 1996, the Company entered into an agreement to purchase software and
hardware for a total purchase price of approximately $465,000 plus access line,
installation and training charges. As of December 31, 1996, the Company had made
payments of approximately $365,000 pursuant to the contract. Subsequent to
entering into the agreement, the Company discovered fundamental inadequacies of
the system and determined the asset to have no future value to the Company.
Accordingly, the asset was written down to zero.
In February 1997, the Company brought suit against the provider in federal
district court in Nevada requesting recission of the contract and seeking return
of amounts paid. The provider has counterclaimed that the Company still owes it
approximately $200,000 under the contract. The suit is currently in the
discovery phase. In the opinion of management, the ultimate disposition of this
matter will not have a material adverse effect on the Company's financial
position, results of operations, or liquidity.
PURCHASE COMMITMENTS
In May 1997, the Company signed an agreement to purchase 20 Northern
Telecom DMS-500 switches and related AccessNodes. As of June 30, 1997, the
Company had approximately $44,135,000 (unaudited) of remaining purchase
commitments for the purchase of switching equipment. The agreement provides for
Northern Telecom to hold a security interest in the equipment until the
equipment is paid for.
In May 1997, the Company entered into an agreement with a company, the
owner of which is a stockholder of the Company, for the purchase of certain
computer software pursuant to which the Company is required to pay the contract
price of $600,000 in six equal monthly installments beginning July 1, 1997. At
June 30, 1997, $280,000 is included in accounts payable for property and
equipment related to this agreement. Subsequent to entering into the agreement,
the stockholder became an officer of the Company.
F-13
<PAGE> 101
MGC COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997 AND
DECEMBER 31, 1996 AND 1995
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED.)
In June 1997, in connection with the switching facility in Atlanta, the
Company entered into an agreement for leasehold improvements of approximately
$298,000.
INTERCONNECTION AGREEMENTS
In September 1996, March 1997 and May 1997, the Company signed
interconnection agreements with Sprint for operations in Nevada, Bell South for
operations in Georgia, and GTE for operations in California, respectively. These
agreements expire from November 1998 to March 2000.
The Company is disputing certain bills from Sprint for resale services and
has not recorded disputed amounts aggregating approximately $148,000 (unaudited)
at June 30, 1997. Management believes the liability it has recorded for these
services is the probable outcome of this matter and that the resolution of this
matter will not have an adverse effect on the Company's financial position,
results of operations, or liquidity.
Certain rates per the Sprint interconnection agreement have been
established at the Federal Communications Commission (FCC) proxy rates and are
subject to adjustment upon final negotiations. The Company has recorded costs of
sales related to this agreement in amounts which are management's best estimates
of the probable outcome of the final negotiated rates, which are less than the
FCC proxy rates. The difference, which totals approximately $105,000 (unaudited)
at June 30, 1997, has not been recorded in the accompanying financial
statements. Management believes that the resolution of this matter will not have
an adverse effect on the Company's financial position, results of operations, or
liquidity.
(8) SUBSEQUENT EVENTS
In July 1997, the Company entered into an agreement to lease up to 24,125
square feet of additional space beginning in January 1998. This building will
house the Company's new corporate headquarters, national customer service
operations, national sales personnel, Las Vegas sales personnel, and general
administration. This building is owned by two of the Company's principal
stockholders and directors. Management believes the terms and conditions of this
agreement are equal to or better than the terms which would be available from an
unaffiliated lessor.
In July 1997, the Company purchased a building in Pomona, California for
approximately $260,000 to house the offices and switching facility to be located
there. In connection with this building, in July 1997, the Company entered into
an agreement for building improvements of approximately $250,000.
F-14
<PAGE> 102
ANNEX A
MGC COMMUNICATIONS, INC.
GLOSSARY
Access Charges -- The charges paid by an interexchange carrier to an
ILEC/CLEC for the origination or termination of the IXC's customer's long
distance calls.
Access Line -- A circuit that connects a telephone user (customer) to the
public switched telephone network. The access line usually connects to a
telephone at the customer's end.
Bell System -- The name given to the large, single entity that comprised
what are today AT&T and the RBOCs, including Bell Laboratories and other
subsidiaries.
CAP (Competitive Access Provider) -- A name for a category of local service
provider that appeared in the late 1980's, who competed with local telephone
companies by placing its own fiber optic cables in a city and sold various
private line telecommunications services in direct competition to the local
telephone company.
CAP/CLEC -- First appearing in the early 1980's, Competitive Access
Providers (CAPs) resulted from the original deregulation of the
telecommunications industry. CAPs control (either through contractual
arrangement or actual construction) fiber routes which serve as an alternative
means of access to long distance carriers. CAP facilities provide a "buy-pass"
to the traditional means of routing long distance traffic through the RBOC/ILEC.
With the passage of the Act, many CAPs are now also entering the competitive
local phone service arena.
Central Office (CO) -- The switching center and/or central circuit
termination facility of a local telephone company.
CLEC (Competitive Local Exchange Carrier) -- A category of telephone
service provider (carrier) that offers services similar to the former monopoly
local telephone company, as recently allowed by changes in telecommunications
law and regulation. A CLEC may also provide other types of telecommunications
services (long distance, etc.).
CLEC Certification -- Granted by a state public service commission or
public utility commission, this certification provides a telecommunications
services provider with the legal standing to offer local exchange telephone
services in direct competition with the incumbent LEC and other CLECs. Such
certifications are granted on a state by state basis.
COCOT -- Customer owned, coin operated telephone lines.
Communications Act of 1934 -- The first major federal legislation that
established rules for broadcast and non-broadcast communications, including both
wireless and wired telephone service.
FCC (Federal Communications Commission) -- The US Government organization
charged with the oversight of all public communications media.
Facilities-based -- A telecommunications provider that delivers its
services to the end-user via owned switches and leased (or owned) transport in
contrast to a reseller of an ILEC's services.
ILEC (Incumbent Local Exchange Carrier) -- The local exchange carrier that
was the monopoly carrier, prior to the opening of local exchange services to
competition.
ILEC Collocation -- A location serving as the interface point for a CLEC's
network interconnection to the ILEC. Collocation can be 1) physical, in which
the CLEC "builds" a fiber optic network extension into the ILEC central office,
or 2) virtual, in which the CLEC leases a facility, similar to that which it
might build, to affect a presence in the ILEC central office.
A-1
<PAGE> 103
Interconnection (co-carrier) Agreement -- A contract between an ILEC and a
CLEC for the interconnection of the two networks, for the purpose of mutual
passing of traffic between the networks, allowing customers of one of the
networks to call users served by the other network. These agreements set out the
financial and operational aspects of such interconnection.
Interexchange Services -- Telecommunications services that are provided
between two exchange areas, generally meaning between two cities, i.e. long
distance.
Interim Number Portability -- A temporary technique that allows local
exchange service customers of an ILEC to keep their existing telephone number,
while moving their service to a CLEC. The interim technique uses a central
office feature called remote call forwarding. The permanent solution to number
portability is to be implemented over the next few years.
IXC (Interexchange Carrier) -- A provider of telecommunications services
that extend between exchanges or cities.
LATA (Local Access and Transport Area) -- A geographic area inside of which
an ILEC can offer switched telecommunications services, even long distance
(known as local toll). There are 161 LATAs in the continental US. The LATA
boundaries were established at the Divestiture of the RBOCs.
Local Exchange -- An area inside of which telephone calls are generally
completed without any toll, or long distance charges. Local exchange areas are
defined by the state regulator of telephone services.
Local Exchange Services -- Telephone services that are provided within a
local exchange. These usually refer to local calling services (dial tone
services.) Business local exchange services include Centrex, access lines and
trunks and COCOT.
POP (Point of Presence) -- A location where a carrier, usually an IXC, has
located transmission and terminating equipment to connect its network to the
networks of other carriers or to customers.
RBOC (Regional Bell Operating Company) -- One of the ILECs created by the
Divestiture of the local exchange business by AT&T. These include BellSouth,
NYNEX, Bell Atlantic, Ameritech, US West, SBC and PacBell.
Tier I Markets -- Major metropolitan areas of the United States, with a
minimum population of one million people.
Tier II Sectors -- The suburban areas surrounding the core urban areas of
Tier I Markets.
A-2
<PAGE> 104
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation of the Registrant provide that directors of
the Registrant will not be personally liable for monetary damages to the
Registrant for certain breaches of their fiduciary duty as directors to the
fullest extent allowable by Nevada law. Under current Nevada law, directors
would remain liable for: (i) acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law, and (ii) approval of certain
illegal dividends or redemptions. In appropriate circumstances, equitable
remedies or nonmonetary relief, such as an injunction, will remain available to
a stockholder seeking redress from any such violation. In addition, the
provision applies only to claims against a director arising out of his role as a
director and not in any other capacity (such as an officer or employee of the
Registrant).
The Registrant also has the obligation, pursuant to such Registrant's
By-laws, to indemnify any director or officer of the Registrant for all expenses
incurred by them in connection with any legal action brought or threatened
against such person for or on account of any action or omission alleged to have
been committed while acting in the course and scope of the person's duties, if
the person acted in good faith and in a manner which the person reasonably
believed to be in or not opposed to the best interests of the Registrant, and
with respect to criminal actions, had no reasonable cause to believe the
person's conduct was unlawful, provided that such indemnification is made
pursuant to then existing provisions of Nevada General Corporation Law at the
time of any such indemnification.
The Registration Rights Agreement filed as Exhibit 4.2 hereto contains
certain provisions pursuant to which certain officers, directors and controlling
persons of the Company may be entitled to be indemnified by the Initial
Purchasers and other holders of Notes.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration
Statement:
<TABLE>
<S> <C> <S>
3.1 -- Articles of Incorporation of the Registrant, as amended.
3.2 -- Bylaws of the Registrant.
4.1 -- Indenture dated as of September 29, 1997, between the
Company and Marine Midland Bank, as Trustee.
4.2 -- Registration Rights Agreement dated as of September 29, 1997
among the Company, Bear, Stearns & Co., Inc. and Furman Selz
LLC.
4.3 -- Security Agreement dated as of September 29, 1997, between
the Company and Marine Midland Bank.
4.4 -- Collateral Pledge and Security Agreement dated as of
September 29, 1997, between the Company and Marine Midland
Bank.
4.5 -- Form of Note (included in Exhibit 4.1).
5.1 -- Opinion of Ellis, Funk, Goldberg, Labovitz & Dokson, P.C.*
8.1 -- Tax Opinion of Ellis, Funk, Goldberg, Labovitz & Dokson,
P.C.*
10.1 -- Network Products Purchase Agreement dated May 21, 1997,
between the Company and Northern Telecom, Inc.*
10.2 -- Employment/Stock Repurchase Agreement dated as of June 1996
between the Company and Nield J. Montgomery, as amended as
of September 1, 1997.
10.3 -- Employment and Stock Repurchase Agreement dated May 28,
1997, between the Company and John Boersma.
10.4 -- Stock Purchase Agreement dated August 29, 1997, between the
Company and Mitchell Allee.
10.5 -- Stock Option Plan.
</TABLE>
II-1
<PAGE> 105
10.6 -- Purchase Agreement dated September 24, 1997, among the
Company, Bear, Stearns & Co. Inc. and Furman Selz LLC.
10.7 -- Warrant Agreement dated September 29, 1997, between the
Company and Marine Midland Bank.
10.8 -- Warrant Registration Rights Agreement dated as of September
29, 1997, among the Company, Bear, Stearns & Co. Inc. and
Furman Selz LLC.
10.9 -- Private Placement Bank Escrow Agreement dated September 1997
among the Company, Bear, Stearns & Co. Inc. and certain
investors identified therein.
10.10 -- Standard Office Lease Agreement dated July 1, 1997, between
the Company and Cheyenne Investments L.L.C.
12.1 -- Computation of ratio of earnings to fixed charges.
23.1 -- Consent of Ellis, Funk, Goldberg, Labovitz & Dokson, P.C.
(included in Exhibits 5.1 and 8.1)
23.2 -- Consent of KPMG Peat Marwick LLP.
24.1 -- Powers of Attorney (included on signature page).
25.1 -- Statement of Eligibility of Trustee.
27.1 -- Financial Data Schedule (for SEC use only).
99.1 -- Form of Transmittal Letter.*
99.2 -- Form of Notice of Guaranteed Delivery.*
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedule
The following Financial Statement Schedule is filed as part of the
Registration Statement.
Schedule II -- Valuation and Qualifying Accounts.
All other financial statement schedules have been omitted because the
required information is not present or not present in amounts to require
submission of the schedules, or because the information required is included in
the financial statements.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) (i) The undersigned Registrant hereby undertakes:
(A) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(1) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(2) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(3) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(B) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-2
<PAGE> 106
(C) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unissued at the
termination of the offering.
(ii) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
Company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 107
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada on the 28th day of October, 1997.
MGC COMMUNICATIONS, INC.
By: /s/ NIELD J. MONTGOMERY
------------------------------------
Nield J. Montgomery
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints MAURICE J. GALLAGHER, JR. and NIELD J.
MONTGOMERY, and either of them (with full power in each to act alone), his true
and lawful attorneys-in-fact, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada on the 28th day of October, 1997.
<TABLE>
<C> <S>
/s/ NIELD J. MONTGOMERY President (principal executive officer) and Director
- -----------------------------------------------------
Nield J. Montgomery
/s/ MAURICE J. GALLAGHER, JR. Chairman of the Board and Director
- -----------------------------------------------------
Maurice J. Gallagher, Jr.
/s/ LINDA M. SUNBURY Vice President -- Administration
- ----------------------------------------------------- (principal financial and accounting officer)
Linda M. Sunbury
/s/ TIMOTHY P. FLYNN Director
- -----------------------------------------------------
Timothy P. Flynn
Director
- -----------------------------------------------------
Jack L. Hancock
</TABLE>
II-4
<PAGE> 108
MGC COMMUNICATIONS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
SIX MONTHS ENDED JUNE 30, 1997 AND THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Balance Charged Deductions Balance
at beginning to Costs Other from at end
of period and Expenses additions reserves of period
----------------------------------------------------------------------
(1)
<S> <C> <C> <C> <C> <C>
DEDUCTIONS FROM ASSETS
June 30, 1997
- -------------
Allowance for Doubtful Accounts 0 161,650 118,588 43,062
December 31, 1996
- -----------------
Allowance for Doubtful Accounts 0 0 0 0 0
</TABLE>
(1) Principally accounts written off.
S-1
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
NevTEL, INC.
The Undersigned natural person acting as the incorporator of a
corporation ("the Corporation") under the provisions of Chapter 78 of the
Nevada Revised Status, adopts the following Articles of Incorporation.
ARTICLE I
NAME
The name of the corporation is:
NevTEL, INC.
ARTICLE II
PERIOD OF DURATION
The period of duration of the corporation is perpetual.
ARTICLE III
PURPOSE
The purpose for which the corporation is organized is to engage in any
lawful activity.
ARTICLE IV
AUTHORIZED SHARES AND ASSESSMENT OF SHARES
Section 4.01. Authorized Shares. The aggregate number of shares the
corporation shall have authority to issue is 25,000 shares of capital stock
without par value.
Section 4.02. Assessment of Shares. The capitol stock of the
corporation, after the amount of the subscription price has been paid, shall
not be subject to pay debts of the corporation, and no capitol stock issues as
fully paid up shall ever be assessable or assessed.
<PAGE> 2
ARTICLE V
PRINCIPLE OFFICE AND INITIAL RESIDENT AGENT
Section 5.01. Principle office. The address of the principle office
of the corporation is 2972 Meade Avenue, Las Vegas, Nevada 89102.
Section 5.02 Initial Resident Agent. The name of the intitial
resident agent of the corporation, a resident of Nevada, whose business address
is at the above address, is Neild J. Montgomery.
ARTICLE VI
DATA RESPECTING DIRECTORS
Section 6.01 Style of Governing Board. The members of the governing
board of the corporation shall be styled Directors.
Section 6.02 Initial Board of Directors. The initial Board of
Directors shall consist of two (2) members, who need not be residents of the
State of Nevada or shareholders of the corporation.
Section 6.03 Name and Addresses. The names and post office addresses
of the persons who are to serve as directors until their successors shall have
been elected and qualified, follow:
Neild J. Montgomery 9975 Parvin Street
Las Vegas, Nevada 89123
Linda L. Montgomery 9975 Parvin Street
Las Vegas, Nevada 89123
Section 6.04 Increase or Decrease of Directors. The number of
Directors of the corporation may be increased or decreased from time to time as
shall be provided in the Code of By-Laws of the corporation.
<PAGE> 3
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
No director or officer shall be liable to the Corporation or its
shareholders for damages for breach of fiduciary duty as a director of officer
except for acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law, or the payment of dividends in violdation of NRS
78.300. The Corporation shall indemnify any director or officer and for any
liability and legal expenses, including attorney fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him arising out
of his status or actions as a director or officer if he acted in good faith and
in a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and had no reasonable cause to believe his
conduct was unlawful. The personal liability of all directors and officers of
the Corporation to any person or entity shall be eliminated or limited to the
maximum extent allowed by Nevada statutes, and such directors and officers and
their heirs, executors and administrators shall be indemnified by the
Corporation to the maximum extent by Nevada statutes.
ARTICLE VIII
DATA RESPECTING INCORPORATOR
The name and post office address of the incorporator of the corporation
is as follows:
Nield J. Montgomery 9975 Parvin Street
Las Vegas, Nevada 89123
EXECUTED this 16th day of October, 1995
----
/s/ Nield J. Montgomery
-----------------------
NIELD J. MONTGOMERY
<PAGE> 4
STATE OF NEVADA )
) ss.
COUNTY OF CLARK )
I, the undersigned, a Notary Public dully commissioned to take
acknowledgments and administer oaths in the State of Nevada, do hereby certify
that on this day, personally appeared before me, Nield J. Montgomery, who,
being by me first duly sworn, declared that he is the incorporator referred to
in Article VIII of the Articles of Incorporation, and that he signed these
Articles of Incorporation and that statements contained therein are true.
WITNESS my hand and seal this 16th day of October, 1995.
----
/s/ Catherine J. Flannery
-------------------------
NOTARY PUBLIC
[SEAL]
<PAGE> 5
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock)
NevTEL, Inc.
- --------------------------------------------------------------------------------
Name of Corporation
We the undersigned Nield J. Montgomery and Linda L. Montgomery
------------------- -------------------
Secretary or Assistant
Secretary
of NevTEL, Inc. do hereby certify:
------------
Name of Corporation
That the Board of Directors of said corporation at a meeting duly
convened, held on the 18th day of November, 1996, adopted a resolution to amend
the original articles as follows:
1. Article I is hereby amended to read as follows:
ARTICLE I
The name of the corporation is:
MGC Communications, Inc.
2. Section 4.01 is hereby amended to read as follows:
Section 4.01. Authorized Shares. The total number of shares
which the Corporation is authorized to isssue is twenty-five
million (25,000,000) common shares; all of such shares having a
par value of one tenth of one cent ($.001) per share.
The number of shares of the corporation outstanding and entitled to
vote on amendment to the Articles of Incorporation is ____________; that the
said change(s) and amendment have been consented to and approved by a majority
vote of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
[SEAL] /s/ Nield J. Montgomery
------------------------------------
President or Vice President
/s/ Linda K. Montgomery
------------------------------------
Secretary or Assistant Secretary
State of Nevada
------
County of Clark
------
On November 18, 1996, personally appeared before me, a Notary Public,
Nield Montgomery and Linda Montgomery who acknowledged that they executed the
- -------------------------------------
Names of Persons Appearing and Signing Document
above instrument.
/s/ Patricia L. Reilly
-----------------------------------
Signature of Notary
<PAGE> 6
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock)
MGC COMMUNICATIONS, INC.
We the undersigned Nield J. Montgomery and Kent F. Heyman of MGC
Communications, Inc. do hereby certify:
That the Board of Directors of said corporation by unanimous consent
dated August 29, 1997, adopted a resolution to amend the Articles of
Incorporation as follows:
1. Section 4.01 is hereby amended to read as follows: The
authorized capital stock of the Corporation shall consist of
not more than 150,000,000 shares of stock which are divided
into classes and which have such designations, preferences,
limitations and relative rights as follows:
(i) 100,000,000 shares of common stock with a par value
of $.001 per share, designated as "Common Stock".
(ii) 50,000,000 shares of preferred stock of $.001 par
value, designated as "Preferred Stock". The Board of
Directors of the Corporation shall be authorized and
empowered to divide any or all shares of the
Preferred Stock into series and to fix and determine
the relative rights and preferences of the shares of
any series so established. Before any shares of
Preferred Stock of any particular series shall be
issued, the Board of Directors shall fix and
determine, and is hereby expressly empowered and
authorized to fix and determine, in the manner
provided by law, the following provisions of the
shares of such series:
(1) The distinctive designation of such series
and the number of shares which shall
constitute such series, which number may be
increased (except where otherwise provided
by the Board of Directors in creating such
series) or decreased (but not below the
number of shares thereof then outstanding)
from time to time by like action of the
Board of Directors;
(2) The annual rate of dividends, if any,
payable on shares of such series, whether
dividends shall be cumulative and the
conditions upon which and the date as of
which such dividends shall be accumulated on
all shares of such series;
(3) The time or times when and the price or
prices at which shares of such series shall
be redeemable, if at all, and the sinking
fund provisions, if any, for the purchase or
redemption of such shares;
(4) The amount payable on shares of such series
in the event of any liquidation, dissolution
or winding up of the affairs of the
Corporation;
(5) The rights, if any, of the holders of shares
of such series to convert such shares into,
or exchange such shares for, shares of
Common Stock or shares of any other series
of Preferred Stock and the terms and
conditions of such conversion or exchange;
and
<PAGE> 7
(6) Whether the shares of such series have
voting rights and the extent of such voting
rights, if any.
The number of shares of the Corporation outstanding and entitled to
vote on an amendment to the Articles of Incorporation is 14,141,000; that the
said changes and amendment have been consented to and approved by a majority
vote of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
MGC COMMUNICATIONS, INC.
By:
------------------------------
Nield J. Montgomery, President
Attest:
--------------------------
Kent F. Heyman, Secretary
State of Nevada )
) ss.
County of ____________ )
On August 29, 1997, personally appeared before me, a Notary Public,
Nield J. Montgomery and Kent F. Heyman who acknowledged that they executed the
above instrument.
----------------------------------
Notary Public
-2-
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
NEVTEL, INC.
ARTICLE ONE
OFFICES
Section 1.1 Registered Office and Agent. The corporation shall
maintain a registered office and shall have a registered agent whose business
office is identical with such registered office.
Section 1.2 Other Offices. The corporation may have offices at
such place or places, within or without the State of Nevada, as the Board of
Directors may, from time to time, appoint or as the business of the corporation
may require or make desirable.
ARTICLE TWO
CAPITAL STOCK
Section 2.1 Issuance and Notice. Certificates of each class of
stock shall be numbered consecutively in the order in which they are issued.
They shall be signed by the President and Secretary and the seal of the
corporation shall be affixed thereto. In an appropriate place in the corporate
records there shall be entered the name of the person owning the shares, the
number of shares and the date of issue. Certificates of stock exchanged or
returned shall be canceled and placed in the corporate records. Facsimile
signatures may be utilized in accordance with Section 2.2 of this Article.
Section 2.2 Transfer Agents and Registrars. The Board of
Directors of the corporation may appoint a transfer agent or agents and a
registrar or registrars of transfer (other than the corporation itself or an
employee thereof) for the issuance of shares of stock of the corporation and may
require that all stock certificates bear the signature of such transfer agent
and registrar. In the event a share certificate is authenticated by both the
transfer agent and registrar, any share certificate may be signed by the
facsimile of the signature of either or both of the President and Secretary
printed thereon. If the same is countersigned by the transfer agent and
registrar of the corporation, the certificates bearing the facsimile of the
signatures of the President and Secretary shall be valid in all respects as if
such person or persons were still in office even though such person or persons
shall have died or otherwise ceased to be officers.
Section 2.3 Transfer. Upon the surrender to the corporation or
to the transfer agent of the corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of assignment of authority to
transfer, it shall be the duty of the corporation to issue a certificate to the
person entitled thereto, to cancel the surrendered certificate and to record the
transaction upon its books.
<PAGE> 2
Section 2.4 Lost Certificates. Any person claiming a
certificate of stock to be lost or destroyed shall make an affidavit or
affirmation of that fact and shall, if the Board of Directors so requires,
comply with such other conditions applicable to the circumstances as the Board
of Directors may require, including the delivery of a bond of indemnity, in form
and with one or more sureties satisfactory to the Board of Directors, in at
least double the value of the stock represented by said certificates; whereupon
a new certificate may be issued of the same tenor and for the same number of
shares as the one alleged to be lost or destroyed.
Section 2.5 Shareholders of Record. The corporation shall be
entitled to recognize the exclusive right of a person registered on the books as
the owner of shares entitled to receive dividends or to vote as such owner and
shall not be bound to recognize any equitable or other claim to or interest in
such shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise expressly provided by law.
Section 2.6 Determining Shareholders of Record. The Board of
Directors shall have the power to close the stock transfer books of the
corporation for a period not exceeding sixty (60) days preceding the date of any
meeting of Shareholders or the date for payment of any dividend. Such date shall
serve as the record date for the determination of the Shareholders entitled to
notice of and to vote at such meeting or to receive payment of such dividend.
When a record date is so fixed, only Shareholders of record on that date shall
be entitled to notice of and to vote at the meeting or to receive payment of any
dividend, notwithstanding any transfer of any shares on the books of the
corporation after the record date.
Section 2.7 Voting. The holders of the common stock shall be
entitled to one vote for each share of stock standing in their name. The holders
of any class or series of preferred stock shall have the rights to vote
specified in the corporation's certificate of rights, preferences and privileges
filed in accordance with the laws of the State of Nevada.
Section 2.8 Statement of Rights of Holders of Stock. So long
as the corporation is authorized to issue more than one class of stock or more
than one series of any class, there shall be set forth on the face or back of
each certificate of stock, or the certificate shall have a statement that the
corporation will furnish to any Shareholder upon request and without charge, a
full or summary statement of the voting powers, designations, preferences,
limitations, restrictions and relative rights of the various classes of stock or
series thereof.
ARTICLE THREE
SHAREHOLDERS' MEETINGS
Section 3.1 Place of Meetings. All meetings of the
Shareholders shall be held at the registered office of the corporation or at
such other place, either within or without the State of Nevada, as the Board of
Directors may, from time to time, designate.
-2-
<PAGE> 3
Section 3.2 Annual Meeting. An annual meeting of the
Shareholders shall be held each year at such time and date between January 1 and
June 30 as shall be designated by the Board of Directors and stated in the
notice of the meeting. If an annual meeting has not been called and held by June
30 of any year, such meeting may be called by the holders of ten percent (10%)
or more of the voting power of the corporation outstanding and entitled to vote.
At such annual meeting, the Shareholders shall elect a Board of Directors by a
plurality vote and transact such other business as may properly be brought
before the meeting.
Section 3.3 Special Meetings.
A. Calling of Special Meetings. Upon request in writing
to the President or Secretary, sent by registered mail or delivered to such
Officer in person, by any of the persons entitled to call a meeting of
Shareholders, as provided in Section 3.3B below, such Officer shall forthwith
cause notice to be given to the Shareholders entitled to vote at such meeting.
If the notice is not given within thirty (30) days after the date of delivery of
the request, the persons calling the meeting may fix the time of meeting and
give the notice in the manner provided in these By-laws.
B. Persons Entitled to Call Special Meetings. Special
meetings of the Shareholders, for any purpose whatsoever, may be called at any
time by any of the following: (1) a majority of the Board of Directors in
office; and (2) Shareholders holding not less than twenty-five percent (25%) of
the voting power of the corporation.
C. Permissible Matters. Business transacted at all
special meetings shall be confined to the objects stated in the call.
Section 3.4 Notice.
A. Notice of Meetings. Notice of all meetings of
Shareholders shall be given in writing to Shareholders entitled to vote signed
by the Secretary or an Assistant Secretary or other person charged with that
duty, or, in case of his neglect or refusal, or if there is no person charged
with the duty of giving notice, by any Director or Shareholder.
B. Method of Notice. A notice may be given by the
corporation to any Shareholder, either personally or by mail or other means of
written communication, charges prepaid, addressed to the Shareholder at his
address appearing on the books of the corporation. If mailed, such notice shall
be deemed to be delivered when deposited in the United States mail with
first-class postage thereon, prepaid and addressed to the Shareholder at his
address as it appears on the stock transfer books of the corporation.
C. Time of Notice. Notice of meeting of Shareholders
shall be sent to each Shareholder entitled thereto not less than ten (10) days
nor more than sixty (60) days before the meeting, except in the case of a
meeting for the purpose of approving a merger or consolidation agreement in
which case the notice must be given not less than twenty (20) days prior to the
date of the meeting.
-3-
<PAGE> 4
D. Contents of Notice. Notice of any meeting of
Shareholders shall specify the place, the day and the hour of the meeting and
the purpose for calling the meeting.
Section 3.5 Waiver of Notice. Notice of a meeting need not be
given to any Shareholder who signs a waiver of notice, in person or by proxy,
either before or after the meeting; and a Shareholder's waiver shall be deemed
the equivalent of giving proper notice. Attendance of a Shareholder at a
meeting, either in person or by proxy, shall by itself constitute a waiver of
notice and a waiver of any and all objections to the time or place of the
meeting or the manner in which it has been called or convened, unless a
Shareholder attends a meeting solely for the purpose of stating, at the
beginning of the meeting, any such objection or objections to the transaction of
business. Unless otherwise specified herein, neither the business transacted nor
the purpose of the meeting need be specified in the waiver.
Section 3.6 Presence by Telephone. Shareholders may
participate in a meeting of the Shareholders by means of a conference telephone
or similar communications equipment by which all participants in the meeting can
hear each other, and participation in a meeting pursuant to this Section 3.6
shall constitute presence in person at such meeting.
Section 3.7 Quorum. The majority of the shares entitled to
vote, represented in person or by proxy, shall constitute a quorum at any
meeting of Shareholders. If a quorum is present, action on a matter (other than
the election of Directors) by the Shareholders is approved if the votes cast by
the Shareholders favoring the action exceed the votes cast opposing the action
unless provided otherwise (i) under the corporation's articles of incorporation,
(ii) under the rights and preferences of any class or series of stock
authorized, or (iii) under Nevada law. When a quorum is once present to organize
a meeting, the Shareholders present may continue to do business at the meeting
until adjournment even though enough Shareholders withdraw to leave less than a
quorum.
Section 3.8 Adjournment. Any meeting of the Shareholders may
be adjourned by the holders of a majority of the voting shares represented at a
meeting, whether or not a quorum is present. Notice of the adjourned meeting or
of the business to be transacted at such meeting shall not be necessary,
provided the time and place to which the meeting is adjourned are announced at
the meeting at which the adjournment is taken. Notwithstanding the preceding
sentence, if the Board of Directors fixes a new record date for the adjourned
meeting with respect to who can vote at such meeting, then notice of the
adjourned meeting shall be given to each Shareholder of record on the new record
date who is entitled to vote at such meeting, which notice shall be given in
accordance with the provisions of Section 3.4 hereof. At an adjourned meeting at
which a quorum is present or represented, any business may be transacted which
could have been transacted at the meeting originally called.
Section 3.9 Voting Rights. Each Shareholder shall be entitled
at each Shareholders' meeting to one vote for each share of the capital stock
having voting power held by such Shareholder except as otherwise provided (i)
under the corporation's articles of incorporation, or (ii) the corporation's
certificate of rights, preferences and privileges filed in accordance with the
laws of the
-4-
<PAGE> 5
State of Nevada. Neither treasury shares nor shares held by a subsidiary of the
corporation shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time.
Section 3.10 Proxies. A Shareholder entitled to vote may vote
in person or by proxy executed in writing by the Shareholder or by his
attorney-in-fact. If any Shareholder designates two or more persons to act as
proxies, a majority of those present at the meeting, or if only one shall be
present, then that one, shall have and may exercise all of the powers conferred
by such Shareholder upon all of the persons so designated unless the Shareholder
shall otherwise provide. A proxy shall not be valid after six (6) months from
the date of its execution unless it is coupled with an interest, or unless a
longer period is expressly stated in such proxy, which may not exceed seven (7)
years from the date of its creation. Every proxy shall be revocable at the
pleasure of the Shareholder executing it except as may be otherwise provided in
the Nevada Revised Statutes.
Section 3.11 Election Judges. The Board of Directors, or if
the Board shall not have made the appointment, the chairman presiding at any
meeting of Shareholders, shall appoint two or more persons to act as election
judges to receive, canvass, certify and report the votes cast by the
Shareholders at such meeting; but no candidate for the office of Director shall
be appointed as an election judge at any meeting for the election of Directors.
Section 3.12 Chairman of Meeting. The Chairman of the Board
shall preside at all meetings of the Shareholders; and, in the absence of the
Chairman of the Board, the President shall serve as chairman of the meeting.
Section 3.13 Secretary of Meeting. The Secretary of the
corporation shall act as secretary of all meetings of the Shareholders; and, in
his absence, the chairman of the meeting may appoint any person to act as
secretary of the meeting.
Section 3.14 Action by Consent of 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 setting forth the action shall be signed
by Shareholders holding at least a majority of the voting power, unless a
greater vote is required (i) under the corporation's articles of incorporation,
(ii) under the corporation's certificate of rights, preferences and privileges
filed in accordance with the laws of the State of Nevada, or (iii) under Nevada
law, in which event, such greater proportion of written consent shall be
required. Any such consent shall be filed with the Secretary of the corporation
and shall have the same force and effect as a unanimous vote of the
Shareholders.
ARTICLE FOUR
DIRECTORS
Section 4.1 Management of Business. Subject to these by-laws,
the full and entire management of the affairs and business of the corporation
shall be vested in the Board of Directors
-5-
<PAGE> 6
which shall have and which may exercise all of the powers that may be exercised
or performed by the corporation.
Section 4.2 Number, Qualification and Term of Office. The
business and affairs of the corporation shall be managed by a Board of Directors
which shall consist of such number of members, not less than three nor more than
nine, as shall be determined from time to time by resolution of the Board of
Directors at any meeting of the Board or by the unanimous written consent of the
Board. Each member of the Board of Directors of the corporation shall be elected
by a plurality of the votes cast by the shares entitled to vote for the election
of Directors. None of the Directors need be a resident of the State of Nevada or
hold shares of stock in the corporation. The Directors shall be elected at an
annual or special meeting of the Shareholders and shall serve for a term of one
(1) year or until their successors are elected and qualified.
Section 4.3 Vacancies.
A. When Vacancies Occur. Vacancies in the Board of
Directors shall exist in the case of happening of any of the following events:
(1) the death, resignation or removal of any Directors; (2) a declaration of
vacancy by the Board of Directors as provided in Paragraph B below; (3) the
authorized number of Directors is increased by resolution of the Board of
Directors; or (4) at any meeting of Shareholders at which the Directors are
elected, the Shareholders fail to elect the full authorized number of Directors
to be voted for at that meeting. A reduction of the authorized number of
Directors does not remove any Director prior to the expiration of his term in
office.
B. Declaration of Vacancy. The Board of Directors may
declare vacant the office of any Director in either of the following cases: (1)
if he is declared of unsound mind by an appropriate court order or convicted of
a felony; or (2) if within sixty (60) days after notice of his election he does
not accept the office either in writing or by attending a meeting of the Board
of Directors.
C. Filling Vacancies. Unless the Articles of
Incorporation or a provision of these By-laws approved by the Shareholders
provides otherwise, if a vacancy occurs on the Board of Directors, including a
vacancy resulting from an increase in the number of Directors, the Board of
Directors may fill the vacancy. If the Directors remaining in office do not
constitute a quorum of the Board, the Directors may fill the vacancy by
affirmative vote of a majority of all the Directors remaining in office. Such
appointment by the Shareholders or Directors shall continue until the expiration
of the term of the Director whose place has become vacant.
Section 4.4 Compensation. For their services as Directors, the
Directors may receive a fixed sum salary and reimbursement of expenses of
attendance at each meeting of the Board as approved by the Shareholders or Board
of Directors from time to time. A Director may serve the corporation in a
capacity other than that of Director and receive compensation for the services
rendered in such other capacity.
-6-
<PAGE> 7
ARTICLE FIVE
DIRECTORS' MEETINGS
Section 5.1 Place of Meetings. The meetings of the Board of
Directors may be held at the registered office of the corporation or at any
place, within or without the State of Nevada, which a majority of the Board of
Directors may, from time to time, designate.
Section 5.2 Annual Meeting. The Board of Directors shall meet
each year immediately following the annual meeting of the Shareholders at the
place such Shareholders' meeting was held or at such other time, date and place
as a majority of the Board of Directors may designate. At such annual meeting,
Officers shall be elected and such other business may be transacted which is
within the powers of the Directors. Notice of the annual meeting of the Board of
Directors need not be given.
Section 5.3 Regular Meetings.
A. When Regular Meetings Held. Regular meetings of the
Board of Directors (which includes the annual meeting) shall be held not less
than every three (3) months.
B. Call of Regular Meetings. All regular meetings of the
Board of Directors of the Corporation shall be called by the Chairman of the
Board or by the President.
C. Notice of Regular Meetings. Written notice of the
time and place of the regular meetings of the Board of Directors shall be
delivered personally to each Director or sent to each Director by mail or by
other form of written communication (including facsimile transmission) at least
two (2) business days before the meeting.
Section 5.4 Special Meetings.
A. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or by any two Directors.
B. Notice of Special Meeting. Written notice of the time
and place of special meetings of the Board of Directors shall be delivered
personally to each Director or sent to each Director by mail or by other form of
written communication (including facsimile transmission) at least two (2)
business days before the meeting.
Section 5.5 Waiver of Notice. A Director may waive in writing
notice of a special meeting of the Board, either before or after the meeting,
and his waiver shall be deemed the equivalent of giving notice. Attendance of a
Director at a meeting shall constitute a waiver of notice of that meeting unless
he attends for the express purpose of objecting to the transaction of business
on the grounds that the meeting has not been lawfully called or convened.
-7-
<PAGE> 8
Section 5.6 Purpose of Meeting. Neither the business to be
transacted at a regular or special meeting, nor the purpose of such meeting,
need be specified in the notice or waiver of notice of such meeting.
Section 5.7 Presence by Telephone. Members of the Board of
Directors may participate in a meeting of the Board of Directors by means of a
conference telephone or similar communications equipment by which all Directors
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 5.7 shall constitute presence in person at such
meeting.
Section 5.8 Quorum. At meetings of the Board of Directors, a
majority of the Directors shall constitute a quorum for the transaction of
business. Only when a quorum is present may the Board of Directors continue to
do business at any such meeting. If a quorum is present, the acts of a majority
of Directors in attendance shall be the acts of the Board.
Section 5.9 Adjournment. A meeting of the Board of Directors
may be adjourned. Notice of the time and the place of the adjourned meeting and
of the business to be transacted thereat, other than by announcement at the
meeting at which the adjournment is taken, shall not be necessary. At an
adjourned meeting at which a quorum is present, any business may be transacted
which could have been transacted at the meeting originally called.
Section 5.10 Manifestation of Dissent. A Director of the
corporation who is present at a meeting of the Board of Directors at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless his dissent shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a Director who voted in favor of such action.
Section 5.11 Action by Consent. If all of the Directors,
severally or collectively, consent in writing to any action taken or to be taken
by the corporation and the writing or writings evidencing their consent are
filed with the Secretary of the corporation, the action shall be as valid as
though it had been authorized at a meeting of the Board of Directors.
Section 5.12 Committees. The Board of Directors may from time
to time, by majority resolution of the full Board of Directors, appoint from
among its members such Committees as the Board may determine. The members of the
Executive Committee, if there is one, shall include the Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer and such other persons
designated by the Board of Directors. If an Executive Committee is formed, such
Committee shall, during the interval between meetings of the Board, advise and
aid the Officers of the corporation in all matters in the corporation's interest
and the management of its business and generally perform such duties and
exercise such powers as may be directed or delegated by the Board of Directors
from time to time. The Board may delegate to the Executive Committee authority
to exercise all powers of the Board, excepting powers which may not be delegated
to such Committee under Nevada law, while the
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Board is not in session. Vacancies in the membership of any Committee which
shall be so appointed by the Board of Directors shall be filled by the Board of
Directors at a regular meeting or at a special meeting called for that purpose.
All committees shall keep regular minutes of their proceedings and report the
same to the full Board when requested or required.
ARTICLE SIX
OFFICERS
Section 6.1 Officers. The Officers of the corporation shall
consist of those Officers, if any, as the Board of Directors shall designate
from time to time. Upon such action by the Board of Directors, the officers of
the corporation may include a Chairman of the Board, a Vice Chairman of the
Board, a President, a Vice President or Vice Presidents, Secretary, Treasurer
and Assistants to the Vice President, Secretary or Treasurer. The Officers shall
be elected by and shall serve at the pleasure of the Board of Directors. The
same individual may simultaneously hold more than one office in the corporation.
Section 6.2 Duties of Officers. All Officers of the
corporation, as between themselves and the corporation, shall have such
authority and perform such duties in the management of the corporation as
hereinafter provided in these By-laws or as may be determined by action of the
Board of Directors to the extent not inconsistent with these By-laws.
Section 6.3 Chairman of the Board. The Chairman of the Board
shall be a member of the Board of Directors. He shall be the Chief Executive
Officer of the corporation and, subject to the control of the entire Board of
Directors, shall in general manage, supervise and control all of the business
and affairs of the corporation. He shall, when present, preside at all meetings
of the Board of Directors. He may execute any deeds, mortgages, bonds or other
contracts pursuant to authority (which may be general authority) from the Board
of Directors, except in cases where the execution thereof shall be expressly
delegated by the Board of Directors or by these by-laws to some other officer or
agent of the corporation or shall be required by law to be otherwise signed or
executed; and in general shall perform all duties incident to the office of
Chairman of the Board and such other duties as may be prescribed by the Board of
Directors from time to time.
Section 6.4 Vice Chairman of the Board. The Vice Chairman of
the Board, if there is one, shall serve in the place of the Chairman of the
Board in the absence of the Chairman. The Vice Chairman of the Board shall
perform such other duties as may be prescribed by the Board of Directors from
time to time.
Section 6.5 President. The President shall be the Chief
Operating Officer of the corporation and shall have the responsibility for the
general supervision of the day-to-day business affairs of the corporation. He
shall be responsible for the day-to-day administration of the corporation,
including general supervision of the implementation of the policies of the
corporation, general and active management of the financial affairs of the
corporation and may execute certificates for shares of the
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corporation, deeds, mortgages, bonds or other contracts under the seal of the
corporation pursuant to authority (which may be general authority) from the
Board of Directors except in cases where the execution thereof shall be
expressly delegated by the Board of Directors or by these by-laws to some other
officer or agent of the corporation or shall be required by law to be otherwise
signed or executed. He shall preside at all meetings of the Directors and
Shareholders (except when there is a separately elected Chairman of the Board)
and shall discharge the duties of a presiding officer. He shall present at each
annual meeting of the Shareholders a report of the business of the corporation
for the preceding fiscal year. The President shall also perform whatever other
duties the Board of Directors may from time to time prescribe.
Section 6.6 Vice Presidents. The Vice President or Vice
Presidents shall perform such duties and have such powers as the Chairman of the
Board or the Board of Directors may from time to time prescribe. The Board of
Directors or the Chairman of the Board may designate the order of seniority of
Vice Presidents, in the event there is more than one, and may designate one or
more Vice Presidents as Senior Vice Presidents. The duties and powers of the
President shall disburse first to the Senior Vice President or to the Vice
Presidents in the order of seniority specified by the Board of Directors or the
Chairman of the Board.
Section 6.7 Secretary. The Secretary shall (i) keep minutes of
all meetings of the Shareholders and Directors, (ii) have charge of the minute
books, stock books and seal of the corporation, and (iii) perform such other
duties and have such other powers as may, from time to time, be delegated to him
by the Board of Directors or Chairman of the Board.
Section 6.8 Treasurer. The Treasurer shall:
(1) Funds - Custody and Deposit. Have charge and custody
of, and be responsible for, all funds and securities of the corporation and
shall deposit all such funds and other valuable effects in the name and to the
credit of the corporation in such depositories as shall be authorized by the
Board of Directors.
(2) Funds - Receipt. Give receipts for all moneys due and
payable to the corporation.
(3) Funds - Disbursement. Disburse the funds of the
corporation, keeping proper vouchers for such disbursements.
(4) Maintain Accounts. Keep and maintain adequate and
correct accounts of the corporation's properties and business transactions,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, surplus and shares.
(5) Other Duties. Perform all the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to him by the Board of Directors or Chairman of the Board.
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Section 6.9 Assistant Vice Presidents, Assistant Secretary and
Assistant Treasurer. Assistants to the Vice Presidents, Secretary and Treasurer
may be appointed and shall have such duties as shall be delegated to them by the
Board of Directors or Chairman of the Board.
Section 6.10 Delegation of Duties. In case of the absence of
any Officer of the corporation, or for any other reason and for any duration
that the Board of Directors may deem advisable, the Board of Directors may
delegate the powers or duties, or any of them, of such Officer to any other
Officer, or to any Director, provided a majority of the entire Board concurs
therein.
Section 6.11 Removal of Officers. Any Officer elected or
appointed by the Board of Directors may be removed by the Board of Directors
whenever, in the judgment of a majority of the members of the Board of
Directors, the best interest of the corporation will be served thereby. The
removal of any such Officer shall be without prejudice to the contract rights,
if any, of the person so removed; however, the election or appointment of an
Officer shall not in and of itself create any contract rights.
Section 6.12 Vacancies. When a vacancy occurs in one of the
executive offices by death, resignation or otherwise, it shall be filled by the
Board of Directors. The Officer so elected shall hold office until his successor
is chosen and qualified.
Section 6.13 Compensation. The Board of Directors shall
prescribe or fix the salaries, bonuses, pensions, benefits under pension plans
and profit sharing plans, stock option plans and all other plans, benefits and
compensation to be paid or allowed to or in respect of (i) all Officers and any
or all employees of the corporation, including Officers and employees who may
also be Directors of the corporation and (ii) the Directors of the corporation,
as such. Directors of the corporation shall not be disqualified from voting on
their own or any other person's plan, benefit or compensation to be paid by the
corporation merely because they or such other person is a Director or an Officer
or an employee of the corporation. The Board of Directors may delegate these
functions to any Officer not a Director except those determinations involving an
Officer or Director.
ARTICLE SEVEN
SEAL
Section 7.1 Seal. The seal of the corporation shall be in such
form as the Board of Directors may, from time to time, determine. In the event
it is inconvenient to use such a seal at any time, the signature of the
corporation followed by the words "Corporate Seal" enclosed in parentheses or
scroll shall be deemed the seal of the corporation. The seal shall be in the
custody of the Secretary and affixed by him or any Assistant Secretary on the
certificates of stock and such other papers as may be directed by law, by these
by-laws or by the Chairman of the Board, President or Board of Directors.
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ARTICLE EIGHT
AMENDMENTS
Section 8.1 Amendments. These by-laws may be amended at any
meeting of the Board of Directors by the affirmative vote of a majority of the
Directors except as otherwise provided herein or except as prohibited by law.
ARTICLE NINE
INDEMNIFICATION
Section 9.1 Definitions. As used in this Article, the term:
A. "Corporation" means this corporation and
includes any domestic or foreign predecessor entity of this corporation in a
merger or other transaction in which the predecessor's existence ceased upon
consummation of the transaction.
B. "Director" means an individual who is or was
a Director of the Corporation or an individual who, while a Director of the
Corporation, is or was serving at the Corporation's request as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise. A Director is considered to be serving an employee benefit plan at
the Corporation's request if his duties to the Corporation also impose duties
on, or otherwise involve services by, him to the plan or to participants in or
beneficiaries of the plan. "Director" includes, unless the context requires
otherwise, the estate or personal representative of a Director.
C. "Expenses" includes attorneys' fees.
D. "Liability" means the obligation to pay a
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to an employee benefit plan), or reasonable expenses incurred with
respect to a proceeding.
E. "Officer" means an individual who is or was
an officer of the Corporation or an individual who, while an officer of the
Corporation, is or was serving at the Corporation's request as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise. An officer is considered to be serving an employee benefit plan at
the Corporation's request if his duties to the Corporation also impose duties
on, or otherwise involve services by, him to the plan or to participants in or
beneficiaries of the plan. "Officer" includes, unless the context requires
otherwise, the estate or personal representative of an officer.
F. "Party" includes an individual who was, is,
or is threatened to be made a named defendant or respondent in a proceeding.
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G. "Proceeding" means any threatened, pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal but shall
include an action or suit by or in the right of the Corporation only if such
action or suit is to procure a judgment in the Corporation's favor.
Section 9.2 Basic Indemnification Arrangement.
A. Except as provided in subsections 9.2D and
9.2E below, the Corporation shall indemnify any Officer or Director in the event
he is made a party to a proceeding because he is or was a director or officer
against liability incurred by him in the proceeding if he acted in good faith
and in a manner he believed to be in or not opposed to the best interests of the
Corporation and, in the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful.
B. An Officer's or Director's conduct with
respect to an employee benefit plan for a purpose he believed in good faith to
be in the interests of the participants in and beneficiaries of the plan is
conduct that satisfies the requirement of subsection 9.2A.
C. The termination of a proceeding by judgment,
order, settlement, or conviction, or upon a plea of nolo contendere or its
equivalent shall not, of itself, be determinative that any Officer or Director
did not meet the standard of conduct set forth in subsection 9.2A.
D. The Corporation shall not indemnify any
Officer or Director under this Article in connection with a proceeding by or in
the right of the Corporation in which such Officer or Director was adjudged
liable to the Corporation, unless and only to the extent the court in which the
proceeding was brought or other court of competent jurisdiction determines upon
application that in view of all circumstances of the case, the Officer or
Director is fairly and reasonably entitled to indemnity for such expenses as the
court deems proper.
E. Indemnification permitted under this Article
in connection with a proceeding is limited to liability and expenses actually
and reasonably incurred in connection with the proceeding.
Section 9.3 Advances for Expenses.
A. The Corporation shall pay for or reimburse
the reasonable expenses incurred by an Officer or Director as a party to a
proceeding in advance of final disposition of the proceeding if he furnishes the
Corporation a written undertaking (meeting the qualifications set forth below in
subsection 9.3B), executed personally or on his behalf, to repay any advances if
it is ultimately determined that he is not entitled to any indemnification under
this Article or otherwise.
B. The undertaking required by subsection 9.3A
above must be an unlimited general obligation of such Officer or Director but
need not be secured and may be accepted without reference to financial ability
to make repayment.
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Section 9.4 Authorization of and Determination of Entitlement
to Indemnification.
A. The Corporation shall not indemnify any
Officer or Director under Section 9.2 unless a separate determination has been
made in the specific case that indemnification of such Officer or Director is
permissible in the circumstances because he has met the standard of conduct set
forth in subsection 9.2A or unless ordered by a court or advanced pursuant to
Subsection 9.3; provided, however, that regardless of the result or absence of
any such determination, to the extent that such Officer or Director has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he was a party, or in defense of any claim, issue or matter therein,
because he is or was a Director or Officer, the Corporation shall indemnify such
Officer or Director against liability incurred by him in connection therewith.
B. The determination referred to in subsection
9.4A above shall be made, at the election of the Board of Directors:
1. By the Board of Directors of the
Corporation by majority vote of a quorum consisting of
Directors not at the time parties to the proceeding;
2. By special independent legal
counsel:
(a) selected by the Board of
Directors in the manner prescribed in subparagraph 1
immediately above; or
(b) if a quorum of the Board
of Directors cannot be obtained under subparagraph 1
immediately above, selected by a majority vote of the
full Board of Directors (in which selection Directors
who are parties may participate); or
3. By the Shareholders provided that
shares owned by or voted under the control of Directors or
Officers who are at the time parties to the proceeding may not
be voted on the determination.
C. Evaluation as to reasonableness of expenses
of an Officer or Director in the specific case shall be made in the same manner
as the determination that indemnification is permissible, as described in
subsection 9.4B above, except that if the determination is made by special legal
counsel, evaluation as to reasonableness of expenses shall be made by those
entitled under subsection 9.4B2 to select counsel.
Section 9.5 Limitations on Indemnification of Officers and
Directors. Nothing in this Article shall require or permit indemnification of an
Officer or Director for any liability if a final adjudication establishes that
his acts or omissions involved intentional misconduct, fraud or a knowing
violation of law and was material to the cause of action.
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Section 9.6 Witness Fees. Nothing in this Article shall limit
the Corporation's power to pay or reimburse expenses incurred by an Officer or
Director in connection with his appearance as a witness in a proceeding at a
time when he has not been made a named defendant or respondent in the
proceeding.
Section 9.7 Non-exclusivity, Etc. The rights of an Officer or
Director hereunder shall be in addition to any other rights with respect to
indemnification, advancement of expenses or otherwise that such Officer or
Director may have under the Corporation's By-laws or the Nevada Revised Statutes
or otherwise.
Section 9.8 Intent. It is the intention of this corporation
that this Article of the By-laws of this Corporation and the indemnification
hereunder shall extend to the maximum indemnification possible under the laws of
the State of Nevada and if one or more words, phrases, clauses, sentences or
sections of this Article should be held unenforceable for any reason, all of the
remaining portions of this Article shall remain in full force and effect.
ARTICLE TEN
DEALINGS
Section 10.1 Related Transactions. No contract or other
transaction between this corporation and any other firm, association or
corporation shall be affected or invalidated by the fact that any of the members
of the Board of Directors of this corporation are interested in or are members,
shareholders, governors or directors of such firm, association or corporation;
and no contract, act or transaction of this corporation with any individual
firm, association or corporation shall be affected or invalidated by the fact
that any of the members of the Board of Directors of this corporation are
parties to or interested in such contract, act or transaction or are in any way
connected with such individual, firm, association or corporation. Each and every
individual who may become a member of the Board of Directors of this corporation
is hereby relieved from any liability that might otherwise exist from
contracting with this corporation for the benefit of himself or herself or any
firm, association or corporation in which he or she may in any way be
interested. Notwithstanding the above, the provisions of this Section 10.1 shall
be applicable only in the absence of fraud and only where the interest in such
transaction of an interested party has been disclosed and the interested party,
if a Director, has abstained from a vote thereon.
ARTICLE ELEVEN
DIVIDENDS AND RESERVES
Section 11.1 Dividends. The Board of Directors of the
corporation may from time to time declare, and in such event the corporation
shall pay, dividends on the corporation's outstanding shares in cash, property
or the corporation's own shares, except when the corporation is insolvent or
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when the declaration or payment thereof would be contrary to any restrictions
contained in the Articles of Incorporation or any applicable law, subject to the
following:
A. Dividends may be declared and paid in the
corporation's own shares out of any treasury shares that have been reacquired by
the corporation.
B. Dividends may be declared and paid in the
corporation's own authorized but unissued shares, provided that such shares
shall be issued at not less than the par value thereof and there shall be
transferred to stated capital at the time such dividend is paid an amount at
least equal to the aggregate par value of the shares to be issued as a dividend.
C. The corporation shall have the use of any cash or
property declared as a dividend that is unclaimed until the time it escheats to
the applicable jurisdiction. Any stock declared as a dividend or unclaimed shall
be voted by the Board of Directors.
Section 11.2 Reserves. Before payment of any dividend, there
may be set aside out of any funds of the corporation available for dividends
such sum or sums as the Directors, from time to time, in their absolute
discretion, think proper as a reserve fund to meet contingencies or for
equalizing dividends or for repairing or maintaining any property of the
corporation or for such other purpose as the Directors shall think conducive to
the interest of the corporation, and the Directors may modify or abolish any
such reserve in the manner by which it was created.
ARTICLE TWELVE
CORPORATE BOOKS AND RECORDS
Section 12.1 Minutes of Corporate Meetings. The corporation
shall keep at its principal office, or such other place as the Board of
Directors may order, a book of minutes of all meetings of its Directors and of
its Shareholders, with the time and place of holding, whether annual, regular or
special, and, if special, how authorized, the notice thereof given, the names of
those present at Directors' meetings, the number of shares present or
represented at Shareholders' meetings and the proceedings thereof.
Section 12.2 Share Register. The corporation shall keep at the
principal office, or at the office of the transfer agent, a share register
showing the names of the Shareholders and their addresses, the number of shares
held by each and the number and date of cancellation of every certificate
surrendered for cancellation. The above specified information may be kept by the
corporation on punch cards, magnetic tape or other information storage device
related to electronic data processing equipment provided that such card, tape or
other equipment is capable of reproducing the information in clearly legible
form.
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ARTICLE THIRTEEN
GENERAL PROVISIONS
Section 13.1 Fiscal Year. The fiscal year of the corporation
shall be fixed by resolution of the Board of Directors.
Section 13.2 Authority for Execution of Contracts and
Instruments. The Board of Directors, except as otherwise provided in these
By-laws, may authorize any Officer or Officers, agent or agents to enter into
any contract or execute and delivery any instrument in the name and on behalf of
the corporation, and such authority may be general or confined to specified
instances; and, unless so authorized, no Officer, agent or employee shall have
any power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable pecuniarily for any purpose or in
any amount.
Section 13.3 Signing of Checks, Drafts, Etc. All checks,
drafts or other order for payment of money, notes or other evidences of
indebtedness issued in the name of or payable to the corporation shall be signed
or endorsed by such person or persons and in such manner as shall be determined
from time to time by resolution of the Board of Directors.
AS ADOPTED BY THE DIRECTORS OF THE CORPORATION ON ______________________.
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EXHIBIT 4.1
EXECUTION COPY
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MGC COMMUNICATIONS, INC.
$160,000,000
13% SENIOR SECURED NOTES DUE 2004
--------------------------------------
-----------------
INDENTURE
Dated as of September 29, 1997
-----------------
-----------------
MARINE MIDLAND BANK
-----------------
Trustee
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<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
310 (a)(1).................................................................... 7.10
(a)(2).................................................................... 7.10
(a)(3) ................................................................... N.A.
(a)(4).................................................................... N.A.
(a)(5).................................................................... 7.10
(b) ...................................................................... 7.10
(c) ...................................................................... N.A.
311 (a) ...................................................................... 7.11
(b) ...................................................................... 7.11
(c) ...................................................................... N.A.
312 (a)....................................................................... 2.05
(b)....................................................................... 10.03
(c) ...................................................................... 10.03
313 (a) ...................................................................... 7.06
(b)(1) ................................................................... 7.06
(b)(2) ................................................................... 7.06
(c) ...................................................................... 7.06; 10.02
(d)....................................................................... 7.06
314 (a) ...................................................................... 4.03; 10.05
(b)....................................................................... 4.17; 4.18; 4.21
(c)(1) ................................................................... 10.04
(c)(2) ................................................................... 10.04
(c)(3) ................................................................... N.A.
(d)....................................................................... 4.17; 4.18; 4.20
(e) ..................................................................... 10.05
(f)....................................................................... N.A.
315 (a)....................................................................... N.A.
(b)....................................................................... 7.05
(c) ..................................................................... 7.01
(d)....................................................................... N.A.
(e)....................................................................... N.A.
316 (a)(last sentence) ....................................................... N.A.
(a)(1)(A)................................................................. N.A.
(a)(2) ................................................................... N.A.
(b) ...................................................................... 6.07
(c) ...................................................................... 2.13
317 (a)(1) ................................................................... 6.08
(a)(2).................................................................... 6.09
(b) ...................................................................... 2.04
318 (a)....................................................................... N.A.
(b)....................................................................... N.A.
(c)....................................................................... 10.01
</TABLE>
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions................................................................. 1
Section 1.02. Other Definitions........................................................... 17
Section 1.03. Incorporation by Reference of Trust Indenture Act........................... 18
Section 1.04. Rules of Construction....................................................... 18
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating............................................................. 18
Section 2.02. Execution and Authentication................................................ 19
Section 2.03. Registrar and Paying Agent.................................................. 20
Section 2.04. Paying Agent to Hold Money in Trust......................................... 20
Section 2.05. Holder Lists................................................................ 21
Section 2.06. Transfer and Exchange....................................................... 21
Section 2.07. Replacement Notes........................................................... 32
Section 2.08. Outstanding Notes........................................................... 32
Section 2.09. Treasury Notes.............................................................. 33
Section 2.10. Temporary Notes............................................................. 33
Section 2.11. Cancellation................................................................ 33
Section 2.12. Defaulted Interest.......................................................... 33
Section 2.13. Record Date................................................................. 34
Section 2.14. CUSIP Number................................................................ 34
ARTICLE 3
REDEMPTION AND CERTAIN REPURCHASES
Section 3.01. Notices to Trustee.......................................................... 34
Section 3.02. Selection of Notes to Be Redeemed........................................... 34
Section 3.03. Notice of Redemption........................................................ 35
Section 3.04. Effect of Notice of Redemption.............................................. 36
Section 3.05. Deposit of Redemption Price................................................. 36
Section 3.06. Notes Redeemed in Part...................................................... 36
Section 3.07. Optional Redemption......................................................... 37
Section 3.08. Mandatory Redemption........................................................ 37
Section 3.09. Offer to Purchase With Excess Asset Sale Proceeds........................... 37
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes............................................................ 39
Section 4.02. Maintenance of Office or Agency............................................. 40
Section 4.03. Reports..................................................................... 40
</TABLE>
i
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<TABLE>
<S> <C> <C>
Section 4.04. Compliance Certificate...................................................... 41
Section 4.05. Taxes....................................................................... 42
Section 4.06. Stay, Extension and Usury Laws.............................................. 42
Section 4.07. Restricted Payments......................................................... 42
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries.............. 45
Section 4.09. Incurrence of Indebtedness and Issuance of Disqualified Stock............... 46
Section 4.10. Asset Sales................................................................. 48
Section 4.11. Transactions with Affiliates................................................ 50
Section 4.12. Liens....................................................................... 50
Section 4.13. Limitations on Sale and Leaseback Transactions.............................. 51
Section 4.14. Corporate Existence......................................................... 51
Section 4.15. Offer to Purchase Upon Change of Control.................................... 51
Section 4.16. Business Activities......................................................... 52
Section 4.17. Pledge Agreement; Security.................................................. 52
Section 4.18. Collateral and Security Documents........................................... 54
Section 4.19. Recording and Opinions...................................................... 55
Section 4.20. Insurance................................................................... 56
Section 4.21. Payments for Consent........................................................ 56
Section 4.22. Use of Proceeds............................................................. 56
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation or Sale of Assets..................................... 57
Section 5.02. Successor Corporation Substituted........................................... 58
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default........................................................... 58
Section 6.02. Acceleration................................................................ 60
Section 6.03. Other Remedies.............................................................. 61
Section 6.04. Waiver of Past Defaults..................................................... 61
Section 6.05. Control by Majority......................................................... 61
Section 6.06. Limitation on Suits......................................................... 61
Section 6.07. Rights of Holders of Notes to Receive Payment............................... 62
Section 6.08. Collection Suit by Trustee.................................................. 62
Section 6.09. Trustee May File Proofs of Claim............................................ 63
Section 6.10. Priorities.................................................................. 63
Section 6.11. Undertaking for Costs....................................................... 64
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee........................................................... 64
Section 7.02. Rights of Trustee........................................................... 65
Section 7.03. Individual Rights of Trustee................................................ 66
Section 7.04. Trustee's Disclaimer........................................................ 66
Section 7.05. Notice of Defaults.......................................................... 66
Section 7.06. Reports by Trustee to Holders of the Notes.................................. 67
Section 7.07. Compensation and Indemnity.................................................. 67
</TABLE>
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<TABLE>
<S> <C> <C>
Section 7.08. Replacement of Trustee...................................................... 68
Section 7.09. Successor Trustee by Merger, etc............................................ 69
Section 7.10. Eligibility; Disqualification............................................... 69
Section 7.11. Preferential Collection of Claims Against Company........................... 69
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.................... 69
Section 8.02. Legal Defeasance and Discharge.............................................. 69
Section 8.03. Covenant Defeasance......................................................... 70
Section 8.04. Conditions to Legal or Covenant Defeasance.................................. 70
Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other
Miscellaneous Provisions.................................................... 72
Section 8.06. Repayment to Company........................................................ 72
Section 8.07. Reinstatement............................................................... 72
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes......................................... 73
Section 9.02. With Consent of Holders of Notes............................................ 73
Section 9.03. Compliance with Trust Indenture Act......................................... 75
Section 9.04. Revocation and Effect of Consents........................................... 75
Section 9.05. Notation on or Exchange of Notes............................................ 75
Section 9.06. Trustee to Sign Amendments, etc............................................. 75
ARTICLE 10
MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls................................................ 77
Section 10.02. Notices..................................................................... 77
Section 10.03. Communication by Holders of Notes with Other Holders of Notes............... 78
Section 10.04. Certificate and Opinion as to Conditions Precedent.......................... 78
Section 10.05. Statements Required in Certificate or Opinion............................... 78
Section 10.06. Rules by Trustee and Agents................................................. 79
Section 10.07. No Personal Liability of Partners, Directors, Officers, Employees and
Stockholders................................................................ 79
Section 10.08. Governing Law............................................................... 79
Section 10.09. No Adverse Interpretation of Other Agreements............................... 79
Section 10.10. Successors.................................................................. 79
Section 10.11. Severability................................................................ 79
Section 10.12. Counterpart Originals....................................................... 79
Section 10.13. Table of Contents, Headings, etc............................................ 79
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A FORM OF NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
</TABLE>
iii
<PAGE> 6
<TABLE>
<S> <C>
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL
ACCREDITED INVESTOR
Exhibit E FORM OF PLEDGE AGREEMENT
Exhibit F FORM OF SECURITY AGREEMENT
</TABLE>
iv
<PAGE> 7
INDENTURE dated as of September 29, 1997 between MGC Communications,
Inc. (the "Company"), and Marine Midland Bank, as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the holders of the 13% Senior
Secured Notes due 2004 and the Exchange Notes (as defined below) (collectively,
the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"144A Global Security" means the global security in the form of
Exhibit A hereto bearing the Global Security Legend and the Private Placement
Legend and registered in the name of the Depositary or its nominee that will be
issued in a denomination equal to the outstanding principal amount of the Notes
sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise, provided, however,
that beneficial ownership of 25% or more of the voting securities of a Person
shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
<PAGE> 8
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary that apply to such transfer or exchange.
"Attributable Debt" means, with respect to any Sale and Leaseback
Transaction, the present value at the time of determination (discounted at a
rate consistent with accounting guidelines, as determined in good faith by the
Company) of the payments during the remaining term of the lease (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended) or until the earliest date on which the lessee may
terminate such lease without penalty or upon payment of a penalty (in which case
the rental payments shall include such penalty), after excluding all amounts
required to be paid on account of maintenance and repairs, insurance, taxes,
assessments, water, utilities and similar charges.
"Beneficial Owner" means a beneficial owner as defined in Rules 13d-3
and 13d-5 under the Exchange Act (or any successor rules), including the
provision of such Rules that a Person shall be deemed to have beneficial
ownership of all securities that such Person has a right to acquire within 60
days; provided that a Person will not be deemed a beneficial owner of, or to own
beneficially, any securities if such beneficial ownership (1) arises solely as a
result of a revocable proxy delivered in response to a proxy or consent
solicitation made pursuant to, and in accordance with, the Exchange Act and (2)
is not also then reportable on Schedule 13D or Schedule 13G (or any successor
schedule) under the Exchange Act.
"Board of Directors" means, unless otherwise specified, the Board of
Directors of the Company or any authorized committee thereof.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock and (iii) in the case of a partnership,
partnership interests (whether general or limited) and any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, such partnership.
"Certificated Security" means a certificated Note registered in the
name of the holder thereof and issued in accordance with Section 2.06 hereof,
substantially in the form of Exhibit A hereto, except that such Note shall not
bear the Global Security Legend and shall not have the "Schedule of Exchanges of
Interests in the Global Security" attached thereto.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition, in one or a series
of related transactions, of all or substantially all of the assets of the
Company and its Restricted Subsidiaries, taken as a whole, to any Person or
group (as such term is used in Section 13(d)(3) and 14(d)(2) of the Exchange
Act), (ii) the adoption of a plan relating to the liquidation or dissolution of
the Company, (iii) any Person or group (as defined above) other than the
Permitted Holders is or becomes the Beneficial Owner, directly or indirectly, of
more than 50% of the total Voting Stock or Total Common Equity of the Company,
including by way of merger, consolidation or
2
<PAGE> 9
otherwise or (iv) the first day on which a majority of the members of the Board
of Directors of the Company are not Continuing Directors.
"Closing Price" on any Trading Day with respect to the per share
price of any shares of Capital 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 Capital 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 Nasdaq National Market but the issuer
is a Foreign Issuer (as defined in Rule 3b-4(b) under the Exchange Act) and the
principal securities exchange on which such shares are listed or admitted to
trading is a Designated Offshore Securities Market (as defined in Rule 902(a)
under the Securities Act), the average of the reported closing bid and asked
prices regular way on such principal exchange, or, if such shares are not listed
or admitted to trading on any national securities exchange or quoted on Nasdaq
National Market and the issuer and principal securities exchange do not meet
such requirements, 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.
"Collateral Pledge Agreement" means the Collateral Pledge Agreement,
dated as of the date of this Indenture, between the Company and the Trustee.
"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Common Stock Commitment" means the binding commitment of certain
investors to purchase shares of Common Stock of the Company at a price to be
agreed upon by the Company and such investors, which price shall not be less
than $3.50 per share nor more than $5.00 per share, for an aggregate purchase
price of $15.0 million if the Preferred Stock Offering has not been consummated
before the sixtieth day following the Issue Date.
"Consolidated Cash Flow Leverage Ratio" with respect to any Person
means the ratio of the Consolidated Indebtedness of such Person to the
Consolidated EBITDA of such Person for the relevant period; provided, however,
that (1) if the Company or any Restricted Subsidiary of the Company has incurred
any Indebtedness (including Acquired Debt) or if the Company has issued any
Disqualified Stock or if any Restricted Subsidiary of the Company has issued any
Preferred Stock since the beginning of such period that remains outstanding on
the date of such determination or if the transaction giving rise to the need to
calculate the Consolidated Cash Flow Leverage Ratio is an incurrence of
Indebtedness (including Acquired Debt) or the issuance of Disqualified Stock by
the Company, Consolidated EBITDA and Consolidated Indebtedness for such period
will be calculated after giving effect on a pro forma basis to (A) such
Indebtedness, Disqualified Stock or Preferred Stock, as applicable, as if such
Indebtedness had been incurred or such stock had been issued on the first day of
such period, (B) the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new Indebtedness or
sale of stock as if such discharge had occurred on the first day of such period,
and (C) the interest income realized by the Company or its Restricted
Subsidiaries on the proceeds of such Indebtedness or of such stock sale, to the
extent not yet applied at the date of determination, assuming such proceeds
3
<PAGE> 10
earned interest at the rate in effect on the date of determination from the
first day of such period through such date of determination, (2) if since the
beginning of such period the Company or any Restricted Subsidiary of the Company
has made any sale of assets (including, without limitation, any Asset Sales or
pursuant to any Sale and Leaseback Transaction), Consolidated EBITDA for such
period will be (A) reduced by an amount equal to Consolidated EBITDA (if
positive) directly attributable to the assets which are the subject of such sale
of assets for such period or (B) increased by an amount equal to Consolidated
EBITDA (if negative) directly attributable thereto for such period and (3) if
since the beginning of such period the Company or any Restricted Subsidiary of
the Company (by merger or otherwise) has made an Investment in any Restricted
Subsidiary of the Company (or any Person which becomes a Restricted Subsidiary
of the Company) or has made an acquisition of assets, including, without
limitation, any acquisition of assets occurring in connection with a transaction
causing a calculation of Consolidated EBITDA to be made hereunder, which
constitutes all or substantially all of an operating unit of a business,
Consolidated EBITDA for such period will be calculated after giving pro forma
effect thereto (including the incurrence of any Indebtedness (including Acquired
Debt)) as if such Investment or acquisition occurred on the first day of such
period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the pro forma calculations will be determined
in good faith by a responsible financial or accounting Officer of the Company,
provided, however, that such Officer shall assume (i) the historical sales and
gross profit margins associated with such assets for any consecutive 12-month
period ended prior to the date of purchase (provided that the first month of
such 12-month period will be no more than 18 months prior to such date of
purchase) and (ii) other expenses as if such assets had been owned by the
Company since the first day of such period. If any Indebtedness (including,
without limitation, Acquired Debt) bears a floating rate of interest and is
being given pro forma effect, the interest on such Indebtedness will be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period.
"Consolidated EBITDA" as of any date of determination means the
Consolidated Net Income for such period (but without giving effect to
adjustments, accruals, deductions or entries resulting from purchase accounting,
extraordinary losses or gains and any gains or losses from any Asset Sales),
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) provision for taxes based on income or profits of such Person and
its Subsidiaries, or, in the case of the Company, its Restricted Subsidiaries
for such period, (ii) Consolidated Interest Expense, (iii) depreciation,
amortization (including amortization of goodwill and other intangibles) and
other non-cash charges (excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period and
excluding non-cash interest and dividend income) of such Person and its
Subsidiaries, or, in the case of the Company, its Restricted Subsidiaries for
such period, in each case, on a consolidated basis and determined in accordance
with GAAP. Notwithstanding the foregoing, the provision for taxes on the income
or profits of, and the depreciation, amortization, interest expense and other
non-cash charges of, a Subsidiary, or, in the case of the Company, a Restricted
Subsidiary of the referent Person shall be added to Consolidated Net Income to
compute Consolidated EBITDA only to the extent (and in same proportion) that the
Net Income of such Subsidiary, or, in the case of the Company, such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary, or, in the
case of the Company, such Restricted Subsidiary or loaned to the Company by any
such Subsidiary, or, in the case of the Company, such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and
4
<PAGE> 11
governmental regulations applicable to such Subsidiary, or, in the case of the
Company, such Restricted Subsidiary or its stockholders.
"Consolidated Indebtedness" means, with respect to any Person, as of
any date of determination, the aggregate amount of Indebtedness of such Person
and its Subsidiaries, or, in the case of the Company, its Restricted
Subsidiaries as of such date calculated on a consolidated basis in accordance
with GAAP consistently applied.
"Consolidated Interest Expense" means, for any Person, for any
period, the aggregate of the following for such Person for such period
determined on a consolidated basis in accordance with GAAP: (a) the amount of
interest in respect of Indebtedness (including amortization of original issue
discount, amortization of debt issuance costs, and non-cash interest payments on
any Indebtedness, the interest portion of any deferred payment obligation and
after taking into account the effect of elections made under any Interest Rate
Agreement, however denominated, with respect to such Indebtedness), (b) the
amount of Redeemable Dividends (to the extent not already included in
Indebtedness in determining Consolidated Interest Expense for the relevant
period) and (c) the interest component of rentals in respect of any Capital
Lease Obligation paid, in each case whether accrued or scheduled to be paid or
accrued by such Person during such period to the extent such amounts were
deducted in computing Consolidated Net Income, determined on a consolidated
basis in accordance with GAAP. For purposes of this definition, interest on a
Capital Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by such Person to be the rate of interest implicit in such
Capital Lease Obligation in accordance with GAAP consistently applied.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries, or,
in the case of the Company, its Restricted Subsidiaries for such period, on a
consolidated basis, determined in accordance with GAAP; provided that:
(i) the Net Income of any Person that is not a Subsidiary, or, in
the case of the Company, a Restricted Subsidiary or that is accounted for
by the equity method of accounting shall be included only to the extent of
the amount of dividends or distributions paid in cash to the referent
Person or a Subsidiary, or, in the case of the Company, a Restricted
Subsidiary thereof,
(ii) the Net Income of any Subsidiary, or, in the case of the
Company, any Restricted Subsidiary shall be excluded to the extent that
the declaration or payment of dividends or other distributions by that
Subsidiary, or Restricted Subsidiary, as the case may be, of that Net
Income is not at the date of determination permitted without any prior
governmental approval (which has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or Restricted Subsidiary, as the
case may be, or its stockholders,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded,
(iv) the cumulative effect of a change in accounting principles
shall be excluded, and
(v) the Net Income of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the Company or one of its
Restricted Subsidiaries.
5
<PAGE> 12
"Consolidated Net Worth" means the total amount shown on the balance
sheet of the Company and its consolidated Restricted Subsidiaries, determined on
a consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company for which internal financial statements are then
available, prior to the taking of any action for the purpose of which the
determination is being made, as (i) the par or stated value of all outstanding
Capital Stock of the Company plus (ii) paid-in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (a) any accumulated deficit and (b) any amounts attributable to
Disqualified Stock.
"Contingent Investment" means, with respect to any Person, any
guarantee by such Person of the performance of another Person or any commitment
by such Person to invest in another Person. Any Investment that consists of a
Contingent Investment shall be deemed made at the time that the guarantee of
performance or the commitment to invest is given, and the amount of such
Investment shall be the maximum monetary obligation under such guarantee of
performance or commitment to invest. To the extent that a Contingent Investment
is released or lapses without payment under the guarantee of performance or the
commitment to invest, such Investment shall be deemed not made to the extent of
such release or lapse. With respect to any Contingent Investment, the payment of
the guarantee of performance or the payment under the commitment to invest shall
not be deemed to be an additional Investment.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Issue Date or (ii) was nominated for election or
elected to such Board of Directors with the affirmative vote of a majority of
the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of
the Trustee specified in Section 10.02 hereof or such other address as to which
the Trustee may give notice to the Company.
"Credit Facility" means any credit facility entered into by and among
the Company and one or more commercial banks or financial institutions,
providing for senior term or revolving credit borrowings of a type similar to
credit facilities typically entered into by commercial banks and financial
institutions, including any related notes, Guarantees, collateral documents,
instruments and agreements executed in connection therewith, as such credit
facility and related agreements may be amended, extended, refinanced, renewed,
restated, replaced or refunded from time to time.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"Disqualified Stock" means any Capital Stock to the extent that, and
only to the extent that, by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the date on which the Notes mature,
provided, however, that any Capital Stock which would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require the
6
<PAGE> 13
Company to repurchase or redeem such Capital Stock upon the occurrence of a
Change of Control occurring prior to the final maturity of the Notes shall not
constitute Disqualified Stock if the change in control provisions applicable to
such Capital Stock are no more favorable to the holders of such Capital Stock
than the provisions applicable to the Notes contained in Section 4.15 hereof and
such Capital Stock specifically provides that the Company will not repurchase or
redeem any such stock pursuant to such provisions prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to Section
4.15 hereof.
"Eligible Institution" means a commercial banking institution that
has combined capital and surplus of not less than $500 million or its equivalent
in foreign currency, whose debt is rated "A" (or higher) according to S&P or
Moody's at the time as of which any investment or rollover therein is made.
"Eligible Receivable" means any Receivable not more than 90 days past
due under its scheduled payment terms.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock or that are measured by the value of
Capital Stock (but excluding any debt security that is convertible into or
exchangeable for Capital Stock).
"Equity Offering" means an underwritten offering of Capital Stock
(other than Disqualified Stock) of the Company registered under the Securities
Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
(or any successor act), and the rules and regulations thereunder.
"Exchange Notes" means the Company's 13% Series B Senior Secured
Notes due 2004 issued under this Indenture.
"Exchange Offer" means the exchange offer to be filed with the SEC
pursuant to the Registration Rights Agreement.
"Existing Indebtedness" means all Indebtedness of the Company and its
Restricted Subsidiaries in existence on the Issue Date.
"Fair Market Value" means with respect to any asset or property, the
sale value that would be obtained in an arm's length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect on the Issue
Date.
"Global Security" means, individually and collectively, each of the
Restricted Global Securities and the Unrestricted Global Security, substantially
in the form of Exhibit A.
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<PAGE> 14
"Global Security Legend" means the legend set forth in Section
2.06(g)(ii) to be placed on all Global Securities issued under this Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under Interest Rate Agreements.
"Holder" and "holder" shall mean, when used with reference to a Note,
a Person in whose name a Note is registered.
"IAI Global Security" means the Global Security in the form of
Exhibit A hereto bearing the Global Security Legend and the Private Placement
Legend and deposited with and registered in the name of the Depositary or its
nominee that will be issued in a denomination equal to the outstanding principal
amount of the Notes sold to Institutional Accredited Investors.
"ILEC" means the incumbent local exchange carrier.
"Indebtedness" means, with respect to any Person, an indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing the
balance deferred and unpaid of the purchase price of any property (including
pursuant to capital leases) or representing any Hedging Obligations, except any
such balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing (other than Hedging Obligations or letters of
credit) would appear as a liability upon a balance sheet of such Person prepared
in accordance with GAAP, all indebtedness of others secured by a Lien on any
asset of such Person (whether or not such indebtedness is assumed by such
Persons), all obligations to purchase, redeem, retire, defease or otherwise
acquire for value any Disqualified Stock or any warrants, rights or options to
acquire such Disqualified Stock valued, in the case of Disqualified Stock, at
the greatest amount payable in respect thereof on a liquidation (whether
voluntary or involuntary) plus accrued and unpaid dividends, the liquidation
value of any Preferred Stock issued by Subsidiaries of such Person or by
Restricted Subsidiaries of the Company, as the case may be, plus accrued and
unpaid dividends, and also includes, to the extent not otherwise included, the
Guarantee of items that would be included within this definition and any
amendment, supplement, modification, deferral, renewal, extension or refunding
of any of the above; notwithstanding the foregoing, in no event will performance
bonds or similar security for performance be deemed Indebtedness so long as such
performance bonds or similar security for performance would not appear as a
liability on a balance sheet of such Person prepared in accordance with GAAP;
and provided, further that the amount of any Indebtedness in respect of any
Guarantee shall be the maximum principal amount of the Indebtedness so
guaranteed.
8
<PAGE> 15
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Independent Appraiser" means a nationally recognized accounting,
appraisal or investment banking firm experienced in the review of similar types
of transactions which does not have, and whose directors, officers and employees
or Affiliates do not have, a direct or indirect financial interest in the
Affiliate Transaction and which, in the opinion of the Board of Directors, is
otherwise independent and qualified to perform the task for which it is to be
engaged.
"Indirect Participant" means a Person who holds a beneficial interest
in a Global Security through a Participant.
"Initial Purchasers" means Bear, Stearns & Co. Inc. and Furman Selz
LLC, as initial purchasers in the Offering.
"Interest Rate Agreements" means (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of loans,
Guarantees, Contingent Investments, advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities of any other Person and
all other items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP; provided, however, that any investment
to the extent made with Capital Stock of the Company (other than Disqualified
Stock) shall not be deemed an "Investment" for purposes of this Indenture.
"Issue Date" means September 29, 1997.
"Joint Venture" means a Person in the Telecommunications Business in
which the Company holds less than a majority of the shares of Voting Stock or an
Unrestricted Subsidiary in the Telecommunications Business.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
with respect to such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be
prepared by the Company and sent to all holders of the Notes for use by such
holders in connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected
9
<PAGE> 16
under applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.
"Marketable Securities" means:
(i) Government Securities;
(ii) any certificate of deposit maturing not more than 270 days
after the date of acquisition issued by, or time deposit of, an Eligible
Institution;
(iii) commercial paper maturing not more than 270 days after the date
of acquisition issued by a corporation (other than an Affiliate of the
Company) with a rating, at the time as of which any investment therein is
made, of "A-1" (or higher) according to S&P or "P-1" (or higher) according
to Moody's;
(iv) any banker's acceptances or money market deposit accounts
issued or offered by an Eligible Institution; and
(v) any fund investing exclusively in investments of the types
described in clauses (i) through (iv) above.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to Sale and Leaseback Transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries, or, in
the case of the Company, any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries,
or, in the case of the Company, any of its Restricted Subsidiaries and (ii) any
extraordinary gain (but not loss), together with any related provision for taxes
on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale, net
of the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the asset or assets that are
the subject of such Asset Sale and any reserve for adjustment in respect of the
sale price of such asset or assets. Net Proceeds shall exclude any non-cash
proceeds received from any Asset Sale, but shall include such proceeds when and
as converted by the Company or any Restricted Subsidiary of the Company to cash.
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<PAGE> 17
"Non-U.S. Person" means a person that is not a U.S. Person as defined
in Rule 902 under the Securities Act.
"Note Custodian" means the Trustee, as custodian with respect to the
Notes in global form, or any successor entity thereto.
"Offering" means the offering of the Units, each consisting of $1,000
principal amount of Notes and one warrant to purchase 8.07 shares of Common
Stock, pursuant to the Offering Memorandum.
"Offering Memorandum" means the offering memorandum of the Company,
dated September 24, 1997, relating to the Offering.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, Controller,
Secretary, Assistant Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed by two Officers of
the Company, one of whom must be the principal executive officer, principal
financial officer, treasurer or principal accounting officer of the Company,
delivered to the Trustee.
"Opinion of Counsel" means an opinion from legal counsel, who may be
an employee of or counsel to the Company, any Subsidiary of the Company or the
Trustee, delivered to the Trustee.
"Pari Passu Notes" means any notes issued by the Company which, by
their terms and the terms of any indenture governing such notes, have an
obligation to be repurchased by the Company upon the occurrence of an Asset
Sale.
"Participant" means, with respect to the Depositary, a Person who has
an account with the Depositary.
"Permitted Holder" means (i) Circle F Ventures, LLC or any of its
Affiliates, (ii) any of Maurice J. Gallagher, Jr., Timothy P. Flynn, Robert L.
Priddy or Nield J. Montgomery or their respective spouses or lineal descendants
and their respective spouses (collectively, the "Individual Family Holders")
whether acting in their own name or as a majority of persons having the power to
exercise the voting rights attached to, or having investment power over, shares
held by others, (iii) any Affiliate of any member of the Individual Family
Holders, (iv) any trust principally for the benefit of one or more members of
the Individual Family Holders (whether or not any member of the Individual
Family Holders is a trustee of such trust) and (v) any charitable foundation
whose majority of members, trustees or directors, as the case may be, are
persons referred to in (ii) above.
"Permitted Investment" means (a) any Investments in the Company or
any Restricted Subsidiary of the Company; (b) any Investments in Marketable
Securities; (c) Investments by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment (i) such Person becomes a
Restricted Subsidiary of the Company or (ii) such Person is merged, consolidated
or amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary of the
Company; (d) any Investments in property or assets to be used in (A) any line of
business in which the Company or any of its Restricted Subsidiaries was engaged
on the Issue Date or
11
<PAGE> 18
(B) any Telecommunications Business; (e) up to $20.0 million at any one time
outstanding in Investments in Joint Ventures, provided, however, that
Investments in Joint Ventures which are not also Unrestricted Subsidiaries shall
not exceed $10.0 million at any one time outstanding; (f) Investments pursuant
to any agreement or obligation of the Company or a Restricted Subsidiary, in
effect on the Issue Date or on the date a Subsidiary becomes a Restricted
Subsidiary (provided that any such agreement was not entered into in
contemplation of such Subsidiary becoming a Restricted Subsidiary), to make such
Investments; (g) Investments in prepaid expenses, negotiable instruments held
for collection and lease, utility and workers' compensation, performance and
other similar deposits; (h) Hedging Obligations permitted to be incurred
pursuant to Section 4.09(b) hereof; and (i) bonds, notes, debentures or other
securities received as a result of Asset Sales permitted under Section 4.10
hereof.
"Permitted Liens" means (i) Liens securing Indebtedness (including
Capital Lease Obligations) permitted to be incurred pursuant to Sections
4.09(b)(i) and 4.09(b)(ii) hereof; (ii) Liens in favor of the Company; (iii)
Liens on property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Restricted Subsidiary of the Company;
provided that such Liens were not incurred in contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company; (iv) Liens on property existing at
the time of acquisition thereof by the Company or any Restricted Subsidiary of
the Company, provided that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vi)
Liens existing on the Issue Date; (vii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings timely instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor;
(viii) Liens incurred in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company with respect to obligations that do not
exceed $3.0 million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Restricted Subsidiary; (ix) Liens on Telecommunications Related Assets existing
during the time of the construction thereof; (x) Liens on Receivables to secure
Indebtedness permitted to be incurred pursuant to Section 4.09(b) hereof, but
only to the extent that the outstanding amount of the Indebtedness secured by
such Liens would not represent more than 80% of Eligible Receivables; (xi) Liens
on Telecommunications Equipment required to be incurred pursuant to Section 4.18
hereof; and (xii) Liens to secure any Permitted Refinancing of any Indebtedness
secured by Liens referred to in the foregoing clauses (i), (iii), (iv), (v),
(vi) or (x), but only to the extent that such Liens do not extend to any other
property or assets and the principal amount of the Indebtedness secured by such
Liens is not increased by more than the fees and expenses incurred in connection
with such refinancing.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Pledge Account" means an account established with the Trustee
pursuant to the terms of the Pledge Agreement for the deposit of the Pledged
Securities purchased by the Company with a portion of the proceeds from the sale
of the Notes.
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<PAGE> 19
"Pledge Agreement" means the Collateral Pledge and Security
Agreement, dated as of the date hereof, by and between the Trustee and the
Company, governing the disbursement of funds from the Pledge Account.
"Pledged Securities" means the securities purchased by the Company
with a portion of the proceeds from the sale of the Notes, which shall consist
of Government Securities, to be deposited in the Pledge Account.
"Preferred Stock" as applied to the Capital Stock of any Person,
means Capital Stock of such Person of any class or classes (however designated)
that ranks prior, as to payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Preferred Stock Offering" means the offering of Convertible
Preferred Stock of the Company to generate aggregate gross proceeds of at lease
$15.0 million.
"Qualified Equity Offering" means an Equity Offering in which the net
proceeds to the Company are not less than $25.0 million.
"QIB" means a qualified institutional buyer as defined in Rule 144A
of the Securities Act.
"Receivables" means, with respect to any Person, all of the following
property and interests in property of such Person, whether now existing or
existing in the future or hereafter acquired or arising: (i) accounts; (ii)
accounts receivable, including, without limitation, all rights to payment
created by or arising from sales of goods, leases of goods or the rendition of
services no matter how evidenced, whether or not earned by performance; (iii)
all unpaid seller's or lessor's rights including, without limitation,
rescission, replevin, reclamation and stoppage in transit, relating to any of
the foregoing after creation of the foregoing or arising therefrom; (iv) all
rights to any goods or merchandise represented by any of the foregoing,
including, without limitation, returned or repossessed goods; (v) all reserves
and credit balances with respect to any such accounts receivable or account
debtors; (vi) all letters of credit, security, or Guarantees for any of the
foregoing; (vii) all insurance policies or reports relating to any of the
foregoing; (viii) all collection of deposit accounts relating to any of the
foregoing; (ix) all proceeds of any of the foregoing; and (x) all books and
records relating to any of the foregoing.
"Redeemable Dividend" means, for any dividend with regard to
Disqualified Stock and Preferred Stock, the quotient of the dividend divided by
the difference between one and the maximum statutory federal income tax rate
(expressed as a decimal number between 1 and 0) then applicable to the issuer of
such Disqualified Stock or Preferred Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, between the Company and the Initial
Purchasers relating to the Notes.
"Regulation S Global Security" means the Global Security in the form
of Exhibit A hereto bearing the Global Security Legend and the Private Placement
Legend and registered in the name of the Depositary or its nominee that will be
issued in a denomination equal to the outstanding principal amount of the Notes
sold to Non-U.S. Persons in an offshore transaction in accordance with Rule 904
under the Securities Act.
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<PAGE> 20
"Representative" means the indenture trustee or other trustee, agent
or representative for any Senior Indebtedness.
"Responsible Officer" when used with respect to the Trustee, means
any officer within the Corporate Trust Department of the Trustee (or any
successor group of the Trustee) with direct responsibility for the
administration of this Indenture and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Restricted Broker-Dealer" has the meaning ascribed to such term in
the Registration Rights Agreement.
"Restricted Certificated Security" means a Certificated Security
bearing the Private Placement Legend.
"Restricted Global Security" means any 144A Global Security,
Regulation S Global Security or IAI Global Security that bears the Private
Placement Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment Credit" means the sum of (i) any cash received by
the Company as repayment of a Restricted Payment and (ii) the lesser of (x) the
net book value of any Restricted Investment at the time it becomes a Permitted
Investment, (y) the fair market value of such Restricted Investment at the time
it becomes a Permitted Investment and (z) the original fair market value of such
Restricted Investment at the time it was made.
"Restricted Subsidiary" means any subsidiary of the Company that is
not designated by the Board of Directors as an Unrestricted Subsidiary.
"Rule 144" means Rule 144 under the Securities Act.
"Rule 144A" means Rule 144A under the Securities Act.
"Rule 904" means Rule 904 under the Securities Act.
"S&P" means Standard and Poor's Rating Services and its successors.
"SEC" means the Securities and Exchange Commission.
"Sale and Leaseback Transaction" means, with respect to any Person,
any direct or indirect arrangement pursuant to which any property (other than
Capital Stock) is sold by such Person or a Subsidiary, or, in the case of the
Company, a Restricted Subsidiary of such Person and is thereafter leased back
from the purchaser or transferee thereof by such Person or one of its
Subsidiaries, or, in the case of the Company, one of its Restricted
Subsidiaries.
"Security Agreement" means the Security Agreement, dated as of the
date hereof, by and between the Company and the Trustee, as collateral agent.
14
<PAGE> 21
"Security Documents" means the Security Agreement and any other
agreements, instruments or documents entered into or delivered in connection
with the Security Agreement, as such agreements, instruments or documents may
from time to time be amended in accordance with their terms.
"Securities Act" means the Securities Act of 1933, as amended (or any
successor act), and the rules and regulations thereunder.
"Senior Indebtedness" means any Indebtedness permitted to be incurred
by the Company under the terms of this Indenture, unless the instrument under
which such Indebtedness is incurred expressly provides that it is subordinated
in right of payment to the Notes. Notwithstanding anything to the contrary in
the foregoing, Senior Indebtedness will not include (i) any liability for
federal, state, local or other taxes owed or owing by the Company, (ii) any
Indebtedness of the Company to any of its Subsidiaries or other Affiliates,
(iii) any trade payables or (iv) any Indebtedness that is incurred in violation
of this Indenture.
"Separation Date" means the earlier of (i) 90 days after the issuance
of the Units, (ii) such date as the Initial Purchasers may, in their discretion,
deem appropriate for the Notes and the Warrants that comprise each Unit to be
transferred or exchanged separately, (iii) in the event a Change of Control
occurs, the date the Company mails notice thereof to Holders and (iv) the date
on which the Exchange Offer (as defined in the Registration Rights Agreement) is
consummated.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary that would
be a "Significant Subsidiary" as defined in Article 1, Rule 1-02 of Regulation
S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect
on the date hereof and (ii) any Subsidiary which holds any permit or license
which is material to the operations of the Company and its Restricted
Subsidiaries taken as a whole.
"Subsidiary" of any Person means (i) any corporation, association or
business entity of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such Person or one or more of
the other Subsidiaries of such Person or a combination thereof and (ii) any
partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or one or more Subsidiaries of such Person or
any combination thereof.
"Telecommunications Business" means, when used in reference to any
Person, that such Person is engaged primarily in the business of (i)
transmitting, or providing services relating to the transmission of, voice,
video or data through owned or leased transmission facilities, and (ii)
creating, developing or marketing communications related network equipment,
software and other devices for use in a Telecommunications Business.
"Telecommunications Equipment" means telecommunications switches and
related equipment and inventory, including, without limitation, all remote
switching nodes, modems, line cards, transport hardware and equipment or
hardware necessary to install and operate the telecommunications switches.
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<PAGE> 22
"Telecommunications Related Assets" means all assets, rights
(contractual or otherwise) and properties, whether tangible or intangible, real
or personal, used or to be used in connection with a Telecommunications
Business.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA, except as provided in Section 9.03 hereof.
"Total Common Equity" of any Person means, as of any date of
determination, the product of (i) the aggregate number of outstanding primary
shares of Common Stock of such Person on such day (which shall not include any
options or warrants on, or securities convertible or exchangeable into, shares
of Common Stock of such Person) and (ii) the average Closing Price of such
Common Stock over the 20 consecutive Trading Days immediately preceding such
day. If no such Closing Price exists with respect to shares of any such class,
the value of such shares for purposes of clause (ii) of the preceding sentence
shall be determined by the Board of Directors of the Company in good faith and
evidenced by a resolution of the Board of Directors filed with the Trustee.
"Trading Day," with respect to a securities exchange or automated
quotation system, means a day on which such exchange or system is open for a
full day of trading.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Units" means 160,000 Units consisting of $160,000,000 aggregate
principal amount of Notes and Warrants to purchase an aggregate of 1,291,200
shares of Common Stock of the Company.
"Unrestricted Certificated Security" means one or more Certificated
Securities that do not and are not required to bear the Private Placement
Legend.
"Unrestricted Global Security" means a permanent global security in
the form of Exhibit A attached hereto that bears the Global Security Legend and
the "Schedule of Exchanges of Interests in the Global Security" attached
thereto, and that is registered in the name of the Depositary, representing
Notes that do not bear the Private Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a resolution of
the Board of Directors filed with the Trustee.
"Vendor Indebtedness" means any Indebtedness of the Company or any
Restricted Subsidiary incurred in connection with the acquisition or
construction of Telecommunications Related Assets.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or Persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Warrants" means Warrants to purchase an aggregate of 1,291,200
shares of Common Stock of the Company.
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<PAGE> 23
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding principal amount of such Indebtedness into (b) the total of the
product obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment; provided, that with respect to Capital
Lease Obligations, that maturity shall be calculated after giving effect to all
renewal options by the Lessee.
<TABLE>
<CAPTION>
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
<S> <C>
"Affiliate Transaction"........................................ 4.11
"Asset Sale"................................................... 4.10
"Bankruptcy Law"............................................... 4.01
"Change of Control Offer"...................................... 4.15
"Change of Control Payment".................................... 4.15
"Change of Control Payment Date"............................... 4.15
"Collateral"................................................... 4.17
"Commission"................................................... 4.03
"Covenant Defeasance".......................................... 8.03
"Custodian".................................................... 6.01
"Event of Default"............................................. 6.01
"Excess Proceeds".............................................. 4.10
"Excess Proceeds Offer"........................................ 3.09
"incur"........................................................ 4.09
"Legal Defeasance" ............................................ 8.02
"Offer Amount"................................................. 3.09
"Offer Period"................................................. 3.09
"Paying Agent"................................................. 2.03
"Payment Default".............................................. 6.01
"Permitted Refinancing"........................................ 4.09
"Purchase Date"................................................ 3.09
"Refinance".................................................... 4.09
"Registrar".................................................... 2.03
"Restricted Payments".......................................... 4.07
"Retire"....................................................... 4.07
"SEC Reports".................................................. 4.03
"Telecommunications Collateral"................................ 4.18
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
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<PAGE> 24
"indenture securities" means the Notes;
"indenture security holder" means a holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company and any successor obligor
upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a capitalized term has the meaning assigned to it under this
Article 1;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation; and
(5) words in the singular include the plural, and in the plural
include the singular.
ARTICLE 2
THE NOTES
SECTION 2.01. FORM AND DATING.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto, the terms of which are
incorporated in and made a part of this Indenture. The Notes may have notations,
legends or endorsements required by law, stock exchange rule or usage. Each Note
shall be dated the date of its authentication. The Notes shall be in
denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby. However, to the extent any
provision of any Note conflicts with the express provisions of this Indenture,
the provisions of this Indenture shall govern and be controlling.
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<PAGE> 25
Notes issued in global form shall be substantially in the form of
Exhibit A attached hereto (including the Global Security Legend and the
"Schedule of Exchanges in the Global Security" attached thereto). Notes issued
in definitive form shall be substantially in the form of Exhibit A attached
hereto (but without the Global Security Legend and without the "Schedule of
Exchanges of Interests in the Global Security" attached thereto). Each Global
Security shall represent such of the outstanding Notes as shall be specified
therein and each shall provide that it shall represent the aggregate principal
amount of outstanding Notes from time to time endorsed thereon and that the
aggregate principal amount of outstanding Notes represented thereby may from
time to time be reduced or increased, as appropriate, to reflect exchanges and
redemptions. Any endorsement of a Global Security to reflect the amount of any
increase or decrease in the aggregate principal amount of outstanding Notes
represented thereby shall be made by the Trustee or the Note Custodian, at the
direction of the Trustee, in accordance with instructions given by the holder
thereof as required by Section 2.06 hereof.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
One Officer of the Company shall sign the Notes for the Company by
manual or facsimile signature.
If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated, the Note shall nevertheless be
valid. In addition, if a Person is not an Officer at the time a Note is
authenticated, but becomes an Officer on or prior to the delivery of the Note,
the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of an authorized signatory of the Trustee. The signature of the Trustee shall be
conclusive evidence that the Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by an
Officer of the Company, authenticate Notes for original issue up to the
aggregate principal amount stated in paragraph 4 of the Notes. The aggregate
principal amount of Notes outstanding at any time may not exceed such amount
except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. Unless limited by the terms of such appointment,
an authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company or an Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any holder. The
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<PAGE> 26
Company shall notify the Trustee and the Trustee shall notify the holders of the
Notes in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar. The Company shall enter
into an appropriate agency agreement with any Agent not a party to this
Indenture, which shall incorporate the provisions of the TIA. The agreement
shall implement the provisions of this Indenture that relate to such Agent. The
Company shall notify the Trustee of the name and address of any such Agent. If
the Company fails to maintain a Registrar or Paying Agent, or fails to give the
foregoing notice, the Trustee shall act as such, and shall be entitled to
appropriate compensation in accordance with Section 7.07 hereof.
The Company initially appoints The Depository Trust Company ("DTC")
to act as Depositary with respect to the Global Securities.
The Company initially appoints the Trustee to act as the Registrar
and Paying Agent and to act as Note Custodian with respect to the Global
Securities. Except as otherwise specifically provided herein, (i) all references
in this Indenture to the Trustee shall be deemed to refer to the Trustee in its
capacity as Trustee and in its capacities as Registrar and Paying Agent and (ii)
every provision of this Indenture relating to the conduct of or affecting the
liability of or offering protection, immunity or indemnity to the Trustee shall
be deemed to apply with the same force and effect to the Trustee acting in its
capacities as Paying Agent and Registrar.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent shall hold in trust for the benefit of
holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Notes, and
will notify the Trustee of any default by the Company in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent and Registrar for the Notes.
SECTION 2.05. HOLDER LISTS.
If it is the Registrar, the Trustee shall preserve in as current a
form as is reasonably practicable the most recent list available to it of the
names and addresses of all holders and shall otherwise comply with TIA ss.
312(a). If the Trustee is not the Registrar, the Company shall furnish to the
Trustee at least five Business Days before each interest payment date and at
such other times as the Trustee may request in writing, a list in such form and
as of such date as the Trustee may reasonably require of the names and addresses
of the holders of the Notes and the Company shall otherwise comply with TIA
section 312(a).
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SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Securities. A Global Security may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary, by a nominee of the Depositary to the Depositary or to another
nominee of the Depositary, or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. All Global
Securities will be exchanged by the Company for Certificated Securities if (i)
the Company delivers to the Trustee notice from the Depositary that it is
unwilling or unable to continue to act as Depositary or that it is no longer a
clearing agency registered under the Exchange Act and, in either case, a
successor Depositary is not appointed by the Company within 120 days after the
date of such notice from the Depositary or (ii) the Company in its sole
discretion determines that the Global Securities (in whole but not in part)
should be exchanged for Certificated Securities and delivers a written notice to
such effect to the Trustee. Upon the occurrence of either of the preceding
events in (i) or (ii) above, Certificated Securities shall be issued in such
names as the Depositary shall instruct the Trustee. Global Securities also may
be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and
2.11 hereof. Every Note authenticated and delivered in exchange for, or in lieu
of, a Global Security or any portion thereof, pursuant to Section 2.07 or 2.11
hereof, shall be authenticated and delivered in the form of, and shall be, a
Global Security. A Global Security may not be exchanged for another Note other
than as provided in this Section 2.06(a), however beneficial interests in a
Global Security may be transferred and exchanged as provided in Section 2.06(b),
(c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global
Securities. The transfer and exchange of beneficial interests in the Global
Securities shall be effected through the Depositary, in accordance with the
provisions of this Indenture and the procedures of the Depositary therefor.
Beneficial interests in the Restricted Global Securities shall be subject to
restrictions on transfer comparable to those set forth herein to the extent
required by the Securities Act. The Trustee shall have no obligation to
ascertain the Depositary's compliance with any such restrictions on transfer.
Transfers of beneficial interests in the Global Securities also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well as
one or more of the other following subparagraphs as applicable:
(i) Transfer of Beneficial Interests in the Same Global Security.
Beneficial interests in any Restricted Global Security may be transferred
to Persons who take delivery thereof in the form of a beneficial interest
in the same Restricted Global Security in accordance with the transfer
restrictions set forth in the Private Placement Legend. Beneficial
interests in any Unrestricted Global Security may be transferred only to
Persons who take delivery thereof in the form of a beneficial interest in
an Unrestricted Global Security. No written orders or instructions shall
be required to be delivered to the Registrar to effect the transfers
described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Securities. In connection with all transfers and exchanges of
beneficial interests (other than transfers of beneficial interests in a
Global Security to Persons who take delivery thereof in the form of a
beneficial interest in the same Global Security), the transferor of such
beneficial interest must deliver to the Registrar either (A) (1) a written
order from a Participant or an Indirect Participant given to the
Depositary in accordance with the Applicable Procedures directing the
Depositary to credit or cause to be credited a beneficial interest in the
specified Global Security in an amount equal to the beneficial interest to
be transferred or exchanged and (2) instructions given in accordance with
the Applicable Procedures containing information regarding the Participant
account to be credited with such increase or (B) (1) a written
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order from a Participant or an Indirect Participant given to the
Depositary in accordance with the Applicable Procedures directing the
Depositary to cause to be issued a Certificated Security in an amount
equal to the beneficial interest to be transferred or exchanged and (2)
instructions given by the Depositary to the Registrar containing
information regarding the Person in whose name such Certificated Security
shall be registered to effect the transfer or exchange referred to in (1)
above. Upon an Exchange Offer by the Company in accordance with Section
2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall be
deemed to have been satisfied upon receipt by the Registrar of the
instructions contained in the Letter of Transmittal delivered by the
holder of such beneficial interests in the Restricted Global Securities.
Upon satisfaction of all of the requirements for transfer or exchange of
beneficial interests in Global Securities contained in this Indenture, the
Notes and otherwise applicable under the Securities Act, the Trustee shall
adjust the principal amount of the relevant Global Security pursuant to
Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted Global
Security. Beneficial interests in any Restricted Global Security may be
transferred to Persons who take delivery thereof in the form of a
beneficial interest in another Restricted Global Security if the Registrar
receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Security, then the transferor
must deliver a certificate in the form of Exhibit B hereto, including
the certifications in item (1) thereof;
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Global Security or the IAI
Global Security, then the transferor must deliver (x) a certificate
in the form of Exhibit B hereto, including the certifications in item
(2) thereof, (y) an Opinion of Counsel in form reasonably acceptable
to the Company to the effect that such transfer is in compliance with
the Securities Act and such beneficial interest is being transferred
in compliance with any applicable blue sky securities laws of any
State of the United States and (z) if the transfer is being made to
an Institutional Accredited Investor and effected pursuant to an
exemption from the registration requirements of the Securities Act
other than Rule 144A under the Securities Act, Rule 144 under the
Securities Act or Rule 904 under the Securities Act, a certificate
from the transferee in the form of Exhibit D hereto.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Security for Beneficial Interests in the Unrestricted Global
Security. Beneficial interests in any Restricted Global Security may be
exchanged by any holder thereof for a beneficial interest in the
Unrestricted Global Security or transferred to Persons who take delivery
thereof in the form of a beneficial interest in the Unrestricted Global
Security if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the related letter of transmittal
that it is not (1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
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<PAGE> 29
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration Statement
in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Security proposes to exchange such beneficial
interest for a beneficial interest in the Unrestricted Global
Security, a certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (1)(a) thereof;
(2) if the holder of such beneficial interest in a
Restricted Global Security proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form of a
beneficial interest in the Unrestricted Global Security, a
certificate from such holder in the form of Exhibit B hereto,
including the certifications in item (3) thereof;
(3) in each such case set forth in this subparagraph (D),
an Opinion of Counsel in form reasonably acceptable to the Registrar
to the effect that such exchange or transfer is in compliance with
the Securities Act, that the restrictions on transfer contained
herein and in the Private Placement Legend are not required in order
to maintain compliance with the Securities Act, and such beneficial
interest is being exchanged or transferred in compliance with any
applicable blue sky securities laws of any State of the United
States.
If any such transfer is effected pursuant to subparagraph (B) or
(D) above at a time when an Unrestricted Global Security has not yet been
issued, the Company shall issue and, upon receipt of an authentication
order in accordance with Section 2.02 hereof, the Trustee shall
authenticate one or more Unrestricted Global Securities in an aggregate
principal amount equal to the principal amount of beneficial interests
transferred pursuant to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Security cannot
be exchanged for, or transferred to Persons who take delivery thereof in
the form of, a beneficial interest in any Restricted Global Security.
(c) Transfer or Exchange of Beneficial Interests for Certificated
Securities.
(i) If any holder of a beneficial interest in a Restricted Global
Security proposes to exchange such beneficial interest for a Certificated
Security or to transfer such beneficial interest to a Person who takes
delivery thereof in the form of a Certificated Security, then, upon
receipt by the Registrar of the following documentation (all of which may
be submitted by facsimile):
(A) if the holder of such beneficial interest in a Restricted
Global Security proposes to exchange such beneficial interest for a
Restricted Certificated Security, a certificate from such holder in
the form of Exhibit C hereto, including the certifications in item
(2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof;
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(C) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than Rule
144A, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2)(c) thereof, a certificate
from the transferee to the effect set forth in Exhibit D hereof and
an Opinion of Counsel from the transferee or the transferor
reasonably acceptable to the Company to the effect that such transfer
is in compliance with the Securities Act and such beneficial interest
is being transferred in compliance with any applicable blue sky
securities laws of any State of the United States;
(D) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item
(2)(a) thereof; or
(E) if such beneficial interest is being transferred pursuant to
an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (2)(b) thereof,
the Trustee shall cause the aggregate principal amount of the applicable
Global Security to be reduced accordingly pursuant to Section 2.06(h)
hereof, and the Company shall execute and the Trustee shall authenticate
and deliver to the Person designated in the instructions a Certificated
Security in the appropriate principal amount. Certificated Securities
issued in exchange for beneficial interests in a Restricted Global
Security pursuant to this Section 2.06(c) shall be registered in such
names and in such authorized denominations as the holder shall instruct
the Registrar through instructions from the Depositary and the Participant
or Indirect Participant. The Trustee shall deliver such Certificated
Securities to the Persons in whose names such Notes are so registered.
Certificated Securities issued in exchange for a beneficial interest in a
Restricted Global Security pursuant to this Section 2.06(c)(i) shall bear
the Private Placement Legend and shall be subject to all restrictions on
transfer contained therein.
(ii) Notwithstanding 2.06(c)(i), a holder of a beneficial interest in
a Restricted Global Security may exchange such beneficial interest for an
Unrestricted Certificated Security or may transfer such beneficial
interest to a Person who takes delivery thereof in the form of an
Unrestricted Certificated Security only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the related letter of transmittal
that it is not (1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration Statement
in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
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(1) if the holder of such beneficial interest in a
Restricted Global Security proposes to exchange such beneficial
interest for a Certificated Security that does not bear the Private
Placement Legend, a certificate from such holder in the form of
Exhibit C hereto, including the certifications in item (1)(b)
thereof;
(2) if the holder of such beneficial interest in a
Restricted Global Security proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form of a
Certificated Security that does not bear the Private Placement
Legend, a certificate from such holder in the form of Exhibit B
hereto, including the certifications in item (3) thereof; and
(3) in each such case set forth in this subparagraph (D),
an Opinion of Counsel in form reasonably acceptable to the Company,
to the effect that such exchange or transfer is in compliance with
the Securities Act, that the restrictions on transfer contained
herein and in the Private Placement Legend are not required in order
to maintain compliance with the Securities Act, and such beneficial
interest in a Restricted Global Security is being exchanged or
transferred in compliance with any applicable blue sky securities
laws of any State of the United States.
(iii) If any holder of a beneficial interest in an Unrestricted
Global Security proposes to exchange such beneficial interest for a
Certificated Security or to transfer such beneficial interest to a Person
who takes delivery thereof in the form of a Certificated Security, then,
upon satisfaction of the conditions set forth in Section 2.06(b)(ii), the
Trustee shall cause the aggregate principal amount of the applicable
Global Security to be reduced accordingly pursuant to Section 2.06(h)
hereof, and the Company shall execute and the Trustee shall authenticate
and deliver to the Person designated in the instructions a Certificated
Security in the appropriate principal amount. Certificated Securities
issued in exchange for a beneficial interest pursuant to this Section
2.06(c)(iii) shall be registered in such names and in such authorized
denominations as the holder shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall deliver such Certificated Securities to the
Persons in whose names such Notes are so registered. Certificated
Securities issued in exchange for a beneficial interest pursuant to this
section 2.06(c)(iii) shall not bear the Private Placement Legend.
Beneficial interests in an Unrestricted Global Security cannot be
exchanged for a Certificated Security bearing the Private Placement Legend
or transferred to a Person who takes delivery thereof in the form of a
Certificated Security bearing the Private Placement Legend.
(d) Transfer or Exchange of Certificated Securities for Beneficial
Interests.
(i) If any holder of Restricted Certificated Securities proposes to
exchange such Notes for a beneficial interest in a Restricted Global
Security or to transfer such Certificated Securities to a Person who
takes delivery thereof in the form of a beneficial interest in a
Restricted Global Security, then, upon receipt by the Registrar of the
following documentation (all of which may be submitted by facsimile):
(A) if the holder of such Restricted Certificated Securities
proposes to exchange such Notes for a beneficial interest in a
Restricted Global Security, a certificate from such holder in the
form of Exhibit C hereto, including the certifications in item (2)(b)
thereof;
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(B) if such Certificated Securities are being transferred to a
QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (1) thereof;
(C) if such Certificated Securities are being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule
904 under the Securities Act, a certificate to the effect set forth
in Exhibit B hereto, including the certifications in item (2)(c)
thereof;
(D) if such Certificated Securities are being transferred to an
Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than Rule
144A, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2)(c) thereof, a certificate
from the transferee to the effect set forth in Exhibit D hereof and
an Opinion of Counsel from the transferee or the transferor
reasonably acceptable to the Company to the effect that such transfer
is in compliance with the Securities Act and such Certificated
Securities are being transferred in compliance with any applicable
blue sky securities laws of any State of the United States;
(E) if such Certificated Securities are being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item
(2)(a) thereof; or
(F) if such Certificated Securities are being transferred
pursuant to an effective registration statement under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2)(b) thereof,
the Trustee shall cancel the Certificated Securities, increase or cause to
be increased the aggregate principal amount of, in the case of clause (A)
above, the appropriate Restricted Global Security, in the case of clause
(B) above, the 144A Global Security, in the case of clause (C) above, the
Regulation S Global Security, and in all other cases, the IAI Global
Security.
(ii) A holder of Restricted Certificated Securities may exchange such
Notes for a beneficial interest in the Unrestricted Global Security or
transfer such Restricted Certificated Securities to a Person who takes
delivery thereof in the form of a beneficial interest in the Unrestricted
Global Security only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the related letter of transmittal
that it is not (1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration Statement
in accordance with the Registration Rights Agreement; or
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(D) the Registrar receives the following:
(1) if the holder of such Certificated Securities proposes
to exchange such Notes for a beneficial interest in the Unrestricted
Global Security, a certificate from such holder in the form of
Exhibit C hereto, including the certifications in item (1)(c)
thereof;
(2) if the holder of such Certificated Securities proposes
to transfer such Notes to a Person who shall take delivery thereof in
the form of a beneficial interest in the Unrestricted Global
Security, a certificate from such holder in the form of Exhibit B
hereto, including the certifications in item (3) thereof; and
(3) in each such case set forth in this subparagraph (D),
an Opinion of Counsel in form reasonably acceptable to the Company to
the effect that such exchange or transfer is in compliance with the
Securities Act, that the restrictions on transfer contained herein
and in the Private Placement Legend are not required in order to
maintain compliance with the Securities Act, and such Certificated
Securities are being exchanged or transferred in compliance with any
applicable blue sky securities laws of any State of the United
States.
Upon satisfaction of the conditions of any of the subparagraphs in this
Section 2.06(d)(ii), the Trustee shall cancel the Certificated Securities
and increase or cause to be increased the aggregate principal amount of
the Unrestricted Global Security.
(iii) A holder of Unrestricted Certificated Securities may exchange
such Notes for a beneficial interest in the Unrestricted Global Security
or transfer such Certificated Securities to a Person who takes delivery
thereof in the form of a beneficial interest in the Unrestricted Global
Security. Upon receipt of a request for such an exchange or transfer, the
Trustee shall cancel the Unrestricted Certificated Securities and increase
or cause to be increased the aggregate principal amount of the
Unrestricted Global Security.
If any such exchange or transfer from a Certificated Security to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above at a time when an Unrestricted Global Security has not yet been
issued, the Company shall issue and, upon receipt of an authentication order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Securities in an aggregate principal amount to the principal
amount of beneficial interests transferred pursuant to subparagraphs (ii)(B),
(ii)(D) or (iii) above.
(e) Transfer and Exchange of Certificated Securities. Upon request
by a holder of Certificated Securities and such holder's compliance with the
provisions of this Section 2.06(e), the Registrar shall register the transfer or
exchange of Certificated Securities. Prior to such registration of transfer or
exchange, the requesting holder shall present or surrender to the Registrar the
Certificated Securities duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such holder or
by his attorney, duly authorized in writing. In addition, the requesting holder
shall provide any additional certifications, documents and information, as
applicable, pursuant to the provisions of this Section 2.06(e).
(i) Restricted Certificated Securities may be transferred to and
registered in the name of Persons who take delivery thereof if the
Registrar receives the following:
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<PAGE> 34
(A) if the transfer will be made pursuant to Rule 144A under the
Securities Act, then the transferor must deliver a certificate in the
form of Exhibit B hereto, including the certifications in item (1)
thereof;
(B) if the transfer will be made pursuant to Rule 904, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (2)(c) thereof; and
(C) if the transfer will be made pursuant to any other exemption
from the registration requirements of the Securities Act, then the
transferor must deliver (x) a certificate in the form of Exhibit B
hereto, including the certifications in item (3) thereof, (y) an
Opinion of Counsel in form reasonably acceptable to the Company to
the effect that such transfer is in compliance with the Securities
Act and such beneficial interest is being transferred in compliance
with any applicable blue sky securities laws of any State of the
United States and (z) if the transfer is being made to an
Institutional Accredited Investor and effected pursuant to an
exemption from the registration requirements of the Securities Act
other than Rule 144A under the Securities Act, Rule 144 under the
Securities Act or Rule 904 under the Securities Act, a certificate
from the transferee in the form of Exhibit D hereto.
(ii) Restricted Certificated Securities may be exchanged by any
holder thereof for an Unrestricted Certificated Security or transferred to
Persons who take delivery thereof in the form of an Unrestricted
Certificated Security if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the related letter of transmittal
that it is not (1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration Statement
in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such Restricted Certificated
Securities proposes to exchange such Notes for an Unrestricted
Certificated Security, a certificate from such holder in the form of
Exhibit C hereto, including the certifications in item (1)(c)
thereof;
(2) if the holder of such Restricted Certificated
Securities proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of an Unrestricted Certificated
Security, a certificate from such holder in the form of Exhibit B
hereto, including the certifications in item (3) thereof; and
(3) in each such case set forth in this subparagraph (D),
an Opinion of Counsel in form reasonably acceptable to the Company to
the effect that such exchange or transfer is in
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compliance with the Securities Act, that the restrictions on
transfer contained herein and in the Private Placement Legend are
not required in order to maintain compliance with the Securities
Act, and such Restricted Certificated Security is being exchanged or
transferred in compliance with any applicable blue sky securities
laws of any State of the United States.
(iii) A holder of Unrestricted Certificated Securities may transfer
such Notes to a Person who takes delivery thereof in the form of an
Unrestricted Certificated Security. Upon receipt of a request for such a
transfer, the Registrar shall register the Unrestricted Certificated
Securities pursuant to the instructions from the holder thereof.
Unrestricted Certificated Securities cannot be exchanged for or
transferred to Persons who take delivery thereof in the form of a
Restricted Certificated Security.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an authentication order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Securities in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Securities tendered for acceptance by Persons
that have certified in the related letter of transmittal that they are not (x)
broker-dealers, (y) Persons participating in the distribution of the Exchange
Notes or (z) Persons who are affiliates (as defined in Rule 144) of the Company
and accepted for exchange in the exchange Offer and (ii) Certificated Securities
in an aggregate principal amount equal to the principal amount of the Restricted
Certificated Securities accepted for exchange in the Exchange Offer. Concurrent
with the issuance of such Notes, the Trustee shall cause the aggregate principal
amount of the applicable Restricted Global Securities to be reduced accordingly,
and the Company shall execute and the Trustee shall authenticate and deliver to
the Persons designated by the holders of Certificated Securities so accepted
Restricted Certificated Securities in the appropriate principal amount.
(g) Legends. The following legends shall appear on the face of all
Global Securities and Certificated Securities issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (b) below, each Global
Security and each Certificated Security (and all Notes issued in
exchange therefor or substitution thereof) shall bear the legend in
substantially the following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED
HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION
FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED
BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) SUCH
SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY
(1)(a) TO A PERSON WHO THE
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SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A PERSON THAT
IS NOT A U.S. PERSON (AS DEFINED IN RULE 902 UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 904 UNDER THE SECURITIES ACT, (d) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2) (3) OR
(7) OF REGULATION D UNDER THE SECURITIES ACT) THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE) OR (e) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT (IN THE CASE OF (b), (c), (d) OR (e), BASED UPON AN OPINION
OF COUNSEL IF THE ISSUER OR TRUSTEE, REGISTRAR OR TRANSFER AGENT
FOR THE SECURITIES SO REQUESTS), (2) TO THE ISSUER OR (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH
CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION
AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED
TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED
HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
(B) Notwithstanding the foregoing, any Global Security or
Certificated Security issued pursuant to subparagraphs (b)(iv),
(c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to
this Section 2.06 (and all Notes issued in exchange therefor or
substitution thereof) shall not bear the Private Placement Legend.
(ii) Global Security Legend. Each Global Security shall bear a
legend in substantially the following form:
"THIS GLOBAL SECURITY IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO
ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY
MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION
2.07 OF THE INDENTURE, (II) THIS GLOBAL SECURITY MAY BE EXCHANGED IN
WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL SECURITY MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS
GLOBAL SECURITY MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE
PRIOR WRITTEN CONSENT OF THE COMPANY."
(h) Cancellation and/or Adjustment of Global Securities. At such time
as all beneficial interests in a particular Global Security have been exchanged
for Certificated Securities or a particular Global
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Security has been redeemed, repurchased or cancelled in whole and not in part,
each such Global Security shall be returned to or retained and cancelled by the
Trustee in accordance with Section 2.11 hereof. At any time prior to such
cancellation, if any beneficial interest in a Global Security is exchanged for
or transferred to a Person who will take delivery thereof in the form of a
beneficial interest in another Global Security or Certificated Securities, the
principal amount of Notes represented by such Global Security shall be reduced
accordingly and an endorsement shall be made on such Global Security, by the
Trustee or by the Depositary at the direction of the Trustee, to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Security, such other Global Security shall be increased
accordingly and an endorsement shall be made on such Global Security, by the
Trustee or by the Depositary at the direction of the Trustee, to reflect such
increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Global Securities and
Certificated Securities upon the Company's order or at the Registrar's
request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Security or to a holder of a Certificated Security
for any registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon exchange or
transfer pursuant to Sections 2.10, 3.06, 4.10, 4.15 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer of
or exchange any Note selected for redemption in whole or in part, except
the unredeemed portion of any Note being redeemed in part.
(iv) All Global Securities and Certificated Securities issued upon
any registration of transfer or exchange of Global Securities or
Certificated Securities shall be the valid obligations of the Company,
evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Global Securities or Certificated Securities surrendered
upon such registration of transfer or exchange.
(v) The Company shall not be required (A) to issue, to register the
transfer of or to exchange Notes during a period beginning at the opening
of business 15 days before the day of any selection of Notes for
redemption under Section 3.02 hereof and ending at the close of business
on the day of selection, (B) to register the transfer of or to exchange
any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part or (C) to register
the transfer of or to exchange a Note between a record date and the next
succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of principal of and interest on
such Notes and for all other purposes, and none of the Trustee, any Agent
or the Company shall be affected by notice to the contrary.
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(vii) The Trustee shall authenticate Global Securities and
Certificated Securities in accordance with the provisions of Section 2.02
hereof.
(viii) The Notes and Warrants shall not be separately transferable
prior to the Separation Date.
SECTION 2.07. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the Company
and the Trustee receives evidence to their satisfaction of the destruction, loss
or theft of any Note, the Company shall issue and the Trustee, upon the written
order of the Company signed by two Officers of the Company, shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the holder that is
sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if a Note is replaced. The Company may charge for its
expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those cancelled by it, those delivered to it for
cancellation and those described in this Section 2.08 as not outstanding. Except
as set forth in Section 2.09 hereof, a Note does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) segregates and holds in trust, in accordance with this
Indenture, on a redemption date or maturity date, money sufficient to pay all
principal and interest, if any, payable on that date with respect to the Notes
(or the portion thereof to be redeemed or maturing, as the case may be), then on
and after that date such Notes (or portions thereof) shall be deemed to be no
longer outstanding and shall cease to accrue interest.
SECTION 2.09. TREASURY NOTES.
In determining whether the holders of the required principal amount
of Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or an Affiliate of the Company, shall be considered as though not
outstanding, except that for the purposes of determining whether the Trustee
shall
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be protected in relying on any such direction, waiver or consent, only Notes
that a Responsible Officer of the Trustee knows are so owned shall be so
disregarded.
SECTION 2.10. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes upon a written order
of the Company signed by two Officers of the Company. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate definitive Notes and deliver them in exchange
for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits
of this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes (subject to the record retention requirement of the Exchange
Act), unless the Company directs cancelled Notes to be returned to it.
Certification of the destruction of all cancelled Notes shall be delivered to
the Company for all certificates so destroyed. The Company may not issue new
Notes to replace Notes that it has redeemed, paid or delivered to the Trustee
for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
holders on a subsequent special record date, which date shall be at the earliest
practicable date but in all events at least five Business Days prior to the
payment date, in each case at the rate provided in the Notes. The Company shall
fix or cause to be fixed each such special record date and payment date,
provided that the Company shall fix or cause to be fixed each such special
record date as early as practicable prior to the payment date, and the Company
shall mail or cause to be mailed as early as practicable to each holder a notice
that states the special record date, the related payment date and the amount of
defaulted interest to be paid.
SECTION 2.13. RECORD DATE.
The record date for purposes of determining the identity of holders
of the Notes entitled to vote or consent to any action by vote or consent
authorized or permitted under this Indenture shall be determined as provided for
in TIA ss. 316(c).
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SECTION 2.14. CUSIP NUMBER.
The Company in issuing the Notes may use a "CUSIP" number and, if it
does so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to holders; provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Notes and that reliance may be placed
only on the other identification numbers printed on the Notes. The Company will
promptly notify the Trustee of any change in the CUSIP number.
ARTICLE 3
REDEMPTION AND CERTAIN REPURCHASES
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 45 days (unless a shorter period is acceptable to the Trustee) but not
more than 60 days before a redemption date, an Officers' Certificate setting
forth (i) the clause of this Indenture pursuant to which the redemption shall
occur, (ii) the redemption date, (iii) the principal amount of Notes to be
redeemed and (iv) the redemption price.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time, except
as provided in Section 3.09, the Trustee shall select the Notes to be redeemed
or purchased in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed, or, if the Notes are
not so listed, on a pro rata basis, by lot or in accordance with any other
method the Trustee considers fair and appropriate (and in such manner as
complies with applicable legal and stock exchange requirements, if any),
provided that no Notes with a principal amount of $1,000 or less shall be
redeemed or purchased in part. A new Note in principal amount equal to the
unredeemed or unpurchased portion shall be issued in the name of the holder
thereof upon cancellation of the original Note. On and after the redemption or
purchase date, interest shall cease to accrue on the Notes or portions of them
called for redemption or purchase. In the event of partial redemption by lot,
the particular Notes to be redeemed shall be selected, unless otherwise provided
herein, not less than 30 nor more than 60 days prior to the redemption date by
the Trustee from the outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
them selected shall be in amounts of $1,000 or whole multiples of $1,000; except
that if all of the Notes of a holder are to be redeemed, the entire outstanding
amount of Notes held by such holder, even if not a multiple of $1,000, shall be
redeemed. Except as provided in the preceding sentence, provisions of this
Indenture that apply to Notes called for redemption also apply to portions of
Notes called for redemption.
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<PAGE> 41
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30 days
but not more than 60 days before a redemption date, the Company shall mail or
cause to be mailed, by first class mail, a notice of redemption to each holder
whose Notes are to be redeemed at its registered address (provided that in the
event of a redemption pursuant to Section 3.07(b) hereof arising out of a sale
of the Company's Capital Stock (other than Disqualified Stock) in an Equity
Offering, such notice shall not be mailed prior to the consummation of such
sale).
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes (or portions thereof) called for redemption
ceases to accrue on and after the redemption date;
(g) the paragraph of the Notes and/or section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days (unless a shorter
period is acceptable to the Trustee) prior to the redemption date, an Officers'
Certificate requesting that the Trustee give such notice and setting forth the
information to be stated in such notice as provided in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become due and payable on the redemption
date at the redemption price stated in such notice. A notice of redemption may
not be conditional.
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SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
On or prior to the redemption date, the Company shall deposit with
the Trustee or with the Paying Agent (or, if the Company or a Subsidiary is the
Paying Agent, shall segregate and hold in trust) immediately available funds
sufficient to pay the redemption price of and accrued interest, if any, on all
Notes to be redeemed on that date. The Trustee or the Paying Agent shall
promptly return to the Company any funds deposited with the Trustee or the
Paying Agent by the Company in excess of the amounts necessary to pay the
redemption price of, and accrued interest, if any, on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid redemption price, from the
redemption date until such redemption price is paid, and to the extent lawful on
any interest not paid on such unpaid principal, in each case at the rate
provided in the Notes.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and the Trustee shall authenticate for the holder of the Notes at the
expense of the Company a new Note equal in principal amount to the unredeemed
portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in Section 3.07(b) below, the Notes will not
be redeemable at the Company's option prior to October 1, 2001. Thereafter, the
Notes will be subject to redemption at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice to the holders, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on October 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001................................................................................... 106.500%
2002................................................................................... 103.250%
2003 and thereafter.................................................................... 100.000%
</TABLE>
(b) Notwithstanding the foregoing, in the event of the sale by the
Company prior to October 1, 2000 of its Capital Stock (other than Disqualified
Stock) in one or more Equity Offerings, up to a maximum of 35% of the aggregate
principal amount of the Notes originally issued will, at the option of the
Company, be redeemable from the net cash proceeds of one or more Equity
Offerings (but only to the extent the proceeds of such Equity Offering consist
of cash or readily marketable cash equivalents) at a
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redemption price equal to 113% of the principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the redemption date,
provided that at least 65% of the aggregate principal amount of the Notes
originally issued remain outstanding immediately after the occurrence of such
redemption and that such redemption occurs within 90 days of the date of the
closing of such Equity Offering.
(c) Any redemption pursuant to this Section 3.07 shall be made pursuant
to the provisions of Sections 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 3.09 and 4.15 hereof, the Company
shall not be required to make mandatory redemption or sinking fund payments with
respect to the Notes.
SECTION 3.09. OFFER TO PURCHASE WITH EXCESS ASSET SALE PROCEEDS.
If at any time the cumulative amount of Excess Proceeds that have not
been applied in accordance with Section 4.10(b) exceeds $5.0 million, the
Company shall, within 30 days thereafter, make an offer to all holders of Notes
and Pari Passu Notes (an "Excess Proceeds Offer"), to purchase the maximum
principal amount of Notes and Pari Passu Notes that may be purchased out of such
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
outstanding principal amount of the Notes to the date fixed for the closing of
such offer and 100% of the accreted value or 100% of the outstanding principal
amount, as applicable, of the Pari Passu Notes, plus accrued and unpaid interest
and Liquidated Damages thereon, if any, to the date fixed for the closing of
such offer, in accordance with the procedures specified below.
The Excess Proceeds Offer shall remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Offer Period"). No
later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the maximum principal amount of
Notes and the maximum accreted value or principal amount, as the case may be, of
Pari Passu Notes that may be purchased with such Excess Proceeds (or such pro
rata portion based upon the principal amount of Notes and the accreted value
and/or the principal amount, as the case may be, of Pari Passu Notes tendered if
the principal amount of Notes and the accreted value and/or the principal
amount, as the case may be, of Pari Passu Notes tendered is in excess of the
Excess Proceeds) (which maximum principal amount of Notes shall be the "Offer
Amount") or, if less than the Offer Amount has been tendered, all Notes and Pari
Passu Notes tendered in response to the Excess Proceeds Offer, subject to the
provisions of Section 4.10 hereof.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued interest on the Notes
shall be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
holders who tender Notes pursuant to the Excess Proceeds Offer on the portion of
the tendered Notes purchased pursuant to the Excess Proceeds Offer.
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Upon the commencement of any Excess Proceeds Offer, the Company shall
send, by first class mail, a notice to the Trustee and each of the holders of
the Notes, with a copy to the Trustee. The notice shall contain all instructions
and materials necessary to enable such holders to tender Notes pursuant to the
Excess Proceeds Offer. The Excess Proceeds Offer shall be made to all holders.
The notice, which shall govern the terms of the Excess Proceeds Offer, shall
state:
(a) that the Excess Proceeds Offer is being made pursuant to
Sections 3.09 and 4.10 hereof and the length of time the Excess Proceeds
Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note or portion thereof not tendered or accepted
for payment shall continue to accrue interest;
(d) that any Note or portion thereof accepted for payment
pursuant to the Excess Proceeds Offer shall cease to accrue interest after
the Purchase Date;
(e) that holders electing to have a Note or portion thereof
purchased pursuant to any Excess Proceeds Offer shall be required to
surrender the Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Note completed, to the Company, a
depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice at least three Business Days before the Purchase
Date;
(f) that holders shall be entitled to withdraw their election if
the Company, depositary or Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of the holder, the
principal amount of the Note or portion thereof the holder delivered for
purchase and a statement that such holder is withdrawing his election to
have the Note or portion thereof purchased;
(g) that, if the aggregate principal amount of Notes and the
accreted value or the aggregate principal amount, as the case may be, of
Pari Passu Notes tendered by holders of such notes exceeds the Offer
Amount, the Trustee shall select the Notes to be purchased on a pro rata
basis as described above (with such adjustments as may be deemed
appropriate by the Trustee so that only Notes in denominations of $1,000,
or integral multiples thereof, shall be purchased); and
(h) that holders whose Notes were purchased only in part shall
be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis (as described above) to the
extent necessary, the Offer Amount of Notes or Pari Passu Notes or portions
thereof tendered pursuant to the Excess Proceeds Offer, or if less than the
Offer Amount has been tendered, all Notes or Pari Passu Notes or portions
thereof tendered, and deliver to the Trustee an Officers' Certificate stating
that such Notes or Pari Passu Notes or portions thereof were accepted for
payment by the Company in accordance with the terms of this Section 3.09. The
Company or Paying Agent, as the case may be, shall promptly (but in any case not
later than five days after the Purchase Date) mail or deliver to each tendering
holder an amount equal to the purchase price of the Note or portion
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<PAGE> 45
thereof tendered by such holder and accepted by the Company for purchase, and
the Company shall promptly issue a new Note, and the Trustee shall authenticate
and mail or deliver such new Note to such holder equal in principal amount to
any unpurchased portion of the Note surrendered. Any Note not so accepted shall
be promptly mailed or delivered by the Company to the holder thereof. The
Company shall publicly announce the results of the Excess Proceeds Offer on the
Purchase Date. In the event that the aggregate amount of Excess Proceeds exceeds
the aggregate principal amount of Notes, or the aggregate accreted value or the
aggregate principal amount, as the case may be, of Pari Passu Notes or portion
thereof surrendered by holders of such notes pursuant to an Excess Proceeds
Offer, the Company may use the remaining Excess Proceeds for general purposes.
Upon completion of an Excess Proceeds Offer, the amount of Excess Proceeds shall
be deemed to be reset at zero.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof. No repurchase of Notes under this Section
3.9 shall be deemed to be a redemption of Notes.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest, on the Notes on the dates and in the manner provided in
the Notes and this Indenture. Principal, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if other than the Company,
holds as of the due date money deposited by, or on behalf of, the Company in
immediately available funds and designated for and sufficient to pay all
principal, premium, if any, and interest then due. The Company shall pay all
Liquidated Damages, if any, in the same manner on the dates and in the amounts
set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to the then applicable interest rate on the Notes to the extent lawful until
such overdue principal is paid; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest (without regard to any applicable grace period) at the same rate to the
extent lawful until such overdue installments of interest are paid.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain an office or agency (which may be an
office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar)
where Notes may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served. The Company shall give prompt written notice to
the Trustee of the location,
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<PAGE> 46
and any change in the location, of such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency for such purposes. The
Company shall give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03 hereof.
SECTION 4.03.REPORTS.
(a) So long as any of the Notes remain outstanding, the Company shall
cause copies of all quarterly and annual financial reports and of the
information, documents, and other reports (or copies of such portions of any of
the foregoing as the Securities and Exchange Commission (the "Commission") may
by rules and regulations prescribe) which the Company is required to file with
the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act ("SEC
Reports") to be filed with the Trustee within 15 days of filing with the
Commission. If the Company is not subject to the requirements of Section 13(a)
or 15(d) of the Exchange Act or shall cease to be required by the Commission to
file SEC Reports pursuant to the Exchange Act, the Company shall nevertheless
continue to cause SEC Reports, comparable to those which it would be required to
file pursuant to Section 13(a) or 15(d) of the Exchange Act if it were subject
to the requirements of either such section, to be so filed with the Commission
(unless the Commission will not accept such a filing) and with the Trustee
within the same time periods as would have applied (including under the
preceding sentence) had the Company been subject to the requirements of Section
13(a) or 15(d) of the Exchange Act. Whether or not required by the Exchange Act
to file SEC Reports with the Commission, so long as any Notes are outstanding,
the Company shall furnish copies of the SEC Reports to the holders of Notes at
the time the Company is required to file the same with the Trustee and make such
information available to investors who request it in writing. In addition, the
Company shall, for so long as any Notes remain outstanding, furnish to the
holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act. The Company shall also comply with the provisions of
TIA ss. 314(a).
(b) The Company shall provide the Trustee with a sufficient number of
copies of all SEC Reports that the Trustee may be required to deliver to the
holders of the Notes under this Section 4.03.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 90 days after
the end of each fiscal year of the Company, an Officers' Certificate stating
that (i) a review of the activities of the Company and its Restricted
Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing
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Officers with a view to determining whether the Company has (x) kept, observed,
performed and fulfilled, and (y) caused each of its Restricted Subsidiaries to
keep, observe, perform and fulfill, its obligations under this Indenture, and
(ii) as to each such Officer signing such certificate, that to the best of his
or her knowledge (A) the Company has kept, observed, performed and fulfilled,
and has caused each of its Restricted Subsidiaries to keep, observe, perform and
fulfill, each and every covenant contained in this Indenture and is not in
default in the performance or observance of any of the terms, provisions and
conditions of this Indenture to be performed or observed by it (or, if a Default
or Event of Default shall have occurred, describing all such Defaults or Events
of Default of which he or she may have knowledge and what action each is taking
or proposes to take with respect thereto) and (B) no event has occurred and
remains in existence by reason of which payments on account of the principal of
or interest, if any, on the Notes is prohibited or if such event has occurred, a
description of the event and what action each is taking or proposes to take with
respect thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03 above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention which would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 of this Indenture or, if any such
violation has occurred, specifying the nature and period of existence thereof,
it being understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of any such
violation. In the event that such written statement of the Company's independent
public accountants can not be obtained, in whole or in part, the Company shall
deliver an Officers' Certificate certifying that it has used its best efforts to
obtain such statement but was unable to do so.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
(d) The Company shall deliver to the Trustee an Officers' Certificate
as required by, and in accordance with, Section 4.07(f) hereof.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its Restricted
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies, except as contested in good faith and by appropriate
proceedings or where the failure to effect such payment is not adverse in any
material respect to the holders of the Notes.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the
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<PAGE> 48
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law, and covenants that it shall not, by resort to any such law,
hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as though
no such law has been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any distribution on
account of any Equity Interests of the Company or any of its
Restricted Subsidiaries other than dividends or distributions payable
(A) in Equity Interests of the Company that are not Disqualified
Stock or (B) to the Company or any Restricted Subsidiary;
(ii) purchase, redeem, defease, retire or otherwise acquire for
value ("Retire" and correlatively, a "Retirement") any Equity
Interests of the Company or any of its Restricted Subsidiaries or
other Affiliate of the Company (other than any such Equity Interests
owned by the Company or any Restricted Subsidiary);
(iii) Retire for value any Indebtedness of (A) the Company that
is subordinate in right of payment to the Notes or (B) any Restricted
Subsidiary, except, with respect to clause (A) or (B) above, at final
maturity or in accordance with the mandatory redemption or repayment
provisions set forth in the original documentation governing such
Indebtedness; or
(iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the
time of such Restricted Payment:
(1) no Default or Event of Default has occurred and is
continuing or would occur as a consequence thereof;
(2) after giving effect to such Restricted Payment on a
pro forma basis as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, the Company
could incur at least $1.00 of additional Indebtedness pursuant
to the Consolidated Cash Flow Leverage Ratio test set forth in
Section 4.09(a) hereof; and
(3) such Restricted Payment, together with the aggregate
of all other Restricted Payments made by the Company and its
Restricted Subsidiaries after the Issue Date (including any
Restricted Payments made pursuant to clauses (i), (v) and (vi)
of Section 4.07(b)), minus any Restricted Payment Credits, is
less than the sum of
(x) 50% of the Consolidated Net Income of the
Company for the period (taken as one accounting
period) from the Issue Date to the end of the
Company's most recently ended fiscal quarter for
which internal financial statements are
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available at the time of such Restricted Payment (or,
if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus
(y) 100% of the aggregate net cash proceeds
received by the Company from the issue or sale of
Equity Interests of the Company or of debt securities
or Disqualified Stock of the Company that have been
converted into such Equity Interests (other than
Equity Interests (or convertible debt securities)
sold to a Restricted Subsidiary of the Company and
other than Disqualified Stock or debt securities that
have been converted into Disqualified Stock) after
the Issue Date (other than any such Equity Interests,
the proceeds of which were used as set forth in
clause (b)(ii) below), plus
(z) $2.0 million.
(b) The foregoing provisions in Section 4.07(a) shall not prohibit:
(i) the payment of any dividend within 60 days after the date
of declaration thereof, if at such date of declaration such payment
would have complied with the provisions of this Indenture;
(ii) the Retirement of (A) any Equity Interests of the Company
or any Restricted Subsidiary of the Company, (B) Indebtedness of the
Company that is subordinate to the Notes or (C) Indebtedness of a
Restricted Subsidiary of the Company, in exchange for, or out of the
proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of the Company) of, Equity Interests of the
Company (other than Disqualified Stock);
(iii) the Retirement of any Indebtedness of the Company
subordinated in right of payment to the Notes in exchange for, or out
of the proceeds of the substantially concurrent incurrence of
Indebtedness of the Company (other than Indebtedness to a Restricted
Subsidiary of the Company), but only to the extent that such new
Indebtedness is permitted under Section 4.09 hereof and (1) is
subordinated in right of payment to the Notes at least to the same
extent as, (2) has a Weighted Average Life to Maturity at least as
long as, and (3) has no scheduled principal payments due in any
amount earlier than, any equivalent amount of principal under the
Indebtedness so Retired;
(iv) the Retirement of any Indebtedness of a Restricted
Subsidiary of the Company in exchange for, or out of the proceeds of
the substantially concurrent incurrence of Indebtedness of the
Company or any Restricted Subsidiary but only to the extent that such
incurrence is permitted under Section 4.09 hereof and only to the
extent that such Indebtedness (1) is not secured by any assets of the
Company or any Restricted Subsidiary to a greater extent than the
Retired Indebtedness was so secured, (2) has a Weighted Average Life
to Maturity at least as long as the Retired Indebtedness and (3) if
such Retired Indebtedness was an obligation of the Company, is pari
passu or subordinated in right of payment to the Notes at least to
the same extent as the Retired Indebtedness;
(v) the Retirement of any Equity Interests of the Company or
any Restricted Subsidiary of the Company held by any member of the
Company's (or any of its Subsidiaries') management
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pursuant to any management equity subscription agreement or stock
option agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $250,000 in any twelve-month period plus the aggregate cash
proceeds received by the Company during such twelve-month period from
any reissuance of Equity Interests by the Company to members of
management of the Company and its Subsidiaries;
(vi) the Retirement of any Equity Interests of the Company held
by Nield J. Montgomery, Mitchell Allee or John Boersma pursuant to
the terms of agreements between the Company and each such individual
in effect on the Issue Date upon or following any termination of
employment of any of them; provided that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed $500,000 in any twelve-month period; and
(vii) the payment of cash in lieu of fractional shares (a)
payable as dividends on Equity Interests of the Company or (b)
issuable upon conversion of or in exchange for securities convertible
into or exchangeable for Equity Interests of the Company or (c)
issuable as a result of a corporate reorganization, provided that, in
the case of (a) and (b), the issuance of such Equity Interests or
securities and, in the case of (c), such corporate reorganization,
was permitted under the terms of the Indenture;
provided, however, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (i), (ii), (iii), (iv), (v) (vi) and
(vii), no Default or Event of Default shall have occurred and be continuing.
(c) A Permitted Investment that ceases to be a Permitted Investment
pursuant to the definition thereof set forth in Section 1.01 hereof, shall
become a Restricted Investment, deemed to have been made on the date that it
ceases to be a Permitted Investment.
(d) The Board of Directors may designate any Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default or an
Event of Default pursuant to Article 6 hereof, provided, however, the Company
may not designate any Subsidiary which holds any permit or license which is
material to the operations of the Company and its Restricted Subsidiaries taken
as a whole as an Unrestricted Subsidiary. For purposes of making such
determination, all outstanding Investments by the Company and its Restricted
Subsidiaries (except to the extent repaid in cash) in such Subsidiary so
designated shall be deemed to be Restricted Payments at the time of such
designation and shall reduce the amount available for Restricted Payments under
paragraph (a) of this Section 4.07. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the greatest of (x) the
net book value of such Investments at the time of such designation, (y) the fair
market value of such Investments at the time of such designation and (z) the
original fair market value of such Investments at the time they were made. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time.
(e) The Board of Directors of the Company may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under Section 4.09 hereof and (ii) no Default or Event of Default
pursuant to Article 6 hereof would be in existence following such designation.
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(f) Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.07 were computed, which calculations may
be based upon the Company's latest available financial statements. The Trustee
shall have no duty or obligation to confirm or verify the calculations set forth
in such Officers' Certificate.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause to become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(i) pay dividends or make any other distributions to the
Company or any of its Restricted Subsidiaries on its Capital Stock or
with respect to any other interest or participation in, or measured
by, its profits, or pay any Indebtedness owed to the Company or any
of its Restricted Subsidiaries;
(ii) make loans or advances to the Company or any of its
Restricted Subsidiaries; or
(iii) transfer any of its properties or assets to the Company or
any of its Restricted Subsidiaries;
except for such encumbrances or restrictions existing as of the Issue Date or
under or by reason of:
(a) Existing Indebtedness;
(b) applicable law;
(c) any instrument governing Acquired Debt as in effect at the
time of acquisition (except to the extent such Indebtedness was
incurred in connection with, or in contemplation of, such
acquisition), which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the
Person, or the property or assets of the Person, so acquired;
(d) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with
past practices;
(e) Indebtedness in respect of a Permitted Refinancing, provided
that the restrictions contained in the agreements governing such
Refinancing Indebtedness are not materially more restrictive than
those contained in the agreements governing the Indebtedness being
refinanced;
(f) with respect to clause (iii) above, purchase money
obligations for property acquired in the ordinary course of business,
Vendor Indebtedness incurred in connection with the purchase or lease
of Telecommunications Related Assets or performance bonds or similar
security for performance which liens securing such obligations do not
cover any asset other than the asset
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acquired or, in the case of performance bonds or similar security for
performance, the assets associated with the Company's performance;
(g) Indebtedness incurred under Section 4.09(b)(i) hereof;
(h) this Indenture and the Notes; or
(i) in the case of clauses (a), (c), (e), (f), (g) and (h)
above, any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings,
replacements or refinancings are not materially more restrictive
with respect to such dividend and other payment restrictions
than those contained in such instruments as in effect on the
date of their incurrence or, if later, the Issue Date.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK.
(a) The Company and its Restricted Subsidiaries shall not, directly or
indirectly, (i) create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable for the payment of (collectively, "incur" and,
correlatively, "incurred" and "incurrence") any Indebtedness (including, without
limitation, Acquired Debt) or (ii) issue any Disqualified Stock; provided,
however, that the Company and/or any of its Restricted Subsidiaries may incur
Indebtedness (including, without limitation, Acquired Debt) or issue shares of
Disqualified Stock if, after giving effect to the incurrence of such
Indebtedness or the issuance of such Disqualified Stock, the Consolidated Cash
Flow Leverage Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date of such incurrence or issuance (x) does not exceed 5.5 to 1
if such incurrence or issuance occurs on or prior to October 1, 2000 and (y)
does not exceed 5.0 to 1 if such incurrence or issuance occurs after October 1,
2000, in each case, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such four-quarter period. If the Company incurs any
Indebtedness or issues or redeems any Preferred Stock subsequent to the
commencement of the period for which such ratio is being calculated but prior to
the event for which the calculation of the ratio is made, then the ratio will be
calculated giving pro forma effect to any such incurrence of Indebtedness, or
such issuance or redemption of Preferred Stock, as if the same had occurred at
the beginning of the applicable period. In making such calculation on a pro
forma basis, interest attributable to Indebtedness 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.
(b) The foregoing limitation in Section 4.09(a) shall not apply to (with
each exception to be given independent effect):
(i) the incurrence by the Company and/or any of its Restricted
Subsidiaries of Indebtedness under the Credit Facility in an
aggregate principal amount at any one time outstanding (with letters
of credit being deemed to have a principal amount equal to the
maximum potential liability of the Company and/or any of its
Restricted Subsidiaries thereunder) not to exceed $25.0 million in
the aggregate at any one time outstanding, less the aggregate amount
of all Net Proceeds of
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Asset Sales applied to permanently reduce the commitments with
respect to such Indebtedness pursuant to Section 4.10 hereof;
(ii) the incurrence by the Company and/or any of its Restricted
Subsidiaries of Vendor Indebtedness, provided that the aggregate
amount of such Vendor Indebtedness incurred does not exceed 80% of
the total cost of the Telecommunications Related Assets financed
therewith (or 100% of the total cost of the Telecommunications
Related Assets financed therewith if such Vendor Indebtedness was
extended for the purchase of tangible physical assets and was so
financed by the vendor thereof or an affiliate of such vendor);
(iii) the incurrence by the Company and/or any of its Subsidiaries
of the Existing Indebtedness;
(iv) the incurrence by the Company and/or any of its Restricted
Subsidiaries of Indebtedness in an aggregate amount not to exceed
$5.0 million at any one time outstanding;
(v) the incurrence by the Company of (A) Indebtedness (other than
secured Acquired Debt) in an aggregate principal amount not to exceed
2.0 times the sum of the net cash proceeds received by the Company
after the closing of the Preferred Stock Offering or, if the
Preferred Stock Offering is not closed, the closing of the Common
Stock Commitment from the issuance and sale of Equity Interests of
the Company (that are not Disqualified Stock), plus the fair market
value of Equity Interests (other than Disqualified Stock) issued
after consummation of a Qualified Equity Offering in connection with
an acquisition of a Telecommunications Business or Telecommunications
Related Assets and (B) subsequent to consummation of a Qualified
Equity Offering of secured Acquired Debt, in an aggregate principal
amount not to exceed (1) the net cash proceeds received by the
Company from the issuance and sale of Equity Interests of the Company
(other than Disqualified Stock) subsequent to consummation of a
Qualified Equity Offering plus (2) the fair market value of Equity
Interests (other than Disqualified Stock) issued in connection with
any acquisition of a Telecommunications Business or
Telecommunications Related Assets subsequent to consummation of a
Qualified Equity Offering; provided, however, to the extent the
Company incurs secured Acquired Debt pursuant to the provisions of
this clause (B), its ability to incur Indebtedness pursuant to clause
(A) of this clause (v) shall be reduced by an amount equal to two
times the aggregate principal amount of secured Acquired Debt so
incurred;
(vi) the incurrence (a "Permitted Refinancing") by the Company and/or
any of its Restricted Subsidiaries of Indebtedness issued in exchange
for, or the proceeds of which are used to refinance, replace, refund
or defease ("Refinance" and correlatively, "Refinanced" and
"Refinancing") Indebtedness, other than Indebtedness incurred
pursuant to clause (i) above, but only to the extent that:
(1) the net proceeds of such Refinancing Indebtedness
shall not exceed the principal amount of and premium, if any,
and accrued interest on the Indebtedness so Refinanced (or if
such Indebtedness was issued at an original issue discount, the
original issue price plus amortization of the original issue
discount at the time of the repayment of such Indebtedness) plus
the fees, expenses and costs of such Refinancing and prepayment
premiums, if any, in connection therewith;
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(2) the Refinancing Indebtedness shall have a final
maturity no earlier than, and a Weighted Average Life to
Maturity equal to or greater than, the final maturity and
Weighted Average Life to Maturity of the Indebtedness being
Refinanced; and
(3) if the Indebtedness being Refinanced is
subordinated in right of payment to the Notes, the Refinancing
Indebtedness shall be subordinated in right of payment to the
Notes on terms at least as favorable to the holders of Notes as
those contained in the documentation governing the Indebtedness
being so Refinanced;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the
Company and any of its Restricted Subsidiaries; and
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose
of fixing or hedging interest rate or foreign currency risk with
respect to any floating rate Indebtedness that is permitted by the
terms of this Indenture to be outstanding.
For purposes of determining compliance with this Section 4.09, in the
event that an item of Indebtedness or Disqualified Stock meets the criteria of
more than one of the categories described in clauses (i) through (viii) above or
is entitled to be incurred pursuant to Section 4.09(a), the Company shall, in
its sole discretion, classify such item in any manner that complies with this
Section and such item shall be treated as having been incurred pursuant to only
one of such clauses or pursuant to Section 4.09(a). Accrual of interest or
dividends, the accretion of accreted value or liquidation preference and the
payment of interest or dividends in the form of additional Indebtedness, Common
Stock or Preferred Stock shall not be deemed to be an incurrence of Indebtedness
for purposes of this Section.
SECTION 4.10. ASSET SALES.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, whether in a single transaction or a series of related
transactions occurring within any twelve-month period,
(i) sell, lease, convey, dispose or otherwise transfer any
assets (including by way of a Sale and Leaseback Transaction) other
than sales, leases, conveyances, dispositions or other transfers (A)
in the ordinary course of business, (B) to the Company by any
Restricted Subsidiary of the Company or from the Company to any
Restricted Subsidiary of the Company, (C) that constitute a
Restricted Payment, Investment or dividend or distribution permitted
under Section 4.07 hereof or (D) that constitute the disposition of
all or substantially all of the assets of the Company pursuant to
Section 5.01 hereof or
(ii) issue or sell Equity Interests in any of its Restricted
Subsidiaries (other than an issuance or sale of Equity Interests of
any such Restricted Subsidiary to the Company or a Restricted
Subsidiary),
if, in the case of either (i) or (ii) above, in a single transaction or a series
of related transactions occurring within any twelve-month period, such assets or
securities
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(x) have a Fair Market Value in excess of $2.0 million (excluding the
Fair Market Value of Telecommunications Equipment sold to ILECs in
connection with establishing virtual collocation arrangements with
such ILECs) or
(y) are sold or otherwise disposed of for net proceeds in excess of
$2.0 million (each of the foregoing, an "Asset Sale"), unless:
(a) no Default or Event of Default exists or would occur as a
result thereof;
(b) the Company, or such Restricted Subsidiary, as the case may
be, receives (except in the case of sales of Telecommunications
Equipment to ILECs in connection with establishing virtual
collocations arrangements with such ILECs) consideration at the time
of such Asset Sale at least equal to the Fair Market Value (evidenced
by a resolution of the Board of Directors of the Company set forth in
an Officers' Certificate delivered to the Trustee), of the assets or
securities issued or sold or otherwise disposed of; and
(c) at least 85% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of cash,
provided, however, that (A) the amount of (x) any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent
balance sheet or in the notes thereto), of the Company or any
Restricted Subsidiary of the Company (other than liabilities that are
by their terms subordinated to the Notes) that are assumed by the
transferee of any such assets and (y) any notes, obligations or other
securities received by the Company or any such Restricted Subsidiary
from such transferee that are immediately converted by the Company or
such Restricted Subsidiary into cash, shall be deemed to be cash (to
the extent of the cash received in the case of subclause (y)) for
purposes of this clause (c); and (B) an amount equal to the Fair
Market Value (determined as set forth in clause (b) above) of
Telecommunications Related Assets received by the Company or any such
Restricted Subsidiary from the transferee that will be used by the
Company or any such Restricted Subsidiary in the operation of a
Telecommunications Business in the United States shall be deemed to
be cash for purposes of this clause (c).
The foregoing provisions shall not apply to a sale, lease, conveyance
or other disposition of all or substantially all of the assets of the Company,
which shall be governed by Article 5 hereof.
(b) Within 365 days after the receipt of net proceeds of any Asset
Sale, the Company (or such Restricted Subsidiary, as the case may be) may apply
the Net Proceeds from such Asset Sale to (i) permanently reduce the amounts
permitted to be borrowed by the Company under the terms of any of its Senior
Indebtedness or (ii) the purchase of Telecommunications Related Assets or Voting
Stock of any Person engaged in the Telecommunications Business in the United
States (provided that such Person concurrently becomes a Restricted Subsidiary
of the Company). Any Net Proceeds from any Asset Sales that are not so applied
or invested as provided in the preceding sentence, shall constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million,
the Company shall be required to make an Excess Proceeds Offer in accordance
with the terms of Section 3.09 hereof.
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SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, sell, lease, transfer or otherwise dispose of any of their
respective properties or assets to, or purchase any property or assets from, or
enter into any contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless: (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person; (ii) such Affiliate Transaction
is approved by a majority of the disinterested directors on the Board of
Directors of the Company; and (iii) the Company delivers to the Trustee, with
respect to any Affiliate Transaction involving aggregate payments in excess of
$1.0 million, a resolution of a committee of independent directors of the
Company set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clauses (i) and (ii) above and (iv) the Company
delivers to the Trustee with respect to any Affiliate Transaction involving
aggregate payments in excess of $5.0 million, an opinion of an Independent
Appraiser that such Affiliate Transaction complies with clause (i) above;
provided that (a) transactions pursuant to any employment, stock option or stock
purchase agreement entered into by the Company or any of its Restricted
Subsidiaries, or any grant of stock, in the ordinary course of business that are
approved by the Board of Directors of the Company, (b) transactions between or
among the Company and its Restricted Subsidiaries, (c) transactions permitted by
Section 4.07 hereof, (d) loans and advances to employees and officers of the
Company or any of its Restricted Subsidiaries in the ordinary course of business
in an aggregate principal amount not to exceed $1.0 million at any one time
outstanding and (e) transactions pursuant to existing contracts to which the
Company is a party in accordance with the terms of such contracts as they exist
on the Issue Date, shall not be deemed Affiliate Transactions.
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
except for Permitted Liens.
SECTION 4.13. LIMITATIONS ON SALE AND LEASEBACK TRANSACTIONS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into, assume, Guarantee or
otherwise become liable with respect to any Sale and Leaseback Transaction,
provided that the Company or any Restricted Subsidiary of the Company may enter
into any such transaction if (i) the Company or such Restricted Subsidiary would
be permitted under Sections 4.09 and 4.12 hereof to incur secured Indebtedness
in an amount equal to the Attributable Debt with respect to such transaction,
(ii) the consideration received by the Company or such Restricted Subsidiary
from such transaction is at least equal to the Fair Market Value of the property
being transferred, and (iii) the Net Proceeds received by the Company or such
Restricted Subsidiary from such transaction are applied in accordance with
Section 4.10 hereof.
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SECTION 4.14. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
existence as a corporation, and the corporate, partnership or other existence of
any Restricted Subsidiary, in accordance with the respective organizational
documents (as the same may be amended from time to time) of the Company or any
such Restricted Subsidiary and (ii) the rights (charter and statutory), licenses
and franchises of the Company and its Restricted Subsidiaries; provided,
however, that the Company shall not be required to preserve any such right,
license or franchise, or the corporate, partnership or other existence of any of
its Restricted Subsidiaries if the Board of Directors of the Company shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries, taken as a whole,
and that the loss thereof is not adverse in any material respect to the holders
of the Notes.
SECTION 4.15. OFFER TO PURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, the Company shall
make an offer (the "Change of Control Offer") to each holder of Notes to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
such holder's Notes at a purchase price equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase (the "Change of Control Payment"), provided that
if the date of purchase is on or after an interest record date and on or before
the related interest payment date, any accrued interest shall be paid to the
Person in whose name a Note is registered at the close of business on such
record date, and no additional interest shall be paid or payable to holders who
tender Notes pursuant to the Change of Control Offer. Within thirty (30) days
following any Change of Control, the Company shall mail a notice to the Trustee
and each holder stating: (1) that the Change of Control Offer is being made
pursuant to this Section 4.15 and that all Notes or portions thereof tendered
will be accepted for payment; (2) the purchase price and the purchase date,
which shall be no earlier than 30 days nor later than 40 days (unless required
by applicable law) from the date such notice is mailed (the "Change of Control
Payment Date"); (3) that any Note or portion thereof not tendered will continue
to accrue interest in accordance with its terms; (4) that, unless the Company
defaults in the payment of the Change of Control Payment, all Notes or portions
thereof accepted for payment pursuant to the Change of Control Offer shall cease
to accrue interest after the Change of Control Payment Date; (5) that holders
electing to have any Notes or portions thereof purchased pursuant to a Change of
Control Offer will be required to surrender the Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of Control Payment Date;
(6) that holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the second Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the principal
amount of Notes or portions thereof delivered for purchase, and a statement that
such holder is withdrawing his election to have such Notes or portions thereof
purchased; and (7) that holders whose Notes are being purchased only in part
will 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. The Company shall comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes or portions thereof in
connection with a Change of Control.
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(b) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (i) accept for payment Notes or portions thereof tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
Notes or portions thereof tendered to the Company. The Paying Agent shall
promptly mail to each holder of Notes so accepted payment in an amount equal to
the purchase price for such Notes or portions thereof, and the Trustee shall
promptly authenticate and mail to each holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered, if any; provided,
that each such new Note shall be in a principal amount of $1,000 or an integral
multiple thereof. The Company shall publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
SECTION 4.16. BUSINESS ACTIVITIES.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, engage in any business other than the
Telecommunications Business.
(b) Until such time as the Company's Consolidated EBITDA is positive
for each of two consecutive fiscal quarters, the Company shall not, and shall
not permit any of its Restricted Subsidiaries to, directly or indirectly
(through the acquisition of Voting Stock, corporate reorganization or
otherwise), purchase, lease, acquire, install or operate more than twenty
telecommunications switches (including telecommunications switches already
installed but excluding remote switches); provided, however, that the twenty
switch limitation shall be increased by the number of telecommunications
switches that could be purchased with the net proceeds to the Company from the
sale of any Equity Interest (other than Disqualified Stock) subsequent to the
closing of the Preferred Stock Offering or, if the Preferred Stock Offering is
not closed, the closing of the Common Stock Commitment.
SECTION 4.17. PLEDGE AGREEMENT; SECURITY.
(a) The Company shall (i) enter into the Pledge Agreement (in the
form attached hereto as Exhibit E) and comply with the terms and provisions
thereof and (ii) use a portion of the net proceeds of the Offering to purchase
the Pledged Securities to be pledged to the Trustee for the benefit of the
Holders of the Notes in such amount as will be sufficient upon receipt of
scheduled interest and principal payments of such securities, in the opinion of
a nationally recognized firm of independent public accountants selected by the
Company, to provide for payment in full of the first six scheduled interest
payments due on the Notes (the "Collateral"). The Pledged Securities shall be
pledged by the Company to the Trustee for the benefit of the Holders of the
Notes and shall be held by the Trustee in the Pledge Account pending
disbursement pursuant to the Pledge Agreement.
(b) Each Holder, by its acceptance of a Note, consents and agrees to
the terms of the Pledge Agreement (including, without limitation, the provisions
providing for foreclosure and release of 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 Trustee to enter into the Pledge Agreement and to
perform its obligations and exercise its rights thereunder and in accordance
therewith. The Company will 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
Pledge
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Agreement, to assure and confirm to the Trustee the security interest in
the Collateral contemplated hereby, by the Pledge Agreement or any part thereof,
as from time to time constituted, so as to render the same available for the
security and benefit of this Indenture and of the Notes secured hereby,
according to the intent and purposes herein expressed. The Company shall take,
or shall cause to be taken, upon the request of the Trustee, any and all actions
reasonably required to cause the Pledge Agreement to create and maintain, as
security for the obligations of the Company under this Indenture and the Notes,
valid and enforceable first priority liens in and on all the Collateral, in
favor of the Trustee, superior and prior to the rights of all third Persons and
subject to no other Liens other than as provided herein.
(c) The release of any Collateral pursuant to the Pledge Agreement
will 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 this Indenture and the Pledge Agreement. To the extent applicable,
the Company shall cause TIA ss. 314(d) relating to the release of property or
securities from the Lien and security interest of the Pledge Agreement and
relating to the substitution therefor of any property or securities to be
subjected to the Lien and security interest of the Pledge Agreement to be
complied with.
(d) The Company shall cause TIA ss. 314(b), relating to opinions of
counsel regarding the Lien of the Pledge Agreement, to be complied with. The
Company shall furnish to the Trustee prior to each proposed release of
Collateral pursuant to the Pledge Agreement all documents required by TIA ss.
314(d). The Trustee may, to the extent permitted by Sections 7.01 and 7.02
hereof, accept as conclusive evidence of compliance with the foregoing
provisions the appropriate statements contained in such instruments.
(e) The Trustee may, in its sole discretion and without consent of
the Holders, on behalf of the Holders, take all actions it deems necessary or
appropriate in order to (i) enforce any of the terms of the Pledge Agreement and
(ii) collect and receive any and all amounts payable in respect of the
obligations of the Company hereunder. The Trustee shall have the 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 Pledge Agreement 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 in the Collateral (including the
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 or of the
Trustee).
SECTION 4.18. COLLATERAL AND SECURITY DOCUMENTS.
(a) The Company shall, and shall cause its Restricted Subsidiaries to
enter into the Security Agreement (in the form attached hereto as Exhibit F)
pursuant to which the Trustee, for its benefit and the benefit of the holders of
the Notes, will receive a security interest in: (i) all Telecommunications
Equipment currently owned by the Company other than Telecommunications Equipment
located in Las Vegas, Nevada or the surrounding suburban area and all
Telecommunications Equipment acquired by the Company after the Issue Date (other
than Telecommunications Equipment located or to be located in Las Vegas, Nevada
or the surrounding suburban
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area) and prior to such time as the aggregate dollar value of the Company's
purchases of Telecommunications Equipment subsequent to the Issue Date
(excluding Telecommunications Equipment located or to be located in Las Vegas,
Nevada or the surrounding suburban area) equals or exceeds $100.0 million; (ii)
the proceeds of any sale or other disposition of such Telecommunications
Equipment (including any insurance proceeds from the loss or destruction of such
Telecommunications Equipment); and (iii) any additional Telecommunications
Related Assets acquired by the Company with the proceeds of any such sale or
other disposition of Telecommunications Equipment (collectively, the
"Telecommunications Collateral"). As set forth in and governed by the Security
Documents, the Telecommunications Collateral as now or hereafter constituted
shall be held for the benefit of the Secured Parties (as defined in the Security
Agreement) as security for the Obligations (as defined in the Security
Agreement).
(b) Each Holder, by its acceptance of a Note, consents and agrees to
the terms of the Security Agreement (including, without limitation, the
provisions providing for foreclosure and release of Telecommunications
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 Trustee to enter into
the Security Agreement and to perform its obligations and exercise its rights
thereunder and in accordance therewith. The Company will 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 Security Agreement, to assure and confirm to the Trustee
the security interest in the Telecommunications Collateral contemplated hereby,
by the Security Agreement or any part thereof, as from time to time constituted,
so as to render the same available for the security and benefit of this
Indenture and of the Notes secured hereby, according to the intent and purposes
herein expressed. The Company shall take, or shall cause to be taken, upon the
request of the Trustee, any and all actions reasonably required to cause the
Security Agreement to create and maintain, as security for the obligations of
the Company under this Indenture and the Notes, valid and enforceable liens in
and on all the Telecommunications Collateral, in favor of the Trustee, superior
and prior to the rights of all third Persons and subject to no other Liens other
than as provided herein and under the Security Agreement.
(c) The release of any Telecommunications Collateral pursuant to the
Security Agreement will not be deemed to impair the security under this
Indenture in contravention of the provisions hereof if and to the extent the
Collateral is released pursuant to this Indenture and the Security Agreement. To
the extent applicable, the Company shall cause TIA ss. 314(d) relating to the
release of property or securities from the Lien and security interest of the
Security Agreement and relating to the substitution therefor of any property or
securities to be subjected to the Lien and security interest of the Security
Agreement to be complied with.
(d) The Company shall cause TIA ss. 314(b), relating to opinions of
counsel regarding the Lien of the Security Agreement, to be complied with. The
Company shall furnish to the Trustee prior to each proposed release of
Telecommunications Collateral pursuant to the Security Agreement all documents
required by TIA ss. 314(d). The Trustee may, to the extent permitted by Sections
7.01 and 7.02 hereof, accept as conclusive evidence of compliance with the
foregoing provisions the appropriate statements contained in such instruments.
(e) The Trustee may, in its sole discretion and without consent of
the Holders, on behalf of the Holders, take all actions it deems necessary or
appropriate in order to (i) enforce any of the terms of the Security Agreement
and (ii) collect and receive any and all amounts payable in respect of the
obligations of the Company hereunder. The Trustee shall have the power to
institute and maintain such suits and proceedings as it may deem expedient to
prevent any impairment of the Telecommunications Collateral by any acts that may
be unlawful or in violation of the Security Agreement or this Indenture, and
such suits and proceedings as the Trustee may deem expedient to preserve or
protect its interests and the interests of
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the Holders in the Telecommunications Collateral (including the 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 or of the
Trustee).
SECTION 4.19 RECORDING AND OPINIONS
(a) The Company shall furnish to the Trustee promptly after the execution
and delivery of this Indenture an Opinion of Counsel either (i) stating that in
the opinion of such counsel all action has been taken with respect to the
recording, registering and filing of this Indenture, financing statements or
other instruments necessary to make effective the Liens intended to be created
by the Pledge Agreement and the Security Agreement and reciting with respect to
the security interests in the Collateral and the Telecommunications Collateral
the details of such action, or (ii) stating that in the opinion of such counsel
no such action is necessary to make such Liens effective.
(b) The Company shall furnish to the Trustee on October 1, 1998, and on
each October 1 thereafter, 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 Liens of the Pledge Agreement and the Security Agreement and
reciting with respect to the security interests in the Collateral and the
Telecommunications 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 12 months fully to preserve
and protect, to the extent such protection and preservation are possible by
filing, the rights of the Holders and the Trustee hereunder and under the Pledge
Agreement and the Security Agreement with respect to the security interests in
the Collateral and the Telecommunications Collateral or (ii) stating that, in
the opinion of such counsel, no such action is necessary to maintain such Liens
and assignment.
SECTION 4.20. INSURANCE.
The Company shall and shall cause each of its Restricted Subsidiaries
to at all times keep all of their respective properties which are of an
insurable nature insured, with insurers believed by the Company in good faith to
be financially sound and responsible.
SECTION 4.21. PAYMENTS FOR CONSENT.
The Company shall not, and shall not permit any of its Affiliates to,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Notes unless such consideration is offered to be paid
or agreed to be paid to all holders
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of the Notes that consent, waive or agree to amend in the time frame set forth
in the solicitation documents relating to such consent, waiver or agreement.
SECTION 4.22. USE OF PROCEEDS.
The Company shall use the gross proceeds from the sale of the Notes only
for the following purposes:
(i) to pay the fees and expenses of the issuance of the Notes including
any discount or commission to the Initial Purchasers of the Notes;
(ii) to acquire Telecommunications Related Assets (other than Voting
Stock), including the payment of the purchase price and related sales and use
taxes therefor and shipping, handling, storage, transportation, testing and
insurance charges, design, integration and site preparation expenses and
installation and service/warranty costs associated with the acquisition of any
Telecommunications Related Assets;
(iii) to acquire the Voting Stock of any Person engaged in the
Telecommunications Business in the United States to the extent that the purchase
price paid by the Company or any Restricted Subsidiary for such Voting Stock is
allocated (as determined by a resolution of the Board of Directors) to the
purchase of Telecommunications Equipment at a purchase price not in excess of
fair market value;
(iv) to purchase the Pledged Securities; and
(v) for working capital purposes.
The Company will deliver to the Trustee an Officer's Certificate with each
annual compliance certificate certifying that the proceeds of the Notes were
applied in accordance with this Section 4.22.
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION OR SALE OF ASSETS.
The Company shall not consolidate or merge with or into (whether or
not the Company is the surviving entity), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to another corporation, Person or
entity unless:
(i) the Company is the surviving entity or the entity or Person
formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition has been made is a corporation
organized or existing under the laws of the United States, any state
thereof or the District of Columbia;
(ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or
Person to which such sale, assignment, transfer, lease, conveyance or
other disposition has been made assumes all the obligations of the
Company under
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the Notes, this Indenture, the Pledge Agreement and the Security
Agreement pursuant to a supplemental indenture in form reasonably
satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of
Default exists;
(iv) except in connection with a Merger with or into a
wholly-owned Subsidiary of the Company, the Company, or any entity or
Person formed by or surviving any such consolidation or merger, or to
which such sale, assignment, transfer, lease, conveyance or other
disposition has been made, at the time of such transaction after
giving pro forma effect thereto as if such transaction had occurred
at the beginning of the applicable fiscal quarter (including any
Indebtedness incurred or anticipated to be incurred in connection
with or in respect of such transaction or series of transactions),
(A) could incur at least $1.00 of additional Indebtedness pursuant to
the Consolidated Cash Flow Leverage Ratio test described under
Section 4.09 hereof and (B) has Consolidated Net Worth in an amount
which is equal to or greater than the Consolidated Net Worth of the
Company immediately prior to such transaction;
(v) such transaction would not result in the loss, material
impairment or adverse modification or amendment of any authorization
or license of the Company or its Restricted Subsidiaries that would
have a material adverse effect on the business or operations of the
Company and its Restricted Subsidiaries taken as a whole; and
(vi) the Company has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel each to the effect that, with
respect to the transaction, items (i) through (v) as stated above
have been satisfied.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company in
accordance with Section 5.01 hereof, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
lease, conveyance or other disposition is made shall succeed to, and be
substituted for (so that from and after the date of such consolidation, merger,
sale, lease, conveyance or other disposition, the provisions of this Indenture
referring to the Company shall refer instead to the successor corporation and
not to the Company), and may exercise every right and power of the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company, herein; provided, however, that the predecessor Company shall
not be relieved from the obligations to pay the principal of, premium, if any,
and interest on the Notes, except in the case of a sale of all of the Company's
assets that meets the requirements of Section 5.01 hereof.
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ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following constitutes an "Event of Default":
(a) default in payment when due of interest on or Liquidated
Damages, if any, with respect to the Notes as to any interest
payment date falling on or prior to October 1, 2000, and default
for 30 days in the payment when due of interest or Liquidated
Damages, if any, on the Notes as to any interest payment date
thereafter;
(b) default in payment when due of principal or premium, if any, on
the Notes at maturity, upon redemption or otherwise;
(c) failure by the Company to perform or comply with the provisions
of Sections 4.07, 4.09, 4.10, 4.15 or 5.01 hereof;
(d) failure by the Company for 30 days after notice to the Company
from the Trustee or to the Company and the Trustee by the
holders of at least 25% in principal amount of the Notes then
outstanding to comply with its other agreements in this
Indenture or the Notes;
(e) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company
or any of its Restricted Subsidiaries (or the payment of which
is guaranteed by the Company or any of its Restricted
Subsidiaries), whether such Indebtedness or Guarantee now
exists, or is created after the Issue Date, which default (x)
is caused by a failure to pay when due principal, premium, if
any, or interest on such Indebtedness within the grace period
provided in such Indebtedness (a "Payment Default"), and the
principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness of the Company
or any Significant Subsidiary under which there has been a
Payment Default or the maturity of which has been accelerated
as provided in clause (y), aggregates $5.0 million or more or
(y) results in the acceleration (which acceleration has not been
rescinded) of such Indebtedness prior to its express maturity
and the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has
been so accelerated, aggregates $5.0 million or more;
(f) failure by the Company or any of its Significant Subsidiaries to
pay final judgments (other than any judgment as to which a
reputable insurance company has accepted full liability in
writing) aggregating in excess of $5.0 million, which judgments
are not paid, discharged or stayed within 45 days after their
entry; and
(g) the Company or any of its Significant Subsidiaries pursuant to
or within the meaning of any Bankruptcy Law:
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(A) commences a voluntary case,
(B) consents to the entry of an order for relief against
it in an involuntary case,
(C) consents to the appointment of a Custodian of it or
for all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors, or
(E) admits in writing that it is generally not paying its
debts (other than debts which are the subject of a bona fide
dispute) as they become due;
(h) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that;
(A) is for relief against the Company or any of its
Significant Subsidiaries in an involuntary case;
(B) appoints a Custodian of the Company or any of its
Significant Subsidiaries or for all or substantially all of the
property of the Company or any of its Significant Subsidiaries;
or
(C) orders the liquidation of the Company or any of its
Significant Subsidiaries;
and the order or decree remains unstayed and in effect for 60
consecutive days; provided, however; that if the entry of such
order or decree is appealed and dismissed on appeal or otherwise
has ceased to be in effect, then the Event of Default hereunder
by reason of the entry of such order or decree shall be deemed
to have been cured and the related acceleration, provided that
no other Event of Default has occurred and is continuing, shall
be deemed rescinded.
The term "Custodian" means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law; or
(i) any provisions of this Indenture relating to the Security
Documents or the Security Documents shall cease to be in full
force and effect or shall cease to give the secured parties the
Liens, rights, powers and privileges purported to be created
thereby.
SECTION 6.02. ACCELERATION.
If any Event of Default occurs and is continuing under this
Indenture, the Trustee, by notice to the Company, or the holders of at least 25%
in principal amount of the then outstanding Notes, by notice to the Company and
the Trustee, may declare all the Notes to be due and payable immediately. Upon
such declaration, the principal of, premium, if any, and accrued and unpaid
interest and Liquidated Damages, if any, on the Notes shall be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising under Sections 6.01(g) or (h) hereof with respect to the Company or any
of its Significant Subsidiaries, the foregoing amount shall ipso facto become
due and payable without further
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action or notice. No premium is payable upon acceleration of the Notes except
that in the case of an Event of Default that is the result of an action or
inaction by the Company or any of its Restricted Subsidiaries intended to avoid
restrictions on or premiums related to redemptions of the Notes contained in
this Indenture or the Notes, the amount declared due and payable shall include
the premium that would have been applicable on a voluntary prepayment of the
Notes or, if voluntary prepayment is not then permitted, the premium set forth
in this Indenture. Holders of the Notes may not enforce this Indenture or the
Notes except as provided herein.
In the case of any Event of Default occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the Company
with the intention of avoiding payment of the premium that the Company would
have had to pay if the Company then had elected to redeem the Notes pursuant to
Section 3.07 hereof, an equivalent premium shall also become and be immediately
due and payable to the extent permitted by law. If an Event of Default occurs
prior to October 1, 2001 by reason of any willful action (or inaction) taken (or
not taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to such date pursuant to Section
3.07 hereof, then the premium payable for purposes of this paragraph for each of
the years beginning on October 1 of the years set forth below shall be as set
forth in the following table, expressed as a percentage of the amount that would
otherwise be due but for the provisions of this paragraph, plus accrued
interest, if any, to the date of payment:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1997.................................................................. 119.500%
1998.................................................................. 116.250%
1999.................................................................. 113.000%
2000.................................................................. 109.750%
</TABLE>
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of principal of, premium,
if any, interest and Liquidated Damages, if any, on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any holder of a Note in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal
amount of the Notes then outstanding, by notice to the Trustee, may on behalf of
the holders of all of the Notes, waive any existing Default or Event of Default
and its consequences, except a continuing Default or Event of Default in the
payment of interest or Liquidated Damages or premium on, or the principal of,
the Notes. Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to
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have been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with the law or this Indenture that the Trustee, in its sole
discretion, determines may be unduly prejudicial to the rights of other holders
of Notes or that may involve the Trustee in personal liability. The Trustee may
take any other action which it deems proper which is not inconsistent with any
such direction. Notwithstanding any provision to the contrary in this Indenture,
the Trustee shall not be obligated to take any action with respect to the
provisions of the last paragraph of Section 6.02 hereof unless directed to do so
pursuant to this Section 6.05.
SECTION 6.06. LIMITATION ON SUITS.
No holder of any Note shall have any right to institute any
proceeding with respect to this Indenture, the Pledge Agreement, the Security
Agreement or the Notes or for any remedy thereunder, unless:
(i) the holder of a Note gives to the Trustee written
notice of a continuing Event of Default;
(ii) the holders of at least 25% in principal amount of the
then outstanding Notes make a written request to the Trustee to pursue
the remedy;
(iii) such holder of a Note or holders of the Notes offer and,
if requested, provide to the Trustee indemnity satisfactory to the
Trustee against any loss, liability or expense; and
(iv) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the
provision of indemnity.
Otherwise, no holder of any Note shall have any right to
institute any proceeding with respect to this Indenture, the Pledge Agreement,
the Security Agreement or the Notes or for any remedy thereunder, except:
(x) a holder of a Note may institute suit for enforcement of
payment of the principal of and premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note (including upon
acceleration thereof) or
(y) the institution of any proceeding with respect to this
Indenture, the Pledge Agreement, the Security Agreement or the Notes or any
remedy thereunder, including without limitation acceleration, by the holders of
a majority in principal amount of the outstanding Notes; provided that, upon
institution
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of any proceeding or exercise of any remedy such holders provide the Trustee
with prompt written notice thereof.
A holder of a Note may not use this Indenture to prejudice the
rights of another holder of a Note or to obtain a preference or priority over
another holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any holder of a Note to receive payment of principal, premium and
Liquidated Damages, if any, and interest on the Note, on or after the respective
due dates expressed in the Note, or to bring suit for the enforcement of any
such payment on or after such respective dates, shall not be impaired or
affected without the consent of the holder of the Note.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b)
hereof occurs and is continuing, the Trustee is authorized to recover judgment
in its own name and as trustee of an express trust against the Company for the
whole amount of principal of, premium and Liquidated Damages, if any, and
interest remaining unpaid on the Notes and interest on overdue principal and, to
the extent lawful, interest and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due to the Trustee under Section 7.07 hereof.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
the holders of the Notes allowed in any judicial proceedings relative to the
Company (or any other obligor upon the Notes), the Company's creditors or the
Company's property and shall be entitled and empowered to collect, receive and
distribute any money or other property payable or deliverable on any such claims
and any Custodian in any such judicial proceeding is hereby authorized by each
holder of a Note to make such payments to the Trustee, and in the event that the
Trustee shall consent to the making of such payments directly to the holders of
the Notes, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To
the extent that the payment of any such compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.07 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties which the holders of the Notes may be entitled
to receive in such proceeding whether in liquidation or under any plan of
reorganization or arrangement or otherwise. Nothing contained herein shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any holder of a Note any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any holder of a
Note thereof, or to authorize the Trustee to vote in respect of the claim of any
holder of a Note in any such proceeding.
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SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article 6,
it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts
due under Section 7.07 hereof, including payment of all compensation, expenses
and liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
Second: (i) first to holders of Notes, for amounts due and
unpaid on such Notes for interest, ratably, without preference or priority of
any kind, according to the amounts due and payable on the Notes for interest,
and (ii) second, to the extent any other monies are available, to holders of
Notes for amounts due and unpaid on such Notes for principal and premium and
Liquidated Damages, if any, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for principal and premium
and Liquidated Damages, if any; and
Third: to the Company or to such party as a court of
competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
such payment to holders of Notes.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a
holder of a Note pursuant to Section 6.07 hereof, or a suit by holders of more
than 10% in principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and shall use the same degree of care and skill in their exercise as
a prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
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(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need perform
only those duties that are specifically set forth in this Indenture and
no others, and no implied covenants or obligations shall be read into
this Indenture against the Trustee, and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
(c) The Trustee may not be relieved from liabilities for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section 7.01;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under this
Indenture, the Pledge Agreement or the Security Agreement at the request of any
holders of Notes, including, without limitation, the provisions of Section 6.05
hereof, unless such holders shall have provided to the Trustee security and
indemnity satisfactory to the Trustee against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
(g) 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 or other paper or documents, 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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SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document
believed by it to be genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection from liability in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers conferred upon it by this Indenture, the Pledge Agreement or
the Security Agreement.
(e) Unless otherwise specifically provided in this Indenture,
any demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company. A permissive right granted to the Trustee
hereunder or under the Pledge Agreement or the Security Agreement shall not be
deemed an obligation to act.
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture, the Pledge Agreement or
the Security Agreement at the request or direction of any of the holders unless
such holders shall have provided to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities that might be incurred by it in
compliance with such request or direction.
(g) The Trustee shall not be charged with knowledge of any
Default or Event of Default unless either (i) a Responsible Officer of the
Trustee shall have actual knowledge of such Default or Event of Default or (ii)
written notice of such Default or Event of Default shall have been given to the
Trustee by the Company or any Holder.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest, it must eliminate such conflict within 90 days, apply to the
Commission for permission to continue as Trustee or resign. Any Agent may do the
same with like rights and duties. The Trustee is also subject to Sections 7.10
and 7.11 hereof.
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SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture, the Pledge
Agreement, the Security Agreement or the Notes, it shall not be accountable for
the Company's use of the proceeds from the Notes or any money paid to the
Company or upon the Company's direction under any provision of this Indenture,
it shall not be responsible for the use or application of any money received by
any Paying Agent other than the Trustee, and it shall not be responsible for any
statement or recital herein or in the Pledge Agreement or the Security Agreement
or any statement in the Notes or any other document in connection with the sale
of the Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and
if it is known to a Responsible Officer of the Trustee, the Trustee shall mail
to holders of Notes a notice of the Default or Event of Default within 90 days
after it occurs. Except in the case of a Default or Event of Default in payment
of principal of, premium, if any, or interest on any Note, the Trustee may
withhold the notice if and so long as a committee of its Responsible Officers in
good faith determines that withholding the notice is in the interests of the
holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15th beginning with the May 15th
following the date of this Indenture, the Trustee shall mail to the holders of
the Notes a brief report dated as of such reporting date that complies with TIA
ss. 313(a) (but if no event described in TIA ss. 313(a) has occurred within the
twelve months preceding the reporting date, no report need be transmitted). The
Trustee also shall comply with TIA ss. 313(b). The Trustee shall also transmit
by mail all reports as required by TIA ss. 313(c).
A copy of each report at the time of its mailing to the
holders of Notes shall be mailed to the Company and filed with the Commission
and each stock exchange on which the Notes are listed. The Company shall
promptly notify the Trustee when the Notes are listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time
reasonable compensation for its acceptance of this Indenture and services
hereunder. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents and counsel.
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The Company shall indemnify the Trustee against any and all
losses, liabilities or expenses incurred by it arising out of or in connection
with the acceptance or administration of its duties under this Indenture, the
Pledge Agreement or the Security Agreement, except any such loss, liability or
expense as may be attributable to the negligence or bad faith of the Trustee.
The Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Company shall not relieve the
Company of its obligations hereunder. The Company shall defend the claim and the
Trustee shall cooperate in the defense. The Trustee, in its sole discretion, may
elect to have separate counsel selected by it and the Company shall pay the
reasonable fees and expenses of such counsel. The Company need not pay for any
settlement made without its consent, which consent shall not be unreasonably
withheld.
The obligations of the Company under this Section 7.07 shall
survive the satisfaction and discharge of this Indenture.
To secure the Company' payment obligations in this Section
7.07, the Trustee shall have a Lien prior to the Notes on all money or property
held or collected by the Trustee, except that held in trust to pay principal,
premium, if any, interest and Liquidated Damages, if any, on particular Notes.
Such Lien shall survive the resignation or removal of the Trustee and the
satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(g) or (h) hereof occurs, the expenses
and the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
holders of a majority in principal amount of the then outstanding Notes may
remove the Trustee by so notifying the Trustee and the Company in writing. The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee
or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor
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Trustee takes office, the holders of a majority in principal amount of the then
outstanding Notes may appoint a successor Trustee to replace the successor
Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the holders of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee after written request by any holder of a Note
who has been a holder of a Note for at least six months fails to comply with
Section 7.10 hereof, such holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder which shall be
a corporation organized and doing business under the laws of the United States
of America or of any state thereof authorized under such laws to exercise
corporate trustee power, shall be subject to supervision or examination by
federal or state authority and shall have a combined capital and surplus of at
least $25.0 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA ss. 311(a), excluding any
creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
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ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate and at any time,
with respect to the Notes, elect to have either Section 8.02 or 8.03 hereof be
applied to all outstanding Notes upon compliance with the conditions set forth
below in this Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.02, the Company shall be deemed to have been
discharged from its obligations with respect to all outstanding Notes and the
Company shall be deemed to be released from the liens and security interests
created by the Security Agreement on the date the conditions set forth in
Section 8.04 are satisfied (hereinafter, "Legal Defeasance"). For this purpose,
such Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding Notes, which
shall thereafter be deemed to be "outstanding" only for the purposes of Section
8.05 hereof and the other sections of this Indenture referred to in (a) and (b)
below, and to have satisfied all of its other obligations under such Notes and
this Indenture (and the Trustee, on demand of and 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 outstanding Notes to receive from the
trust described below payments in respect of the principal of, premium, if any,
and interest on and Liquidated Damages with respect to such Notes when such
payments are due, or on the redemption date, as the case may be; (b) the
Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust; (c) the rights, powers, trust, duties and immunities of the
Trustee, and the Company's obligations in connection therewith; and (d) the
Legal Defeasance provisions of this Indenture.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03, the Company shall be released from its
obligations under the covenants contained in Sections 4.03, 4.04, 4.05, 4.07,
4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18 and 4.19 hereof and
Article 5 hereof with respect to the outstanding Notes and shall be released
from the liens and security interests created by the Security Agreement on and
after the date the conditions set forth in Section 8.04 are satisfied
(hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed
not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For this purpose, such Covenant
Defeasance means that, with respect to the outstanding Notes, the Company may
omit to comply with and shall have no liability in
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respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 6.01 hereof
but, except as specified above, the remainder of this Indenture and such Notes
shall be unaffected thereby. In addition, upon the Company's exercise under
Section 8.01 hereof of the option applicable to this Section 8.03, subject to
the satisfaction of the conditions set forth in Section 8.04 hereof, Sections
6.01(c) through 6.01(f) and 6.01(i) hereof shall not constitute Events of
Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 8.02 or Section 8.03 hereof to the outstanding Notes:
(a) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the
requirements of Section 7.10 hereof who shall agree to comply with the
provisions of this Article 8 applicable to it), in trust, for purpose
of making the following payments, specifically pledged as security for,
and dedicated solely to, the benefit of the holders of the Notes, (i)
cash in U.S. dollars, (ii) non-callable Government Securities, or (iii)
a combination thereof, in such amounts as will be sufficient (after
taking into account the amount, if any, in the Pledge Account), in the
opinion of a nationally recognized firm of independent public
accountants selected by the Company, to pay the principal of, premium
and Liquidated Damages, if any, and interest on the outstanding Notes,
on the stated maturity or on the applicable optional redemption date,
as the case may be, of such principal or installment of principal of,
premium, if any, or interest on or Liquidated Damages with respect to
the outstanding Notes;
(b) In the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling or (ii) since the Issue Date, there has been a change
in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the
holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;
(c) In the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the holders of the
outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(d) No Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event
of Default resulting from the borrowing of funds to be
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applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
(e) Such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than this Indenture) to which
the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound;
(f) The Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that after the 91st day (or such other
applicable date) following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(g) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the holders of Notes over the
other creditors of the Company with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and
(h) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and Government Securities
(including the proceeds thereof) deposited with the Trustee (or other qualifying
trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant
to Section 8.04 hereof in respect of the outstanding Notes shall be held in
trust and applied by the Trustee, in accordance with the provisions of such
Notes and this Indenture, to the payment, either directly or through any Paying
Agent (including the Company acting as Paying Agent) as the Trustee may
determine, to the holders of such Notes of all sums due and to become due
thereon in respect of principal, premium, if any, and interest, but such money
and Government Securities (including any proceeds thereof) need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or Government Securities
deposited pursuant to Section 8.04 hereof or the principal and interest received
in respect thereof other than any such tax, fee or other charge which by law is
for the account of the holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or Government Securities held by it as provided in
Section 8.04 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
8.04(a) hereof), are in excess of the amount thereof which would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
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<PAGE> 78
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, or
interest on any Note and remaining unclaimed for two years after such principal,
and premium, if any, or interest has become due and payable shall be paid to the
Company on its written request or (if then held by the Company) shall be
discharged from such trust; and the holder of such Note shall thereafter, as a
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of the Company as trustee thereof, shall thereupon cease; provided, however,
that the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in the
New York Times and The Wall Street Journal (national edition), notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
Dollars or Government Securities in accordance with Section 8.02 or 8.03 hereof,
as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 hereof, the Company and the Trustee may
amend or supplement this Indenture or the Notes without the consent of any
holder of Notes:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place
of certificated Notes;
(c) to provide for the assumption of the Company's obligations to
holders of the Notes in the case of a merger or consolidation;
72
<PAGE> 79
(d) to make any change that would provide any additional rights or
benefits to the holders of the Notes or that does not adversely
affect the legal rights under this Indenture of any such holder;
or
(e) to comply with requirements of the Commission in order to effect
or maintain the qualification of this Indenture under the Trust
Indenture Act.
Upon the request of the Company accompanied by a resolution of the
Board of Directors of the Company authorizing the execution of any such amended
or supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 9.06 hereof, the Trustee shall join with the Company in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations which may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture which affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
The Company and the Trustee may amend or supplement this Indenture or
the Notes or any amended or supplemental Indenture with the written consent of
the holders of at least a majority in aggregate principal amount of the Notes
then outstanding (including consents obtained in connection with a tender offer
or exchange offer for the Notes), and any existing Default and its consequences
or compliance with any provision of this Indenture or the Notes may be waived
with the consent of the holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for the Notes).
Upon the request of the Company accompanied by a resolution of the
Board of Directors of the Company authorizing the execution of any such amended
or supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 9.06
hereof, the Trustee shall join with the Company in the execution of such amended
or supplemental Indenture unless such amended or supplemental Indenture affects
the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
holders of a majority in aggregate principal amount of the Notes then
outstanding may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Notes. However, without the consent of
each holder affected, an amendment or waiver may not (with respect to any Note
held by a non-consenting holder of Notes):
73
<PAGE> 80
(i) reduce the principal amount of Notes whose holders must
consent to an amendment, supplement or waiver;
(ii) reduce the principal of or change the fixed maturity of any
Note or alter the provisions with respect to the redemption of
the Notes (other than Sections 3.09 and 4.15 hereof);
(iii) reduce th e rate of or change the time for payment of interest
on any Notes;
(iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes
(except a rescission of acceleration of the Notes by the
holders of at least a majority in aggregate principal amount
of the Notes and a waiver of the payment default that resulted
from such acceleration);
(v) make any Note payable in money other than that stated in the
Notes;
(vi) make any change in the provisions of this Indenture relating
to waivers of past Defaults or the rights of holders of Notes
to receive payments of principal of, premium, if any, or
interest on the Notes;
(vii) waive a redemption payment with respect to any Note (other
than a payment required by Sections 3.09 or 4.15 hereof);
(viii) make any change in the foregoing amendment and waiver
provisions; or
(ix) amend the Pledge Agreement or the Security Documents or
otherwise affect the interests of any Holder in the Collateral
or the Telecommunications Collateral, in each case in any
manner that adversely affects the rights of any Holder or the
Trustee.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in a amended or supplemental Indenture that complies with the TIA as
then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a holder of a Note is a continuing consent by the holder of a Note and
every subsequent holder of a Note or portion of a Note that evidences the same
debt as the consenting holder's Note, even if notation of the consent is not
made on any Note. However, any such holder of a Note or subsequent holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every holder of a Note.
The Company may fix a record date for determining which holders of
the Notes must consent to such amendment, supplement or waiver. If the Company
fixes a record date, the record date shall be
74
<PAGE> 81
fixed at (i) the later of 30 days prior to the first solicitation of such
consent or the date of the most recent list of holders of Notes furnished to the
Trustee prior to such solicitation pursuant to Section 2.05 hereof or (ii) such
other date as the Company shall designate.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall
not affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In signing or refusing to sign any amendment or
supplemental indenture, the Trustee shall be entitled to receive and (subject to
Section 7.01 hereof) shall be fully protected in relying upon, in addition to
documents required by Section 10.04 hereof, an Officers' Certificate and an
Opinion of Counsel as conclusive evidence that such amendment or supplemental
indenture is authorized or permitted by this Indenture, that it is not
inconsistent herewith, and that it will be valid and binding upon the Company in
accordance with its terms.
75
<PAGE> 82
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA ss. 318(c), the imposed duties shall control.
SECTION 10.02. NOTICES.
Any notice or communication by the Company or the Trustee to the
other is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
other's address:
If to the Company:
MGC Communications, Inc.
3165 Palms Centre Drive
Las Vegas, Nevada 89103
Telecopier No.: (702) 310-1111
Attention: General Counsel
If to the Trustee:
Marine Midland Bank
140 Broadway
New York, New York 10555
Telephone No.: (212) 658-1000
Telecopier No.: (212) 658-6425
Attention: Corporate Trust Department
The Company or the Trustee, by notice to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to holders of
Notes) 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
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a holder of a Note shall be mailed by
first class mail to its address shown on the register kept by the Registrar. Any
notice or communication shall also be so mailed to any Person described in TIA
ss. 313(c), to the extent required by the TIA. Failure to mail a notice or
communication to a holder of a Note or any defect in it shall not affect its
sufficiency with respect to other holders of Notes.
76
<PAGE> 83
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to holders of Notes,
it shall mail a copy to the Trustee and each Agent at the same time.
SECTION 10.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders of the Notes may communicate pursuant to TIA ss. 312(b) with
other holders of Notes with respect to their rights under this Indenture or the
Notes. The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA ss. 312(c).
SECTION 10.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 10.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 10.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
SECTION 10.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
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<PAGE> 84
SECTION 10.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting
of holders of Notes. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
SECTION 10.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes or this Indenture or for any claim based on, in respect of, or
by reason of such obligations or their creation. Each holder of the Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
SECTION 10.08. GOVERNING LAW.
The internal law of the State of New York shall govern and be used to
construe this Indenture and the Notes.
SECTION 10.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of the Company or its Subsidiaries. Any such indenture, loan
or debt agreement may not be used to interpret this Indenture.
SECTION 10.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successor.
SECTION 10.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 10.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
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<PAGE> 85
SECTION 10.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
articles and sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
79
<PAGE> 86
SIGNATURES
Dated as of September 29, 1997 MGC COMMUNICATIONS, INC.
(SEAL)
By:
-------------------------------------------
Name:
Title:
Attest:
- -----------------------------
Name:
Title:
Dated as of September 29, 1997 MARINE MIDLAND BANK
Trustee
(SEAL)
By:
-------------------------------------------
Name:
Title:
Attest:
- -----------------------------
Name:
Title:
<PAGE> 87
EXHIBIT A
(Face of Note)
13% Senior Secured Note due 2004
No. $_______________
CUSIP No.
MGC COMMUNICATIONS, INC.
promises to pay to Cede & Co.
or its registered assigns,
the principal sum of $____________
on October 1, 2004.
Interest Payment Dates: April 1 and October 1, commencing April 1, 1998.
Record Dates: March 15 and September 15 (whether or not a Business Day).
Dated: , MGC COMMUNICATIONS, INC.
------------ ----
By:
---------------------------------
Title:
(SEAL)
Trustee's Certification of Authentication
This is one of the Notes
referred to in the within-
mentioned Indenture:
MARINE MIDLAND BANK,
as Trustee
By:
----------------------------------------
(Authorized Signatory)
Additional provisions of this Note are set forth on the other
side of this Note.
A-1
<PAGE> 88
(Back of Note)
13% Senior Secured Note due 2004
THIS GLOBAL SECURITY IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY
BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL SECURITY
MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE
INDENTURE, (III) THIS GLOBAL SECURITY MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL
SECURITY MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN
CONSENT OF THE COMPANY.(1)
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF
THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A)
SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY
(1)(a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES
ACT, (c) OUTSIDE THE UNITED SATES TO A PERSON THAT IS NOT A U.S. PERSON
(AS DEFINED IN RULE 902 UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, (d) TO
AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),
(2) (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE SECURITY
EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE) OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (IN THE CASE OF (b),
(c), (d) OR (e), BASED UPON AN OPINION OF COUNSEL IF THE ISSUER OR
TRUSTEE, REGISTRAR OR TRANSFER AGENT FOR THE SECURITIES SO REQUESTS),
(2) TO THE ISSUER OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B)
- --------
(1) Legend to be included only on Global Securities.
A-2
<PAGE> 89
THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY
ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE.(2)
Capitalized terms used herein have the meanings assigned to them in
the Indenture (as defined below) unless otherwise indicated.
1. Interest. MGC Communications, Inc., a Nevada corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate and in the manner specified below. Interest will accrue at the rate of 13%
per annum and will be payable semi-annually, in arrears, on April 1 and October
1 of each year (each an "Interest Payment Date"), commencing on April 1, 1998,
or if any such day is not a Business Day on the next succeeding Business Day to
holders of record of the Notes at the close of business on the immediately
preceding March 15 and September 15, whether or not a Business Day. Interest on
the Notes will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from the Issue Date. Interest will be computed
on the basis of a 360-day year comprised of twelve 30-day months. To the extent
lawful, the Company shall pay interest on overdue principal at the then
applicable interest rate on the Notes; it shall pay interest on overdue
installments of interest (without regard to any applicable grace periods) at the
same rate to the extent lawful.
2. Method of Payment. The Company will pay interest on the Notes
(except defaulted interest) to the Persons who are registered holders of Notes
at the close of business on the record date next preceding the Interest Payment
Date, even if such Notes are cancelled after such record date and on or before
such Interest Payment Date. Principal, premium, Liquidated Damages, if any, and
interest on the Notes will be payable by wire transfer of immediately available
funds to the account(s) specified by the holder thereof, or, if no such
account(s) are specified, by mailing a check to each such holder's registered
address.
3. Paying Agent and Registrar. Initially, the Trustee will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without prior notice to any holder of a Note. The Company may
act in any such capacity.
4. Indenture. The Company issued the Notes under an Indenture, dated
as of September 29, 1997 (the "Indenture"), between the Company and the Trustee.
The terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code ss.ss. 77aaa-77bbbb), as in effect on the date of the Indenture. The
Notes are subject to all such terms, and holders of Notes are referred to the
Indenture and such act for a statement of such terms. The terms of the Indenture
shall govern any inconsistencies between the Indenture and the Notes. The Notes
are obligations of the Company limited to the sum of $160,000,000 in aggregate
principal amount of Notes.
5. Optional Redemption. The Notes will not be redeemable at the
Company's option prior to October 1, 2001. Thereafter, the Notes will be subject
to redemption at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice to the holders thereof, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on October 1 of the years indicated below:
- --------
(2) Legend to be included only on Restricted Global Securities and
Restricted Certificated Securities.
A-3
<PAGE> 90
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001.....................................................................................106.500%
2002 ....................................................................................103.250%
2003 and thereafter......................................................................100.000%
</TABLE>
Notwithstanding the provisions of Section 3.07(a) of the Indenture, in
the event of the sale by the Company prior to October 1, 2000 of its Capital
Stock (other than Disqualified Stock) in one or more Equity Offerings, up to a
maximum of 35% of the aggregate principal amount of the Notes originally issued
will, at the option of the Company, be redeemable from the net cash proceeds of
one or more Equity Offerings (but only to the extent the proceeds of such Equity
Offering consist of cash or readily marketable cash equivalents) at a redemption
price equal to 113% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the redemption date,
provided that at least 65% of the aggregate principal amount of the Notes
originally issued remain outstanding immediately after the occurrence of such
redemption and that such redemption occurs within 90 days of the date of the
closing of such Equity Offering.
6. Mandatory Redemption. Except as set forth in Sections 3.09 and
4.15 of the Indenture, the Company will not be required to make mandatory
redemption or sinking fund payments with respect to the Notes.
7. Repurchase at Option of holder. (a) Upon the occurrence of a
Change of Control, the Company shall be required to make an offer to repurchase
on the Change of Control Payment Date all or any part (equal to $1,000 or an
integral multiple thereof) of the outstanding Notes at a purchase price equal to
101% of the aggregate principal amount thereof plus accrued and unpaid interest,
and Liquidated Damages, if any thereon to the Change of Control Payment Date.
Holders of Notes that are subject to an offer to purchase will receive a Change
of Control Offer from the Company prior to any related Change of Control Payment
Date and may elect to have such Notes purchased by completing the form entitled
"Option of Holder to Elect Purchase" appearing below.
(b) The Company shall be required when the cumulative amount of
Excess Proceeds from Asset Sales exceeds $5.0 million to offer to purchase the
maximum principal amount of Notes and Pari Passu Notes that may be purchased out
of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of
the outstanding principal amount of the Notes and 100% of the accreted value or
100% of the outstanding principal amount, as applicable, of the Pari Passu
Notes, plus accrued and unpaid interest and Liquidated Damages thereon, if any,
to the date fixed for the closing of such offer in accordance with the
procedures set forth in Section 3.09 of the Indenture. If the aggregate
principal amount of Notes and the accreted value and/or aggregate principal
amount, as the case may be, of the Pari Passu Notes surrendered by holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes and Pari Passu Notes to be purchased on a pro rata basis based upon their
principal amount or accreted value, as applicable (with such adjustments as may
be deemed appropriate by the Company so that only Notes and Pari Passu Notes in
denominations of $1,000, or integral multiples thereof shall be purchased).
Holders of Notes that are the subject of an offer to purchase will receive an
Excess Proceeds Offer from the Company prior to any related purchase date and
may elect to have such Notes purchased by completing the form entitled "Option
of Holder to Elect Purchase" appearing below.
A-4
<PAGE> 91
8. Notice of Redemption. Notice of redemption shall be mailed by
first class mail at least 30 days but not more than 60 days before the
redemption date to each holder of Notes to be redeemed at its registered
address. Notes may be redeemed in part but only in whole multiples of $1,000,
unless all of the Notes held by a holder of Notes are to be redeemed. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount to be redeemed. On and
after the redemption date, interest ceases to accrue on Notes or portions of
them called for redemption.
9. Denominations, Transfer, Exchange. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a holder of
a Note, among other things, to furnish appropriate endorsements and transfer
documents and the Company may require a holder of a Note to pay any taxes and
fees required by law or permitted by the Indenture. Neither the Company nor the
Registrar need exchange or register the transfer of any Note or portion of a
Note selected for redemption. Also, neither the Company nor the Registrar need
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed.
10. Persons Deemed Owners. Prior to due presentment to the Trustee
for registration of the transfer of this Note, the Trustee, any Agent and the
Company shall deem and treat the Person in whose name this Note is registered as
its absolute owner for the purpose of receiving payment of principal of,
premium, Liquidated Damages, if any, and interest on this Note and for all other
purposes whatsoever, whether or not this Note is overdue, and neither the
Trustee, any Agent nor the Company shall be affected by notice to the contrary.
The registered holder of a Note shall be treated as its owner for all purposes.
11. Amendments, Supplement and Waivers. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented with the
consent of the holders of at least a majority in principal amount of the Notes
then outstanding (including consents obtained in connection with a tender offer
or exchange offer for Notes), and any existing default or compliance with any
provision of the Indenture or the Notes may be waived with the consent of the
holders of a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for Notes). Without the consent of any holder of a Note, the Indenture or the
Notes may be amended or supplemented to cure any ambiguity, defect or
inconsistency; to provide for uncertificated Notes in addition to or in place of
certificated Notes; to provide for the assumption of the Company's obligations
to holders of the Notes in case of a merger or consolidation; to make any change
that would provide any additional rights or benefits to the holders of the Notes
or that does not adversely affect the legal rights under the Indenture of any
such holder; or to comply with the requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act. However, without the consent of each holder affected, an amendment or
waiver may not (with respect to any Notes held by a non-consenting holder of
Notes) reduce the principal amount of Notes whose holders must consent to an
amendment, supplement or waiver; reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes (other than a payment required by Section 3.09 or Section 4.15 of the
Indenture); reduce the rate of or change the time for payment of interest on any
Notes; waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Notes (except a rescission of acceleration
of the Notes by the holders of at least a majority in aggregate principal amount
of the Notes and a waiver of the payment default that resulted from such
acceleration); make any Note payable in money other than that stated in the
Notes; make any change in the provisions of the Indenture relating to waivers of
past Defaults or the rights of holders of Notes to receive payments of principal
of, premium, if any, or interest on the Notes; waive a redemption payment with
respect to any Note (other than a payment required by Section 3.09 or Section
4.15 of the Indenture);
A-5
<PAGE> 92
make any change in the foregoing amendment and waiver provisions or amend the
Pledge Agreement or the Security Documents or otherwise affect the interests of
any Holder in the Pledged Securities or the Collateral, in each case in any
manner that adversely affects the rights of any Holder or the Trustee.
12. Defaults and Remedies. Events of Default include: default in
payment when due of interest on or Liquidated Damages, if any, with resect to
the Notes as to any interest payment dates falling on or prior to October 1,
2000, and default for 30 days in the payment when due of interest on or
Liquidated Damages, if any, with respect to the Notes as to any Interest Payment
Date thereafter; default in payment when due of principal or premium, if any, on
the Notes at maturity, upon redemption or otherwise; failure by the Company to
perform or comply with the provisions described under Sections 4.07, 4.09, 4.10,
4.15 or 5.01 of the Indenture; failure by the Company for 30 days after notice
from the Trustee or the holders of at least 25% in principal amount of the Notes
then outstanding to comply with its other agreements in the Indenture or the
Notes; default under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries), whether such Indebtedness or Guarantee now exists, or is created
after the Issue Date, which default (x) is caused by a Payment Default, and the
principal amount of any such Indebtedness, together with the principal amount of
any other such Indebtedness of the Company or any Significant Subsidiary under
which there has been a Payment Default or the maturity of which has been
accelerated as provided in clause (y), aggregates $5.0 million or more or (y)
results in the acceleration (which acceleration has not been rescinded) of such
Indebtedness prior to its express maturity and the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; failure by the Company or any
of its Significant Subsidiaries to pay final judgments (other than any judgment
as to which a reputable insurance company has accepted full liability in
writing) aggregating in excess of $5.0 million which judgments are not paid,
discharged or stayed within 45 days after their entry; certain events of
bankruptcy or insolvency with respect to the Company or any of its Significant
Subsidiaries; and if any provision of the Indenture or the Security Documents or
the Security Documents shall cease to be in full force and effect or shall cease
to give the secured parties the liens, rights, powers and privileges to be
created thereby. If any Event of Default occurs and is continuing, the Trustee
or the holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes to be due and payable immediately. Upon such
declaration, the principal of, premium, if any, and accrued and unpaid interest
and Liquidated Damages, if any, on the Notes shall be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries, the foregoing amount shall ipso
facto become due and payable without further action or notice. Holders of the
Notes may not enforce the Indenture or the Notes except as provided in the
Indenture. The holders of a majority in aggregate principal amount of the Notes
then outstanding, by notice to the Trustee, may on behalf of the holders of all
of the Notes, waive any existing Default or Event of Default and its
consequences under the Indenture, except a continuing Default or Event of
Default in the payment of interest or Liquidated Damages or premium on, or the
principal of, the Notes.
13. Security. (a) The Company shall enter into the Pledge Agreement
and use a portion of the net proceeds of the Offering to purchase the Pledged
Securities to be pledged to the Trustee for the benefit of the Holders of the
Notes in such amount as will be sufficient upon receipt of scheduled interest
and principal payments of such securities, in the opinion of a nationally
recognized firm of independent public accountants selected by the Company, to
provide for payment in full of the first six scheduled interest payments due on
the Notes. The Pledged Securities will be pledged by the Company to the Trustee
for
A-6
<PAGE> 93
the benefit of the Holders of the Notes and will be held by the Trustee in the
Pledge Account pending disbursement pursuant to the Pledge Agreement.
(b) The Company shall enter into the Security Agreement pursuant to
which the Trustee, for its benefit and the benefit of the holders of the Notes,
will receive a security interest in: (i) all Telecommunications Equipment
currently owned by the Company other than Telecommunications Equipment located
in Las Vegas, Nevada or the surrounding suburban area and all Telecommunications
Equipment acquired by the Company after the Issue Date (other than
Telecommunications Equipment located or to be located in Las Vegas, Nevada or
the surrounding suburban area) and prior to such time as the aggregate dollar
value of the Company's purchases of Telecommunications Equipment subsequent to
the Issue Date (excluding Telecommunications Equipment located or to be located
in Las Vegas, Nevada or the surrounding suburban area) equals or exceeds $100.0
million; (ii) the proceeds of any sale or other disposition of such
Telecommunications Equipment (including any insurance proceeds from the loss or
destruction of such Telecommunications Equipment); and (iii) any additional
Telecommunications Related Assets acquired by the Company with the proceeds of
any such sale or other disposition of Telecommunications Equipment
(collectively, the "Collateral"). If the Notes become due and payable prior to
their stated maturity or are not paid in full at the stated maturity thereof,
the Trustee, on behalf of the holders of the Notes, in addition to any other
rights or remedies available to it under the Indenture, may take such action as
it deems advisable to protect and enforce the rights of the Trustee and such
holders in the Collateral, including the institution of foreclosure proceedings.
Any proceeds received by the Trustee from the disposition of the Collateral will
be applied by the Trustee, first to pay certain expenses of the Trustee and the
holders of the Notes, second to pay interest with respect to the Notes, third to
pay unpaid principal of the Notes, fourth to pay costs and expenses of, and all
premiums on, and all other amounts due under, the Notes, and finally, to pay any
remainder to the Company or as a court of competent jurisdiction otherwise
directs.
13. Trustee Dealings with Company. The Trustee under the Indenture,
in its individual or any other capacity, may make loans to, accept deposits
from, and perform services for the Company or its Affiliates, and may otherwise
deal with the Company or its Affiliates, as if it were not Trustee; however, if
the Trustee acquires any conflicting interest, it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue as Trustee or
resign.
14. No Personal Liabilities of Directors, Officers, Employees and
Stockholders. No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each holder of the Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes.
15. Authentication. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of
a holder of a Note 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).
17. Additional Rights of Holders of Transfer Restricted Securities.
In addition to the rights provided to holders of Notes under the Indenture,
holders of Transfer Restricted Securities shall have all the rights set forth in
the Registration Rights Agreement.
A-7
<PAGE> 94
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and has directed the Trustee to use
CUSIP numbers in notices of redemption as a convenience to holders of Notes. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be placed
only on the other identification numbers placed thereon.
A-8
<PAGE> 95
The Company will furnish to any holder of a Note upon written request
and without charge a copy of the Indenture. Request may be made to:
MGC Communications, Inc.
3165 Palms Centre Drive
Las Vegas, Nevada 89103
Attention: General Counsel
A-9
<PAGE> 96
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 ______________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
- --------------------------------------------------------------------------------
Date:
--------------
Your Signature:
--------------------------------
(Sign exactly as your name appears on the face
of this Note)
Signature Guarantee.
<PAGE> 97
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Note purchased by
the Company pursuant to Section 3.09 or Section 4.15 of the Indenture check the
appropriate box:
[ ] Section 3.09 [ ] Section 4.15
If you want to have only part of the Note purchased by the Company
pursuant to Section 3.09 or Section 4.15 of the Indenture, state the amount you
elect to have purchased:
$ ---------------
Date:
------------
Your Signature:
--------------------------------
(Sign exactly as your name appears on the face
of this Note)
Signature Guarantee.
<PAGE> 98
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL SECURITY
The following exchanges of a part of this Global Security have been made:
<TABLE>
<CAPTION>
Principal Amount of Signature of
Amount of decrease in Amount of increase in this Global Security authorized officer of
Principal Amount of Principal Amount of following such decrease Trustee or Note
Date of Exchange this Global Security this Global Security (or increase) Custodian
- ---------------------- ----------------------- ----------------------- ------------------------ -------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 99
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
MGC Communications, Inc.
3165 Palms Centre Drive
Las Vegas, Nevada 89103
Attention: General Counsel
Marine Midland Bank
140 Broadway
New York, New York 10555
Attention: Corporate Trust Department
Re: 13% Senior Secured Notes due 2004
Reference is hereby made to the Indenture, dated as of September 29,
1997 (the "Indenture"), between MGC Communications, Inc., as issuer (the
"Company"), and Marine Midland Bank, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
______________, (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ (the "Transfer"), to __________ (the
"Transferee"), as further specified in Annex A hereto. In connection with the
Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF BOOK-ENTRY INTERESTS IN THE
GLOBAL SECURITY OR CERTIFICATED SECURITIES PURSUANT TO RULE 144A. The Transfer
is being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the Book-Entry
Interests or Certificated Securities are being transferred to a Person that the
Transferor reasonably believes is purchasing the Book-Entry Interests or
Certificated Securities for its own account, or for one or more accounts with
respect to which such Person exercises sole investment discretion, and such
Person and each such account is a "qualified institutional buyer" within the
meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and
such Transfer is in compliance with any applicable blue sky securities laws of
any state of the United States. Upon consummation of the proposed Transfer in
accordance with the terms of the Indenture, the transferred Book-Entry Interest
or Certificated Security will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Global Security and/or
the Certificated Security and in the Indenture and the Securities Act.
2. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF BOOK-ENTRY
INTERESTS IN THE GLOBAL SECURITY OR CERTIFICATED SECURITIES PURSUANT TO ANY
PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A. The Transfer is being
effected in compliance with the transfer restrictions applicable to Book-Entry
Interests in the Restricted Global Security and Restricted Certificated
Securities and pursuant to and in accordance with the Securities Act and any
applicable blue sky securities laws of any State of the United States, and
accordingly the Transferor hereby further certifies that (check one):
(a) [ ] such Transfer is being effected to the Company or a subsidiary
thereof,
<PAGE> 100
or
(b) [ ] such Transfer is being effected pursuant to an effective
registration statement under the Securities Act;
or
(c) [ ] such Transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A, and the
Transferor hereby further certifies that the Transfer complies with the transfer
restrictions applicable to Book-Entry Interests in a Restricted Global Security
or Restricted Certificated Securities and the requirements of the exemption
claimed, which certification is supported by (1) if the transfer is being made
to an Institutional Accredited Investor and effected pursuant to an exemption
from the registration requirements of the Securities Act other than Rule 144A
under the Securities Act, Rule 144 under the Securities Act or Rule 904 under
the Securities Act, a certificate executed by the Transferee in the form of
Exhibit D to the Indenture and (2) an Opinion of Counsel provided by the
Transferor or the Transferee (a copy of which the Transferor has attached to
this certification), to the effect that (1) such Transfer is in compliance with
the Securities Act and (2) such Transfer complies with any applicable blue sky
securities laws of any state of the United States. Upon consummation of the
proposed transfer in accordance with the terms of the Indenture, the transferred
Book-Entry Interest or Certificated Security will be subject to the restrictions
on transfer enumerated in the Private Placement Legend printed on the Restricted
Global Security and/or the Restricted Certificated Securities and in the
Indenture and the Securities Act.
3. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF BOOK-ENTRY INTERESTS IN THE
UNRESTRICTED GLOBAL SECURITY OR IN CERTIFICATED SECURITIES THAT DO NOT BEAR THE
PRIVATE PLACEMENT LEGEND. (i) The Transfer is being effected pursuant to and in
compliance with an exemption from the registration requirements of the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any State of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred Book-Entry Interests or
Certificated Securities will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Security or Restricted Certificated Securities bearing the Private Placement
Legend and in the Indenture.
This certificate and the statements contained herein are made for
your benefit.
--------------------
[NAME OF TRANSFEROR]
By:
------------------
Name:
Title:
Dated: ,
------------------ ------
B-2
<PAGE> 101
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [ ] Book-Entry Interests in the Global Security:
(i) [ ] 144A Global Security (CUSIP__________ ), or
(ii) Regulation S Global Security (CUSIP_________), or
(ii) [ ] IAI Global Security (CUSIP________ ); or
(b) [ ] Restricted Certificated Securities.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [ ] Book-Entry Interests in the:
(i) [ ] 144A Global Security (CUSIP_________), or
(ii) [ ] Regulation S Global Security (CUSIP _______), or
(iii) [ ] IAI Global Security (CUSIP_________); or
(iv) [ ] Unrestricted Global Security (CUSIP_________); or
(b) [ ] Restricted Certificated Securities; or
(c) [ ] Certificated Securities that do not bear the Private Placement
Legend,
in accordance with the terms of the Indenture.
B-3
<PAGE> 102
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
MGC Communications, Inc.
3165 Palms Centre Drive
Las Vegas, Nevada 89103
Attention: General Counsel
Marine Midland Bank
140 Broadway
New York, New York
Attention: Corporate Trust Department
Re: 13% Senior Secured Notes due 2004
(CUSIP________________ )
Reference is hereby made to the Indenture, dated as of
September 29, 1997 (the "Indenture"), between MGC Communications, Inc., as
issuer (the "Company") and Marine Midland Bank, as trustee. Capitalized terms
used but not defined herein shall have the meanings given to them in the
Indenture.
__________, (the "Holder") owns and proposes to exchange the
Note[s] or interest in such Note[s] specified herein, in the principal amount of
$____________ (the "Exchange"). In connection with the Exchange, the Holder
hereby certifies that:
1. EXCHANGE OF RESTRICTED CERTIFICATED SECURITIES OR RESTRICTED BOOK-ENTRY
INTERESTS FOR CERTIFICATED SECURITIES THAT DO NOT BEAR THE PRIVATE PLACEMENT
LEGEND OR UNRESTRICTED BOOK-ENTRY INTERESTS
(a) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED BOOK-ENTRY INTEREST TO
UNRESTRICTED BOOK-ENTRY INTEREST. In connection with the Exchange of the
Holder's Restricted Book-Entry Interest for Unrestricted Book-Entry Interests in
an equal principal amount, the Holder hereby certifies (i) the Unrestricted
Book-Entry Interests are being acquired for the Holder's own account without
transfer, (ii) such Exchange has been effected in compliance with the transfer
restrictions applicable to the Global Security and pursuant to and in accordance
with the United States Securities Act of 1933, as amended (the "Securities
Act"), (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the Unrestricted Book-Entry Interests are being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED BOOK-ENTRY INTEREST TO
CERTIFICATED SECURITIES THAT DO NOT BEAR THE PRIVATE PLACEMENT LEGEND. In
connection with the Exchange of the Holder's Restricted Book-Entry Interests for
Certificated Securities that do not bear the Private Placement Legend, the
Holder hereby certifies (i) the Certificated Securities are being acquired for
the Holder's own account without transfer, (ii) such Exchange has been effected
in compliance with the transfer restrictions applicable to the Restricted Global
Security and pursuant to and in accordance with the Securities Act, (iii)
C-1
<PAGE> 103
the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act and (iv) the Certificated Securities are being acquired in
compliance with any applicable blue sky securities laws of any state of the
United States.
(c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED CERTIFICATED SECURITIES TO
UNRESTRICTED BOOK-ENTRY INTERESTS. In connection with the Holder's Exchange of
Restricted Certificated Securities for Unrestricted Book-Entry Interests, (i)
the Unrestricted Book-Entry Interests are being acquired for the Holder's own
account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Certificated Securities
and pursuant to and in accordance with the Securities Act, (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the Unrestricted Book-Entry Interests are being acquired in compliance
with any applicable blue sky securities laws of any state of the United States.
(d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED CERTIFICATED SECURITIES TO
CERTIFICATED SECURITIES THAT DO NOT BEAR THE PRIVATE PLACEMENT LEGEND. In
connection with the Holder's Exchange of a Restricted Certificated Security for
Certificated Securities that do not bear the Private Placement Legend, the
Holder hereby certifies (i) the Certificated Securities that do not bear the
Private Placement Legend are being acquired for the Holder's own account without
transfer, (ii) such Exchange has been effected in compliance with the transfer
restrictions applicable to Restricted Certificated Securities and pursuant to
and in accordance with the Securities Act , (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the Notes are
being acquired in compliance with any applicable blue sky securities laws of any
state of the United States.
2. EXCHANGE OF RESTRICTED CERTIFICATED SECURITIES OR RESTRICTED BOOK-ENTRY
INTERESTS FOR RESTRICTED CERTIFICATED SECURITIES OR RESTRICTED BOOK-ENTRY
INTERESTS
(a) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED BOOK-ENTRY INTERESTS TO
RESTRICTED CERTIFICATED SECURITY. In connection with the Exchange of the
Holder's Restricted Book-Entry Interest for Restricted Certificated Securities
with an equal principal amount, (i) the Restricted Certificated Securities are
being acquired for the Holder's own account without transfer and (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Security and pursuant to and in accordance
with the Securities Act, and in compliance with any applicable blue sky
securities laws of any state of the United States. Upon consummation of the
proposed Exchange in accordance with the terms of the Indenture, the Restricted
Certificated Securities issued will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted
Certificated Securities and in the Indenture and the Securities Act.
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED CERTIFICATED SECURITIES TO
RESTRICTED BOOK-ENTRY INTERESTS. In connection with the Exchange of the Holder's
Restricted Certificated Security for Restricted Book-Entry Interests in the
[CHECK ONE] [ ] 144A Global Security, [X] Regulation S Global Security, [ ] IAI
Global Security with an equal principal amount, (i) the Certificated Securities
are being acquired for the Holder's own account without transfer and (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Certificated Security and pursuant to and in
accordance with the Securities Act, and in compliance with any applicable blue
sky securities laws of any state of the United States. Upon consummation of the
proposed Exchange in accordance with the terms of the Indenture, the Book-Entry
Interests issued will be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the relevant Restricted Global Security
and in the Indenture and the Securities Act.
C-2
<PAGE> 104
This certificate and the statements contained herein are made for your.
----------------------------------
[Insert Name of Holder]
By:
--------------------------------
Name:
Title:
Dated: ,
-------------- ------
C-3
<PAGE> 105
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
MGC Communications, Inc.
3165 Palms Centre Drive
Las Vegas, Nevada 89103
Attention: General Counsel
Marine Midland Bank
140 Broadway
New York, New York 10555
Attention: Corporate Trust Department
Re: 13% Senior Secured Notes due 2004
Reference is hereby made to the Indenture, dated as of
September 29, 1997 (the "Indenture"), between MGC Communications, Inc., as
issuer (the "Company") and Marine Midland Bank, as trustee. Capitalized terms
used but not defined herein shall have the meanings given to them in the
Indenture.
In connection with our proposed purchase of $____________
aggregate principal amount of Notes, we confirm that:
1. We understand that any subsequent transfer of the Notes or
any interest therein is subject to certain restrictions and conditions set forth
in the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the Securities Act of
1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes and any interest
therein may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell the Notes or any
interest therein, we will do so only (A)(1) to a person who we reasonably
believe is a qualified institutional buyer (as defined in Rule 144A under the
Securities Act) in a transaction meeting the requirements of Rule 144A, (2) in a
transaction meeting the requirements of Rule 144 under the Securities Act, (3)
outside the United States to a person that is not a U.S. person (as defined in
Rule 902 under the Securities Act) in a transaction meeting the requirements of
Rule 904 under the Securities Act, (4) to an institutional "accredited investor"
(as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the
Securities Act) that, prior to such transfer, furnishes to you a signed letter
containing certain representations and agreements relating to the Notes, or (5)
in accordance with another exemption from the registration requirements of the
Securities Act (in the case of 2, 3, 4 or 5, based upon an opinion of counsel if
the Company or the Trustee so requests), (B) to the Company or (C) pursuant to
an effective registration statement and, in each case, in accordance with any
applicable securities laws of any state of the United States or any other
applicable jurisdiction, and we further agree to provide to any person
purchasing the Certificated Securities or interests therein from us
D-1
<PAGE> 106
in a transaction meeting the requirements of clauses (A) through (C) of this
paragraph a notice advising such purchaser that resales thereof are restricted
as stated herein.
3. We understand that, on any proposed resale of the Notes or
any interests therein, we will be required to furnish to you and the Company
such certifications, legal opinions and other information as you and the Company
may reasonably require to confirm that the proposed sale complies with the
foregoing restrictions. We further understand that the Notes purchased by us
will bear a legend to the foregoing effect. We further understand that any
subsequent transfer by us of the Notes or interests therein acquired by us must
be effected through one of the Initial Purchasers.
4. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or its investment.
5. We are acquiring the Notes or interests therein for our own
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
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.
---------------------------------------
[Insert Name of Accredited Investor]
By:
-----------------------------------
Name:
Title:
Dated: ,
------------------ ------
<PAGE> 1
EXHIBIT 4.2
================================================================================
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
$160,000,000
13% Senior Secured Notes due 2004
Dated as of September 29, 1997
by and among
MGC COMMUNICATIONS, INC.,
BEAR, STEARNS & CO. INC.
and
FURMAN SELZ LLC
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This Registration Rights Agreement (this "Agreement") is made
and entered into as of September 29, 1997 by and among MGC Communications, Inc.,
a Nevada corporation (the "Company"), and Bear, Stearns & Co. Inc. and Furman
Selz LLC (each an "Initial Purchaser" and together, the "Initial Purchasers"),
each of whom have agreed to purchase the Company's 13% Senior Secured Notes due
2004 (the "Notes") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement,
dated September 24, 1997 (the "Purchase Agreement"), by and among the Company
and the Initial Purchasers. In order to induce the Initial Purchasers to
purchase the Notes, the Company has agreed to provide 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 set forth in Section 8 of
the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms
shall have the following meanings:
Act: The Securities Act of 1933, as amended.
Broker-Dealer: Any broker or dealer registered under the
Exchange Act.
Broker-Dealer Transfer Restricted Securities: Exchange Notes
that are acquired by a Broker-Dealer in the Exchange Offer in exchange for Notes
that such Broker-Dealer acquired for its own account as a result of market
making activities or other trading activities (other than Notes acquired
directly from the Company or any of its affiliates).
Business Day: Any day except a Saturday, Sunday or other day
in the City of New York, or in the city of the corporate trust office of the
Trustee, on which banks are authorized to close.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated"
for purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Notes to be issued in the Exchange Offer, (b) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of Exchange Notes in the same aggregate
principal amount as the aggregate principal amount of Notes tendered by Holders
thereof pursuant to the Exchange Offer.
Exchange Act: The Securities Exchange Act of 1934, as amended.
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Exchange Notes : The Company's 13% Series B Senior Secured
Notes due 2004 to be issued pursuant to the Indenture.
Exchange Offer: The registration by the Company under the Act
of the Exchange Notes pursuant to the Exchange Offer Registration Statement
pursuant to which the Company shall offer the Holders of all outstanding
Transfer Restricted Securities the opportunity to exchange all such outstanding
Transfer Restricted Securities for Exchange Notes in an aggregate principal
amount equal to the aggregate principal amount of the Transfer Restricted
Securities tendered in such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration
Statement relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial
Purchasers propose to sell the Notes to certain "qualified institutional
buyers," as such term is defined in Rule 144A under the Act, or pursuant to
offers and sales that occur outside the United States to persons other than U.S.
persons within the meaning of Regulation S under the Act.
Holders: As defined in Section 2 hereof.
Indenture: The Indenture, dated the Closing Date, between the
Company and Marine Midland Bank, as trustee (the "Trustee"), pursuant to which
the Senior Notes are to be issued, as such Indenture is amended or supplemented
from time to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the
Senior Notes.
NASD: National Association of Securities Dealers, Inc.
Offering Memorandum: The final offering memorandum, dated
September 24, 1997, relating to the Company and the Notes.
Person: An individual, partnership, corporation, trust,
unincorporated organization, or a government or agency or political subdivision
thereof.
Preliminary Offering Memorandum: The preliminary offering
memorandum, dated September 4, 1997, relating to the Company and the Notes.
Prospectus: The prospectus included in a Registration
Statement at the time such Registration Statement is declared effective, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the
Company relating to (a) an offering of Exchange Notes pursuant to an Exchange
Offer or (b) the registration for resale of Transfer Restricted Securities
pursuant to the Shelf Registration Statement, in each case, (i) which is filed
pursuant to the provisions of this Agreement and (ii) including the Prospectus
included therein, all amendments and
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supplements thereto (including post-effective amendments) and all exhibits and
material incorporated by reference therein.
Restricted Broker-Dealer: Any Broker-Dealer which holds
Broker-Dealer Transfer Restricted Securities.
Senior Notes: The Notes and the Exchange Notes.
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note until the earliest
to occur of (i) the date on which such Note is exchanged by a person other than
a broker-dealer for an Exchange Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of a Note for an Exchange
Note, the date on which such Exchange Note is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a copy of the
prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Note is effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (iv) the date
on which such Note is distributed to the public pursuant to Rule 144 under the
Act.
Underwritten Registration or Underwritten Offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted
Securities (each, a "Holder") whenever such Person owns Transfer Restricted
Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
a) Unless the Exchange Offer shall not be permitted by
applicable federal law (after the procedures set forth in Section 6(a)(i) below
have been complied with), the Company shall (i) cause to be filed with the
Commission as soon as practicable after the Closing Date, but in no event later
than 30 days after the Closing Date, the Exchange Offer Registration Statement,
(ii) use its best efforts to cause such Exchange Offer Registration Statement to
become effective at the earliest possible time, but in no event later than 120
days after the Closing Date, (iii) in connection with the foregoing, (A) file
all pre-effective amendments to such Exchange Offer Registration Statement as
may be necessary in order to cause such Exchange Offer Registration Statement to
become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the Exchange Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Exchange Notes to be offered in
exchange for the Notes that are Transfer
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Restricted Securities and to permit sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers as contemplated by Section 3(c) below.
b) The Company shall cause the Exchange Offer Registration
Statement to be effective continuously, and shall keep the Exchange Offer open,
for a period of not less than the minimum period required under applicable
federal and state securities laws to Consummate the Exchange Offer; provided,
however, that in no event shall such period be less than 20 Business Days. The
Company shall cause the Exchange Offer to comply with all applicable federal and
state securities laws. No securities other than the Senior Notes shall be
included in the Exchange Offer Registration Statement. The Company shall use its
best efforts to cause the Exchange Offer to be Consummated on the earliest
practicable date after the Exchange Offer Registration Statement has become
effective, but in no event later than 30 Business Days thereafter.
c) The Company shall include a "Plan of Distribution" section
in the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Restricted Broker- Dealer who holds Notes that are
Transfer Restricted Securities and that were acquired for the account of such
Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Notes (other than Transfer Restricted Securities
acquired directly from the Company) pursuant to the Exchange Offer; however,
such Broker-Dealer may be deemed to be an "underwriter" within the meaning of
the Act and must, therefore, deliver a prospectus meeting the requirements of
the Act in connection with its initial sale of each Exchange Note received by
such Broker-Dealer in the Exchange Offer, which prospectus delivery requirement
may be satisfied by the delivery by such Broker-Dealer of the Prospectus
contained in the Exchange Offer Registration Statement. Such "Plan of
Distribution" section shall also contain all other information with respect to
such sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers that the Commission may require in order to permit such sales
pursuant thereto, but such "Plan of Distribution" shall not name any such
Broker-Dealer or disclose the amount of Notes held by any such Broker-Dealer
except to the extent required by the Commission.
The Company shall use its best efforts to keep the Exchange
Offer Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers, and to ensure that such Registration
Statement conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period expiring on the earlier of (i) the date that all Holders of
Transfer Restricted Securities have registered such securities pursuant to the
Exchange Offer and (ii) 365 days from the date on which the Exchange Offer
Registration Statement is declared effective.
The Company shall promptly provide sufficient copies of the
latest version of such Prospectus to such Restricted Broker-Dealers upon request
at any time during such 365-day period in order to facilitate such sales.
SECTION 4. SHELF REGISTRATION
a) Shelf Registration. If (i) the Company is not required to
file the Exchange Offer Registration Statement with respect to the Senior Notes
or permitted to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy (after the procedures set forth
in Section 6(a)(i) below have been complied with) or (ii) any Holder of Transfer
Restricted
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Securities notifies the Company within 20 Business Days following the
Consummation of the Exchange Offer that (A) such Holder is prohibited by law or
Commission policy from participating in the Exchange Offer or (B) such Holder
may not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder or (C) such Holder is a Broker-Dealer and holds Senior
Notes acquired directly from the Company or an affiliate of the Company, then
the Company shall:
(x) cause to be filed on or prior to (1) in the case
of a Registration Statement filed pursuant to clause (i) above, 30 days
after the date on which the Company determines that it is not required
to file the Exchange Offer Registration Statement and in any event,
within 150 days after the Closing Date and (2) in the case of a
Registration Statement filed pursuant to clause (ii) above, 30 days
after the date on which the Company receives the notice specified in
clause (ii) above, a shelf registration statement pursuant to Rule 415
under the Act, (which may be an amendment to the Exchange Offer
Registration Statement (in either event, the "Shelf Registration
Statement")), relating to all Transfer Restricted Securities the
Holders of which shall have provided the information required pursuant
to Section 4(b) hereof, and
(y) use its best efforts to cause such Shelf
Registration Statement to become effective on or prior to (1) in the
case of a Registration Statement filed pursuant to clause (i) above, 90
days after the date on which the Company becomes obligated to file such
Shelf Registration Statement (and in any event, within 240 days after
the Closing Date), and (2) in the case of a Registration Statement
filed pursuant to clause (ii) above, 90 days after the date on which
the Company receives the notice specified in clause (ii) above. If,
after the Company has filed an Exchange Offer Registration Statement
which satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement
solely because the Exchange Offer is not permitted under applicable
federal law, then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x)
above. Such an event shall have no effect on the requirements of this
clause (y), or on the Effectiveness Target Date as defined in Section 5
below.
The Company shall use its best efforts to keep the Shelf Registration Statement
referred to in this Section 4(a) continuously effective, supplemented and
amended as required by the provisions of Sections 6(b) and (c) hereof to the
extent necessary to ensure that it is available for sales of Transfer Restricted
Securities by the Holders thereof entitled to the benefit of this Section 4(a),
and to ensure that it conforms with the requirements of this Agreement, the Act
and the policies, rules and regulations of the Commission as announced from time
to time, for a period expiring on the earlier of (i) the date that all Holders
of Transfer Restricted Securities have sold such securities and (ii) 365 days
from the date on which the Shelf Registration Statement is declared effective.
(b) Provision by Holders of Certain Information in Connection
with the Shelf Registration Statement. No Holder of Transfer Restricted
Securities may include any of its Transfer Restricted Securities in any Shelf
Registration Statement pursuant to this Agreement unless and until such Holder
furnishes to the Company in writing, within 20 Business Days after receipt of a
request therefor, such information specified in item 507 of Regulation S-K under
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to Liquidated Damages pursuant to
Section 5 hereof unless and until
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such Holder shall have provided all such information required to be provided by
such Holder for inclusion therein. Each Holder as to which any Shelf
Registration Statement is being effected agrees to furnish promptly to the
Company, for so long as the Registration Statement is effective, all information
required to be disclosed in order to make the information previously furnished
to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) the Company fails to file any of the Registration
Statements required by this Agreement on or before the date specified for such
filing in this Agreement, (ii) any of such Registration Statements is not
declared effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), (iii) the Company fails to
Consummate the Exchange Offer within 30 Business Days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement or (iv)
the Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods specified in
this Agreement without being succeeded immediately by a post effective amendment
to such Registration Statement that cures such failure and that is itself
declared effective within a five Business Day period after filing such post
effective amendment (each such event referred to in clauses (i) through (iv)
above, a "Registration Default"), then commencing on the day following the date
on which such Registration Default occurs, the Company agrees to pay to each
Holder of Transfer Restricted Securities, for the first 90-day period
immediately following the occurrence of such Registration Default, liquidated
damages in an amount equal to $.05 per week per $1,000 principal amount of Notes
constituting Transfer Restricted Securities held by such Holder for each week or
pro rata for a portion of each week thereof that the Registration Default
continues. The amount of liquidated damages payable to each Holder shall
increase by an additional $.05 per week per $1,000 principal amount of Notes
constituting Transfer Restricted Securities held by such Holder for each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum of $.50 per week per $1,000 principal amount of Notes constituting
Transfer Restricted Securities held by such Holder.
All accrued liquidated damages shall be paid to Cede & Co., as
nominee of the Depository Trust Company (the "Global Security Holder") by wire
transfer of immediately available funds or by federal funds check and to Holders
of Definitive Securities by mailing checks to their registered addresses by the
Company on each Interest Payment Date. All obligations of the Company set forth
in the preceding paragraph that are outstanding with respect to any Transfer
Restricted Security at the time such security ceases to be a Transfer Restricted
Security shall survive until such time as all such obligations with respect to
such security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
a) Exchange Offer Registration Statement. In connection with
the Exchange Offer, the Company shall comply with all applicable provisions of
Section 6(c) below, shall use its best efforts to effect such exchange and to
permit the sale of Broker-Dealer Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
shall comply with all of the following provisions:
(i) If, following the date hereof there has been published
a change in Commission policy with respect to exchange offers such as
the Exchange Offer, such that in the reasonable
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opinion of counsel to the Company there is a substantial question as to
whether the Exchange Offer is permitted by applicable federal law, the
Company hereby agrees to seek a no-action letter or other favorable
decision from the Commission allowing the Company to Consummate an
Exchange Offer for such Notes. The Company hereby agrees to pursue the
issuance of such a decision to the Commission staff level. In
connection with the foregoing, the Company hereby agrees to take such
other actions as are requested by the Commission or otherwise required
in connection with the issuance of such decision, including without
limitation (A) participating in telephonic conferences with the
Commission, (B) delivering to the Commission staff an analysis prepared
by counsel to the Company setting forth the legal bases, if any, upon
which such counsel has concluded that such an Exchange Offer should be
permitted and (C) diligently pursuing a resolution by the Commission
staff of such submission.
(ii) As a condition to its participation in the Exchange
Offer pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of the Company,
prior to the Consummation of the Exchange Offer, a written
representation to the Company (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement)
to the effect that (A) it is not an affiliate of the Company, (B) it is
not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Exchange Notes to be issued in the Exchange Offer
and (C) it is acquiring the Exchange Notes in its ordinary course of
business. Each Holder hereby acknowledges and agrees that any
Broker-Dealer and any such Holder using the Exchange Offer to
participate in a distribution of the securities to be acquired in the
Exchange Offer (1) could not under Commission policy as in effect on
the date of this Agreement rely on the position of the Commission
enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and
Exxon Capital Holdings Corporation (available May 13, 1988), as
interpreted in the Commission's letter to Shearman & Sterling dated
July 2, 1993, and similar no-action letters (including, if applicable,
any no-action letter obtained pursuant to clause (i) above), and (2)
must comply with the registration and prospectus delivery requirements
of the Act in connection with a secondary resale transaction and that
such a secondary resale transaction must be covered by an effective
registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation
S-K if the resales are of Exchange Notes obtained by such Holder in
exchange for Notes acquired by such Holder directly from the Company.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company shall provide a supplemental letter
to the Commission (A) stating that the Company is registering the
Exchange Offer in reliance on the position of the Commission enunciated
in Exxon Capital Holdings Corporation (available May 13, 1988), Morgan
Stanley and Co., Inc. (available June 5, 1991) and, if applicable, any
no-action letter obtained pursuant to clause (i) above, (B) including a
representation that the Company has not entered into any arrangement or
understanding with any Person to distribute the Exchange Notes to be
received in the Exchange Offer and that, to the best of the Company's
information and belief, each Holder participating in the Exchange Offer
is acquiring the Exchange Notes in its ordinary course of business and
has no arrangement or understanding with any Person to participate in
the distribution of the Exchange Notes received in the Exchange Offer
and (C) any other undertaking or representation required by the
Commission as set forth in any no-action letter obtained pursuant to
clause (i) above.
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(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement the Company shall comply with all the provisions of
Section 6(c) below and shall use its best efforts to effect such registration to
permit the sale of the Transfer Restricted Securities being sold in accordance
with the intended method or methods of distribution thereof (as indicated in the
information furnished to the Company pursuant to Section 4(b) hereof), and
pursuant thereto the Company will prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods of
distribution thereof within the time periods and otherwise in accordance with
the provisions hereof.
(c) General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement to permit the
sale or resale of Transfer Restricted Securities (including, without limitation,
any Exchange Offer Registration Statement and the related Prospectus, to the
extent that the same are required to be available to permit sales of
Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers), the
Company shall:
(i) use its best efforts to keep such
Registration Statement continuously effective and provide all requisite
financial statements for the period specified in Section 3 or 4 of this
Agreement, as applicable. Upon the occurrence of any event that would
cause any such Registration Statement or the Prospectus contained
therein (A) to contain a material misstatement or omission or (B) not
to be effective and usable for resale of Transfer Restricted Securities
during the period required by this Agreement, the Company shall file
promptly an appropriate amendment to such Registration Statement, (1)
in the case of clause (A), correcting any such misstatement or
omission, and (2) in the case of either clause (A) or (B), use its best
efforts to cause such amendment to be declared effective and such
Registration Statement and the related Prospectus to become usable for
their intended purpose(s) as soon as practicable thereafter;
(ii) prepare and file with the Commission such
amendments and post-effective amendments to the Registration Statement
as may be necessary to keep the Registration Statement effective for
the applicable period set forth in Section 3 or 4 hereof, or such
shorter period as will terminate when all Transfer Restricted
Securities covered by such Registration Statement have been sold; cause
the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act, and to comply fully with Rules 424 and 430A, as
applicable, under the Act in a timely manner; and comply with the
provisions of the Act with respect to the disposition of all securities
covered by such Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement
to the Prospectus;
(iii) advise the underwriters, if any, and selling
Holders promptly and, if requested by such Persons, confirm such advice
in writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment thereto, when
the same has become effective, (B) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements
to the Prospectus or for additional information relating thereto, (C)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the
suspension by any state securities commission of the qualification of
the Transfer Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any
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proceeding for any of the preceding purposes, (D) of the existence of
any fact or the happening of any event that makes any statement of a
material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto or any document incorporated by
reference therein untrue, or that requires the making of any additions
to or changes in the Registration Statement in order to make the
statements therein not misleading, or that requires the making of any
additions to or changes in the Prospectus in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. If at any time the Commission shall issue
any stop order suspending the effectiveness of the Registration
Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or
exemption from qualification of the Transfer Restricted Securities
under state securities or Blue Sky laws, the Company shall use its best
efforts to obtain the withdrawal or lifting of such order at the
earliest possible time;
(iv) make available to each selling Holder named
in any Registration Statement or Prospectus and each of the
underwriters in connection with such sale, if any, before filing with
the Commission, copies of any Registration Statement or any Prospectus
included therein or any amendments or supplements to any such
Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such Registration
Statement), substantially in the form proposed to be filed, which
documents will be subject to the review and comment of such Holders and
underwriters in connection with such sale, if any, for a period of at
least five Business Days, and the Company will not file any such
Registration Statement or Prospectus or any amendment or supplement to
any such Registration Statement or Prospectus (including all such
documents incorporated by reference) to which the selling Holders of
the Transfer Restricted Securities covered by such Registration
Statement or the underwriters in connection with such sale, if any,
shall reasonably object within five Business Days after the receipt
thereof. A selling Holder or underwriter, if any, shall be deemed to
have reasonably objected to such filing if such Registration Statement,
amendment, Prospectus or supplement, as applicable, as proposed to be
filed, contains a material misstatement or omission or fails to comply
with the applicable requirements of the Act;
(v) promptly upon the filing of any document
that is to be incorporated by reference into a Registration Statement
or Prospectus, make available copies of such document to the selling
Holders and to the underwriter(s) in connection with such sale, if any,
make the Company's representatives available for discussion of such
document and other customary due diligence matters, and include such
information in such document prior to the filing thereof as such
selling Holders or underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for
inspection by the selling Holders, any underwriter participating in any
disposition pursuant to such Registration Statement and any attorney or
accountant retained by such selling Holders or any of such
underwriters, all financial and other records, pertinent corporate
documents and properties of the Company and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such Holder, underwriter, attorney or accountant in
connection with such Registration Statement or any post-effective
amendment thereto subsequent to the filing thereof and prior to its
effectiveness; provided that any person to whom information is provided
under this clause (vi) agrees in writing to maintain the
confidentiality of such information to the extent such information is
not in the public domain;
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(vii) if requested by any selling Holders or the
underwriters in connection with such sale, if any, promptly include in
any Registration Statement or Prospectus, pursuant to a supplement or
post-effective amendment if necessary, such information as such selling
Holders and underwriter(s), if any, may reasonably request to have
included therein, including, without limitation, information relating
to the "Plan of Distribution" of the Transfer Restricted Securities,
information with respect to the principal amount of Transfer Restricted
Securities being sold to such underwriters, the purchase price being
paid therefor and any other terms of the offering of the Transfer
Restricted Securities to be sold in such offering; and make all
required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the
matters to be included in such Prospectus supplement or post-effective
amendment;
(viii) cause the Transfer Restricted Securities
covered by the Registration Statement to be rated with the appropriate
rating agencies, if so requested by the Holders of a majority in
aggregate principal amount of Senior Notes covered thereby or the
underwriters, if any;
(ix) furnish to each selling Holder and each of
the underwriters in connection with such sale, if any, without charge,
at least one copy of the Registration Statement, as first filed with
the Commission, and of each amendment thereto, and make available all
documents incorporated by reference therein and all exhibits (including
exhibits incorporated therein by reference);
(x) deliver to each selling Holder and each of
the underwriters, if any, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons reasonably may request; the Company
hereby consents to the use of the Prospectus and any amendment or
supplement thereto by each of the selling Holders and each of the
underwriters, if any, in connection with the offering and the sale of
the Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto;
(xi) enter into such agreements (including,
unless not required pursuant to Section 10 hereof, an underwriting
agreement) and make such representations and warranties and take all
such other actions in connection therewith in order to expedite or
facilitate the disposition of the Transfer Restricted Securities
pursuant to any Registration Statement contemplated by this Agreement
as may be reasonably requested by any Holder of Transfer Restricted
Securities or underwriter in connection with any sale or resale
pursuant to any Registration Statement contemplated by this Agreement,
and in such connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an Underwritten
Registration, the Company shall:
(A) furnish to each selling Holder and each
underwriter, if any, upon the effectiveness of the Shelf
Registration Statement and to each Restricted Broker-Dealer
upon consummation of the Exchange Offer:
(1) a certificate, dated the date of effectiveness of
the Shelf Registration Statement or the date of
Consummation of the Exchange Offer, as the case may
be, signed by (x) the President or any Vice President
and (y) a principal financial or accounting officer
of the Company, confirming with respect to the
Prospectus or
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any purchase or underwriting agreement and the
Transfer Restricted Securities, as of the date
thereof, the matters set forth in paragraphs (a),
(b), (c) and (d) of Section 8 of the Purchase
Agreement and such other matters as the Holders
and/or underwriter(s) may reasonably request;
(2) an opinion, dated the date of effectiveness of
the Shelf Registration Statement or the date of
Consummation of the Exchange Offer, as the case may
be, of counsel for the Company, covering (i) due
authorization and enforceability of the Notes and the
Exchange Notes , (ii) a statement to the effect that
such counsel has participated in conferences with
officers and other representatives of the Company and
representatives of the independent public accountants
for the Company and have considered the matters
required to be stated therein and the statements
contained therein, although such counsel has not
independently verified the accuracy, completeness or
fairness of such statements; and that such counsel
advises that, on the basis of the foregoing (relying
as to materiality to a large extent upon facts
provided to such counsel by officers and other
representatives of the Company and without
independent check or verification), no facts came to
such counsel's attention that caused such counsel to
believe that the applicable Registration Statement,
at the time such Registration Statement or any
post-effective amendment thereto became effective,
and, in the case of the Exchange Offer Registration
Statement, as of the date of Consummation, 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 Prospectus contained in such
Registration Statement as of its date and, in the
case of the opinion dated the date of Consummation of
the Exchange Offer, as of the date of Consummation,
contained an untrue statement of a material fact or
omitted 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 (iii) such other matters of the type
customarily covered in opinions of counsel for an
issuer in connection with similar securities
offerings, as may reasonably be requested by such
parties. Without limiting the foregoing, such counsel
may state further that such counsel assumes no
responsibility for, and has not independently
verified, the accuracy, completeness or fairness of
the financial statements, notes and schedules and
other financial, statistical and accounting data
included in any Registration Statement contemplated
by this Agreement or the related Prospectus; and
(3) if the registration is a registration in which
securities of the Company are sold to an underwriter
for reoffering to the public, obtain a customary
comfort letter, dated as of the date of effectiveness
of the Shelf Registration Statement, addressed to the
Board of Directors of the Company or any underwriter
from the Company's independent accountants, in the
customary form and covering matters of the type
customarily covered in comfort letters to boards of
directors in underwritten offerings;
(B) set forth in full or incorporate by
reference in the underwriting agreement, if any, in connection
with any sale or resale pursuant to any Shelf Registration
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<PAGE> 13
Statement the indemnification provisions and procedures of
Section 8 hereof with respect to all parties to be indemnified
pursuant to said Section; and
(C) deliver such other documents and
certificates as may be reasonably requested by such parties to
evidence compliance with clause (A) above and with any
customary conditions contained in the underwriting agreement
or other agreement entered into by the Company pursuant to
this clause (xi), if any.
The above shall be done at each closing under such
underwriting or similar agreement, as and to the extent required thereunder, and
if at any time the representations and warranties of the Company contemplated in
(A)(1) above cease to be true and correct, the Company shall so advise the
underwriters, if any, and selling Holders promptly and if requested by such
Persons, shall confirm such advice in writing;
(xii) prior to any public offering of Transfer
Restricted Securities, cooperate with the selling Holders, the
underwriters, if any, and their respective counsel in connection with
the registration and qualification of the Transfer Restricted
Securities under the securities or Blue Sky laws of such Jurisdictions
as the selling Holders or underwriters, if any, may request and do any
and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Transfer Restricted Securities
covered by the applicable Registration Statement; provided, however,
that the Company shall not be required to register or qualify as a
foreign corporation where it is not now so qualified or to take any
action that would subject it to the service of process in suits or to
taxation, other than as to matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not now so
subject;
(xiii) issue, upon the request of any Holder of
Notes covered by any Shelf Registration Statement contemplated by this
Agreement, Exchange Notes having an aggregate principal amount equal to
the aggregate principal amount of Notes surrendered to the Company by
such Holder in exchange therefor or being sold by such Holder; such
Exchange Notes to be registered in the name of such Holder or in the
name of the purchasers of such Exchange Notes; in return, the Notes
held by such Holder shall be surrendered to the Company for
cancellation;
(xiv) in connection with any sale of Transfer
Restricted Securities that will result in such securities no longer
being Transfer Restricted Securities, cooperate with the selling
Holders and the underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Transfer
Restricted Securities to be sold and not bearing any restrictive
legends; and to register such Transfer Restricted Securities in such
denominations and such names as the Holders or the underwriters, if
any, may request at least two Business Days prior to such sale of
Transfer Restricted Securities;
(xv) use its best efforts to cause the Transfer
Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof
or the underwriters, if any, to consummate the disposition of such
Transfer Restricted Securities, subject to the proviso contained in
clause (xii) above;
(xvi) if any fact or event contemplated by Section
6(c)(iii)(D) above shall exist or have occurred, prepare a supplement
or post-effective amendment to the Registration Statement
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<PAGE> 14
or related Prospectus or any document incorporated therein by reference
or file any other required document so that, as thereafter delivered to
the purchasers of Transfer Restricted Securities, the Prospectus will
not contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(xvii) provide a CUSIP number for all Transfer
Restricted Securities not later than the effective date of a
Registration Statement covering such Transfer Restricted Securities and
provide the Trustee under the Indenture with printed certificates for
the Transfer Restricted Securities which are in a form eligible for
deposit with the Depository Trust Company;
(xviii) 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 (including any "qualified independent
underwriter") that is required to be retained in accordance with the
rules and regulations of the NASD, and use its best efforts to cause
such Registration Statement to become effective and approved by such
governmental agencies or authorities as may be necessary to enable the
Holders selling Transfer Restricted Securities to consummate the
disposition of such Transfer Restricted Securities;
(xix) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make
generally available to its security holders with regard to any
applicable Registration Statement, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
(which need not be audited) covering a twelve-month period beginning
after the effective date of the Registration Statement (as such term is
defined in paragraph (c) of Rule 158 under the Act);
(xx) cause the Indenture to be qualified under the
TIA not later than the effective date of the first Registration
Statement required by this Agreement, and, in connection therewith,
cooperate with the Trustee and the Holders of Senior Notes to effect
such changes to the Indenture as may be required for such Indenture to
be so qualified in accordance with the terms of the TIA; and execute
and use its best efforts to cause the Trustee to execute, all documents
that may be required to effect such changes and all other forms and
documents required to be filed with the Commission to enable such
Indenture to be so qualified in a timely manner;
(xxi) cause all Transfer Restricted Securities
covered by the Registration Statement to be listed on each securities
exchange on which similar securities issued by the Company are then
listed if requested by the Holders of a majority in aggregate principal
amount of Notes or the managing underwriters, if any; and
(xxii) provide promptly to each Holder upon written
request each document filed with the Commission pursuant to the
requirements of Section 13 or Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition
of a Transfer Restricted Security that, upon receipt of any notice from the
Company of the existence of any fact of the kind described in Section
6(c)(iii)(D) hereof, such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration Statement
until such Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(xvi) hereof, or until it is
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<PAGE> 15
advised in writing (the "Advice") by the Company that the use of the Prospectus
may be resumed, and has received copies of any additional or supplemental
filings that are incorporated by reference in the Prospectus. If so directed by
the Company, each Holder will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Transfer Restricted Securities that was current
at the time of receipt of such notice. In the event the Company shall give any
such notice, the time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 6(c)(iii)(D) hereof to and including
the date when each selling Holder covered by such Registration Statement shall
have received the copies of the supplemented or amended Prospectus contemplated
by Section 6(c)(xvi) hereof or shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses (including filings
made with the NASD (including, if applicable, the fees and expenses of any
"qualified independent underwriter" and its counsel, as may be required by the
rules and regulations of the NASD)); (ii) all fees and expenses of compliance
with federal securities and state Blue Sky or securities laws; (iii) all
expenses of printing (including printing certificates for the Senior Notes and
printing of Prospectuses), messenger and delivery services and telephone; (iv)
all fees and disbursements of counsel for the Company and, in accordance with
Section 7(b) below, the Holders of Transfer Restricted Securities; (v) all
application and filing fees in connection with listing the Senior Notes on a
national exchange or automated quotation system if required hereunder; and (vi)
all fees and disbursements of independent certified public accountants of the
Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company.
(b) In connection with any Registration Statement required by
this Agreement, the Company will reimburse the Holders of Transfer Restricted
Securities being tendered in the Exchange Offer and/or resold pursuant to the
"Plan of Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel chosen by the
Holders of a majority in principal amount of the Transfer Restricted Securities
for whose benefit such Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless (i) each
Holder, (ii) each person, if any, who controls a Holder within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and (iii) the
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person to the fullest extent lawful, from and
against any and all losses, liabilities, claims, damages and expenses whatsoever
(including but not limited to attorneys' fees and any and all
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<PAGE> 16
expenses whatsoever incurred in investigating, preparing or defending against
any investigation or litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus, or in
any supplement thereto or amendment thereof, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Company will not be liable in any such case to the extent, but only to
the extent, that (i) any such loss, liability, claim, damage or expense arises
out of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such Holder
expressly for use therein and (ii) the foregoing indemnity with respect to any
untrue statement contained in or omitted from a Registration Statement or the
Prospectus shall not inure to the benefit of any Holder (or any person
controlling such Holder), from whom the person asserting any such loss,
liability, claim, damage or expense purchased any of the Senior Notes which are
the subject thereof if it is finally judicially determined that such loss,
liability, claim, damage or expense resulted solely from the fact that the
Holder sold Senior Notes to a person to whom there was not sent or given, at or
prior to the written confirmation of such sale, a copy of the Registration
Statement or the Prospectus, as amended or supplemented, and (x) the Company
shall have previously and timely furnished sufficient copies of the Registration
Statement or Prospectus, as so amended or supplemented, to such Holder in
accordance with this Agreement and (y) the Registration Statement or Prospectus,
as so amended or supplemented, would have corrected such untrue statement or
omission of a material fact. This indemnity agreement will be in addition to any
liability which the Company may otherwise have, including, under this Agreement.
(b) Each Holder, severally and not jointly, agrees to
indemnify and hold harmless the Company and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against any losses, liabilities, claims, damages and expenses
whatsoever (including but not limited to attorneys' fees and any and all
expenses whatsoever incurred in investigating, preparing or defending against
any investigation or litigation, commenced or threatened, or any claim
whatsoever and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus, or in
any amendment thereof or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in each case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such Holder expressly for use therein. This indemnity will be in addition to any
liability which a Holder may otherwise have, including under this Agreement. In
no event, however, shall the liability of any selling Holder hereunder be
greater in amount than the dollar amount of the proceeds received by such Holder
upon its sale of the Senior Notes giving rise to such indemnification
obligation.
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<PAGE> 17
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may otherwise have). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action, (ii) the indemnifying parties
shall not have employed counsel to take charge of the defense of such action
within a reasonable time after notice of commencement of the action, or (iii)
such indemnified party or parties shall have reasonably concluded that there may
be defenses available to it or them which are different from or additional to
those available to one or all of the indemnifying parties (in which case the
indemnifying party or parties shall not have the right to direct the defense of
such action on behalf of the indemnified party or parties), in any of which
events such fees and expenses of counsel shall be borne by the indemnifying
parties; provided, however, that the indemnifying party under subsection (a) or
(b) above, shall only be liable for the legal expenses of one counsel (in
addition to any local counsel) for all indemnified parties in each jurisdiction
in which any claim or action is brought. Anything in this subsection to the
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its prior written consent,
provided, however, that such consent was not unreasonably withheld.
(d) In order to provide for contribution in circumstances in
which the indemnification provided for in this Section 8 is for any reason held
to be unavailable from the Company or is insufficient to hold harmless a party
indemnified thereunder, the Company and each Holder shall contribute to the
aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provision (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting in the case of losses, claims, damages, liabilities and expenses
suffered by the Company, any contribution received by the Company from persons,
other than the Holders, who may also be liable for contribution, including
persons who control the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act) to which the Company and any Holder may be
subject, in such proportion as is appropriate to reflect the relative benefits
received by the Company from the offering of Senior Notes and any such Holder
from its sale of Senior Notes or, if such allocation is not permitted by
applicable law or indemnification is not available as a result of the
indemnifying party not having received notice as provided in this Section 8, in
such proportion as is appropriate to reflect not only the relative benefits
referred to above but also the relative fault of the Company and the Holders in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and any
Holder shall be deemed to be in the same proportion as (x) the total proceeds
from the offering of the Senior Notes (net of discounts but before deducting
expenses) received by the Company and (y) the total proceeds received by such
Holder upon its sale of Senior Notes which would otherwise give rise to the
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<PAGE> 18
indemnification obligation, respectively. The relative fault of the Company and
of the Holders shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Holders and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and each Holder agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 8, (i) no Holder shall be required to contribute, in the aggregate,
any amount in excess of the amount by which the total received by such Holder
with respect to the sale of its Senior Notes exceeds the sum of (A) the amount
paid by such Holder for such Senior Notes plus (B) the amount of any damages
which such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission and (ii) no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 8, (A) each
person, if any, who controls a Holder within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act and (B) the respective officers,
directors, partners, employees, representatives and agents of a Holder or any
controlling person shall have the same rights to contribution as such Holder,
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act shall have the same rights to
contribution as the Company, subject in each case to clauses (i) and (ii) of
this Section 8(d). Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties under this Section 8, notify such party or parties from whom
contribution may be sought, but the failure to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have under this Section 8 or otherwise. No party
shall be liable for contribution with respect to any action or claim settled
without its prior written consent; provided, however, that such written consent
was not unreasonably withheld.
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding, to make available, upon
request of any Holder of Transfer Restricted Securities, to any Holder or
beneficial owner of Transfer Restricted Securities in connection with any sale
thereof and any prospective purchaser of such Transfer Restricted Securities
designated by such Holder or beneficial owner, the information required by Rule
144A(d)(4) under the Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144A.
SECTION 10. UNDERWRITTEN REGISTRATIONS
In the event a Shelf Registration Statement is required to be
filed by the Company, the Holders of Transfer Restricted Securities included or
required to be included in such Shelf Registration Statement may elect to sell
their Transfer Restricted Securities pursuant to one or more Underwritten
Registrations; provided, however, that in no event shall any such Underwritten
Registration be commenced if a period of less than 180 days has elapsed since
the consummation of the most recent Underwritten Registration hereunder; and
provided further that in no event shall the Holders effect more than three such
Underwritten Registrations hereunder. No Holder may participate in any
Underwritten Registration hereunder unless such Holder (a) agrees to sell such
Holder's Transfer Restricted Securities on the basis
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<PAGE> 19
provided in customary underwriting arrangements entered into in connection
therewith and (b) completes and executes all reasonable questionnaires, powers
of attorney, indemnities, underwriting agreements, lock-up letters and other
documents required under the terms of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
In any Underwritten Offering, the investment banker or
investment bankers and manager or managers that will administer the offering
will be selected by the Holders of a majority in aggregate principal amount of
the Transfer Restricted Securities included in such offering; provided, that
such investment bankers and managers must be reasonably satisfactory to the
Company. Such investment bankers and managers are referred to herein as the
"underwriters."
SECTION 12. MISCELLANEOUS
(a) Remedies. Each Holder, in addition to being entitled to
exercise all rights provided herein, in the Indenture, the Purchase Agreement or
granted by law, including recovery of liquidated or other damages, will be
entitled to specific performance of its rights under this Agreement. The Company
agrees that monetary damages (including the liquidated damages contemplated
hereby) would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
(b) No Inconsistent Agreements. The Company will not on or
after the date of this Agreement enter into any agreement with respect to its
securities that conflicts with the rights granted to the Holders 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 securities
under any agreement in effect on the date hereof, except where a waiver with
respect thereto has been obtained prior to the date of effectiveness of any
registration statement required under this Agreement.
(c) Adjustments Affecting the Senior Notes. The Company will
not take any action, or permit any change to occur, with respect to the Senior
Notes that would materially adversely affect the ability of the Holders to
Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless the Company has
obtained the written consent of Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities, and the consent of the
Holders of a majority of the outstanding principal amount of Registrable
Securities shall be binding on every Holder of Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof that relates exclusively to the rights of Holders whose
securities are being tendered pursuant to the Exchange Offer and that does not
affect directly or indirectly the rights of other Holders whose securities are
not being tendered pursuant to such Exchange Offer may be given by the Holders
of a majority of the outstanding principal amount of Transfer Restricted
Securities that are subject to such Exchange Offer.
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<PAGE> 20
(e) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, first-class
mail (registered or certified, return receipt requested), telex, telecopier, or
air courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Registrar under the Indenture, with a copy to
the Registrar under the Indenture; and
(ii) if to the Company:
MGC Communications, Inc.
3165 Palms Centre Drive
Las Vegas, Nevada 89103
Telecopier No.: (702) 310-1111
Attention: General Counsel
With a copy to:
Ellis, Funk, Goldberg, Labovitz & Dokson, P.C.
3490 Piedmont Road, Suite 400
Atlanta, Georgia 30305
Telecopier No.: (404) 233-2188
Attention: Robert B. Goldberg
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 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.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and to the extent such successor
or assign acquired Transfer Restricted Securities directly from such Holder.
(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.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
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(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE CONFLICT OF LAW RULES THEREOF.
(j) 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.
(k) Entire Agreement. This Agreement together with the other
Operative Documents (as defined in the Purchase Agreement) is intended by the
parties as a final expression of their agreement and 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. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the Transfer Restricted Securities. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
MGC COMMUNICATIONS, INC.
By:
--------------------------------
Name:
Title:
BEAR, STEARNS & CO. INC.
By:
-----------------------------
Name:
Title:
FURMAN SELZ LLC
By:
-----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 4.3
EXECUTION COPY
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of September 29, 1997, between MGC
COMMUNICATIONS, INC., a Nevada corporation (the "Grantor"), and MARINE MIDLAND
BANK, a New York banking corporation ("Marine"), in its capacity as trustee
under the Indenture (as defined below), as collateral agent (the "Collateral
Agent") for the Secured Parties (as defined herein).
Reference is made to the Indenture dated as of September 29,
1997 (as amended, supplemented or otherwise modified from time to time, the
"Indenture"), among the Grantor and the Collateral Agent.
On the date hereof, the Grantor has issued 160,000 units (the
"Units") consisting of an aggregate of $160,000,000 of 13% Senior Secured Notes
due 2004 (the "Notes") and Warrants (the "Warrants") to purchase 1,291,200
shares of common stock, $.001 par value, of the Grantor to the Initial
Purchasers (as defined in the Indenture) pursuant to, and upon the terms and
subject to the conditions specified in, the Indenture. The Indenture requires,
among other things, the execution and delivery by the Grantor of an agreement in
the form hereof to secure (a) the due and punctual payment by the Grantor of (i)
the principal of, interest on, premium, if any, and liquidated damages, if any
(including interest accruing during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding) on the Notes, when and as due, whether at
maturity, by acceleration or otherwise, and (ii) all other monetary obligations,
including fees, costs, expenses and indemnities, whether primary, secondary,
direct, contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding), of
the Grantor to the Secured Parties under the Indenture and the other Security
Documents (as defined in the Indenture) and (b) the due and punctual performance
of all covenants, agreements, obligations and liabilities of the Grantor under
or pursuant to the Indenture and the other Security Documents
<PAGE> 2
(all the monetary and other obligations described in the preceding clauses (a)
and (b) being collectively called the "Obligations").
Accordingly, the Grantor, the Collateral Agent, on behalf of
itself and each Secured Party, and each of their respective successors or
assigns, hereby agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definition of Terms Used Herein. Unless the
context otherwise requires, all capitalized terms used but not defined herein
shall have the meanings set forth in the Indenture.
SECTION 1.02. Definition of Certain Terms Used Herein.
As used herein, the following terms shall have the following
meanings:
"Collateral" shall mean (i) all Telecommunications Equipment
currently owned or held by the Grantor other than Las Vegas Equipment, (ii) all
Telecommunications Equipment other than Las Vegas Equipment acquired by the
Grantor after the Issue Date prior to such time as the aggregate dollar value of
the Grantor's purchases of Telecommunications Equipment (excluding Las Vegas
Equipment) subsequent to the Issue Date equals or exceeds $100 million; (iii)
the Proceeds of any sale or other disposition (other than leases in the ordinary
course of business, as provided in Section 5.01(a) hereof) of such
Telecommunications Equipment (including any insurance proceeds from the loss or
destruction of such Telecommunications Equipment); and (iv) any additional
Telecommunications Related Assets acquired by the Grantor with the Proceeds of
any such sale or other disposition of Telecommunications Equipment. For purposes
of computing the aggregate dollar value of the Grantor's purchases of
Telecommunications Equipment, the release of any Lien on Telecommunications
Equipment upon the sale thereof to any ILEC in connection with the establishment
of a virtual collocation with such ILEC shall not eliminate the credit of the
purchase price of such Telecommunications Equipment against the $100 million
requirement set forth in the first sentence of this paragraph,
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provided that upon any re-acquisition by the Company of title to such
Telecommunications Equipment the first priority security interest granted to the
Collateral Agent in such Telecommunications Equipment shall be reinstated.
"Holder" shall mean the Person in whose name a Note is
registered on the books of the registrar.
"Las Vegas Equipment" shall mean any Telecommunications
Equipment located or to be located in Las Vegas, Nevada or the surrounding
suburban area.
"Proceeds" shall mean any consideration received from the
sale, exchange, license, lease (other than consideration received solely from
the lease of Telecommunications Equipment in the ordinary course of business) or
other disposition of any asset or property that constitutes Collateral, any
value received as a consequence of the possession of any Collateral and any
payment received from any insurer or other Person as a result of the
destruction, loss, theft, damage or other involuntary conversion of whatever
nature of any asset or property that constitutes Collateral, and shall include
all cash and negotiable instruments received or held on behalf of the Collateral
Agent and any and all other amounts from time to time paid or payable under or
in connection with any of the Collateral.
"Secured Parties" shall mean (a) the Holders, (b) the Trustee,
(c) the Collateral Agent, (d) the beneficiaries of each indemnification
obligation undertaken by the Grantor under any Security Document and (e) the
permitted successors and assigns of each of the foregoing.
"Security Interest" shall have the meaning assigned to such
term in Section 2.01.
"Status Certificate" shall mean a certificate substantially in
the form of Annex 1, completed and supplemented with the schedules and
attachments contemplated thereby, and duly executed by two executive officers of
the Grantor.
"Telecommunications Equipment" shall mean telecommunications
switches and related equipment and inventory,
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including, without limitation, all remote switching nodes, modems, line cards,
transport hardware and equipment or hardware necessary to install and operate
the telecommunications switches.
SECTION 1.03. Rules of Construction. The rules of
construction specified in Section 1.04 of the Indenture shall be
applicable to this Agreement.
ARTICLE II
Security Interest
SECTION 2.01. Security Interest. As security for the payment
or performance, as the case may be, in full of the Obligations, the Grantor
hereby bargains, sells, conveys, assigns, sets over, pledges, hypothecates and
transfers to the Collateral Agent, its successors and assigns, for the ratable
benefit of the Secured Parties, and hereby grants to the Collateral Agent, its
successors and assigns, for the ratable benefit of the Secured Parties, a Lien
in and to the Collateral (the "Security Interest"). In furtherance of such
Security Interest, and pursuant to Sections 4.18 and 4.19 of the Indenture, the
Grantor has filed fully executed Uniform Commercial Code financing statements
with the Secretary of State of each state of the United States in which
Collateral is located, or, where a state does not provide for filing with the
Secretary of State thereof, in another appropriate filing office, as more fully
described in Section 3.02 hereof. Without limiting the foregoing, the Collateral
Agent also is hereby authorized to file one or more financing statements,
continuation statements or other documents for the purpose of perfecting,
confirming, continuing, enforcing or protecting the Security Interest granted by
the Grantor, without the signature of the Grantor, naming the Grantor as debtor
and the Collateral Agent as secured party. The Collateral Agent shall furnish
the Grantor with copies of any such statements and other documents so filed.
SECTION 2.02. No Assumption of Liability. The Security
Interest is granted as security only and shall not subject the Collateral Agent
or any other Secured Party to, or in any way alter or modify, any obligation or
liability of the Grantor with respect to or arising out of the Collateral.
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ARTICLE III
Representations and Warranties
The Grantor represents and warrants to the Collateral Agent
and the Holders that:
SECTION 3.01. Corporate Authority. The execution, delivery and
performance by the Grantor of this Agreement are within the Grantor's corporate
powers, have been duly authorized by all necessary corporate action, and do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the certificate of incorporation of the Grantor or of any
agreement, judgement, injunction, order, decree or other instrument binding upon
the Grantor or result in the creation or imposition of any Lien on any assets of
the Grantor, except for the Security Interest granted under this Agreement.
SECTION 3.02. Title and Authority. The Grantor has or will
have good and valid rights in and title to the Collateral that it has purported
to grant a Security Interest in hereunder and has full power and authority to
grant to the Collateral Agent the Security Interest pursuant hereto and to
execute, deliver and perform its obligations in accordance with the terms of
this Agreement, without the consent or approval of any other Person other than
any consent or approval which has been obtained.
SECTION 3.03. Filings. The Status Certificate has been duly
prepared, completed and executed and the information set forth therein is
correct and complete. Fully executed Uniform Commercial Code financing
statements (UCC-l's) or other appropriate filings, recordings or registrations
containing a description of the Collateral have been filed with the Secretary of
State or other appropriate office of each State of the United States in which
Collateral is located and in such other governmental, municipal or other office
specified in Schedule 5 to each Status Certificate (with copies delivered to the
Collateral Agent).
SECTION 3.04. Validity of Security Interest. The Security
Interest constitutes a legal and valid Lien in all the Collateral securing the
payment and performance of the Obligations,
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subject to any requirements regarding attachment. The Security Interest will be
perfected only to the extent that the filings referred to in Section 3.02 are
sufficient to perfect such Security Interest. The Security Interest is prior to
any other Lien on any of the Collateral on the date hereof.
SECTION 3.05. Absence of other Liens. The Collateral is owned
by the Grantor free and clear of any Lien. The Grantor has not filed or
consented to the filing of any financing statement or analogous document under
the Uniform Commercial Code or any other applicable laws covering any Collateral
and which financing statement or analogous document is still in effect, except
for the Liens and financing statements expressly created or permitted by this
Agreement or the Indenture.
SECTION 3.06. Due Execution. This Agreement has been duly
executed and delivered by the Grantor and constitutes a valid and binding
obligation of the Grantor, enforceable against the Grantor in accordance with
its terms, except as such enforceability may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally or general principles of equity and
commercial reasonableness.
SECTION 3.07. Consents. No consent of any other 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 (a) for
the grant of the Security Interest by the Grantor pursuant to this Agreement or
for the execution, delivery or performance of this Agreement by the Grantor
(except for financing statements filed pursuant to Section 3.03 necessary to
perfect the Security Interest) or (b) for the exercise by the Collateral Agent
of the rights provided for in this Agreement or the remedies in respect of the
Collateral pursuant to this Agreement.
SECTION 3.08. Litigation. No litigation, proceeding, or, to
the knowledge of Grantor, investigation of or before any arbitrator or
governmental authority is pending or, to the knowledge of the Grantor,
threatened by or against the Grantor with respect to this Agreement or any of
the transactions contemplated hereby, except as disclosed in the Offering
Memorandum.
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<PAGE> 7
ARTICLE IV
Covenants
SECTION 4.01. Change of Name; Location of Collateral; Records;
Place of Business. (a) The Grantor agrees promptly to notify the Collateral
Agent of any change (i) in its corporate name or in any trade name used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of its chief executive office, its principal
place of business, any office in which it maintains books or records relating to
Collateral owned by it or any office or facility at which Collateral owned by it
is located (including the establishment of any such new office or facility),
(iii) in its identity or corporate structure or (iv) in its Federal Taxpayer
Identification Number. The Grantor agrees to notify the Collateral Agent, as
soon as practicable after an executive officer of the Grantor learns thereof, if
any material portion of the Collateral owned or held by the Grantor is damaged
or destroyed.
(b) The Grantor agrees to maintain, at its own cost and
expense, such complete and accurate records with respect to the Collateral owned
or held by it as is consistent with its current practices and in accordance with
such prudent and standard practices used in industries that are the same as or
similar to those in which the Grantor is engaged, but in any event to include
complete accounting records indicating all payments and proceeds received with
respect to any part of the Collateral, and, at such time or times as the
Collateral Agent may reasonably request, promptly to prepare and deliver to the
Collateral Agent a duly certified schedule or schedules in form and detail
reasonably satisfactory to the Collateral Agent showing the identity, amount and
location of any and all Collateral.
SECTION 4.02. Protection of Security. The Grantor
shall, at its own cost and expense, take any and all actions
reasonably necessary to defend title to the Collateral against all
persons.
SECTION 4.03. Additional UCC-1s; Continuation Statements. The
Grantor agrees, at its expense, to execute,
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acknowledge, deliver and cause to be duly filed all such continuation statements
on Form UCC-3 as to maintain in effect the financing statements filed pursuant
to Section 3.03, to file UCC-1s with the Secretary of State or other appropriate
office in each State where Collateral may be located, prior to the time such
Collateral is moved to such location, and to take all such actions as the
Collateral Agent may from time to time reasonably request to preserve the
Security Interest, including the payment of any fees and taxes required in
connection with the execution and delivery of this Agreement, the granting of
the Security Interest and the filing of any financing statements or other
documents in connection herewith.
SECTION 4.04. Additional Filings. With respect to
Telecommunications Equipment that becomes Collateral subject to the Security
Interest of this Agreement, if necessary to perfect the Security Interest
granted hereunder, the Grantor agrees to file fully executed UCC-l's or other
appropriate filings, recordings or registrations containing a description of
such Collateral with the Secretary of State or other appropriate office of each
State of the United States in which such Collateral is located and in such other
governmental, municipal or other office as the Collateral Agent may request.
SECTION 4.05. Amendments to Filings. Following the date at
which the aggregate dollar value of the Grantor's purchases of Collateral after
the Issue Date equals or exceeds $100 million (the "Certificate Date"), the
Grantor shall be entitled to file, and to request the Collateral Agent to
execute amendments to any UCC-1s filed by the Grantor or the Collateral Agent
pursuant to this Agreement with respect to the Collateral so as to exclude
Telecommunications Equipment purchased by the Grantor after the Certificate Date
from the Security Interest, provided, however, that such request must be in
writing and accompanied by an Officers' Certificate stating the Certificate Date
and confirming that the aggregate dollar value of the Grantor's purchases of
Collateral after the Issue Date equals or exceeds $100 million. Upon receipt of
such Officers' Certificate, the Collateral Agent shall execute and otherwise
assist the Grantor in filing amendments to all such UCC-1s stating that the
Security Interest does not apply to Telecommunications Equipment purchased after
the Certificate Date, provided, however, that Telecommunications
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Equipment purchased by the Grantor after the Certificate Date to replace
Collateral subject to the Security Interest shall remain subject to the Security
Interest.
SECTION 4.06. Inspection and Verification. The Collateral
Agent and such Persons as the Collateral Agent may reasonably designate shall
have the right, whenever the Collateral Agent deems necessary, at the Grantor's
own cost and expense, to inspect the Collateral, all records related thereto
(and to make extracts and copies from such records) and the premises upon which
any of the Collateral is located, where such premises is within the control of
the Grantor or any affiliate of the Grantor, to discuss the Grantor's affairs
with the officers of the Grantor and its independent accountants and to verify
under reasonable procedures the validity, amount, quality, quantity, value,
condition and status of, or any other matter relating to, the Collateral,
including, in the case of Collateral in the possession of any third person, by
contacting the third party possessing such Collateral (after two days' notice to
the Grantor) for the purpose of making such a verification. Where the premises
upon which any of the Collateral is located are not within the control of the
Grantor, Grantor shall reasonably request such Person(s) controlling such
premises to allow the Collateral Agent and its designees to inspect such
premises for the purposes, and subject to the limitations, of the foregoing
sentence. Notwithstanding the foregoing, unless an Event of Default shall have
occurred and be continuing at the time of such inspection, in no event shall the
Grantor be liable for the cost and expense associated with more than one such
inspection per year. The Collateral Agent shall have the absolute right to share
any information it gains from such inspection or verification with any Secured
Party.
SECTION 4.07. Taxes; Encumbrances. At its option, upon not
less than 10 days prior written notice to the Grantor, the Collateral Agent may
discharge past due taxes, assessments, charges, fees, Liens, security interests
or other encumbrances at any time levied or placed on the Collateral and not
permitted under the Indenture, and may pay for the maintenance and preservation
of the Collateral to the extent the Grantor fails to do so as required by the
Indenture or this Agreement, and the Grantor agrees to reimburse the Collateral
Agent on demand for any reasonable payment or other expenses incurred by the
Collateral Agent pursuant to the
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foregoing authorization; provided, however, that nothing in this Section shall
be interpreted as excusing the Grantor from the performance of, or imposing any
obligation on the Collateral Agent or any Secured Party to cure or perform, any
covenants or other promises of the Grantor with respect to taxes, assessments,
charges, fees, Liens, security interests or other encumbrances and maintenance
as set forth herein or in the other Security Documents.
SECTION 4.08. Continuing Obligations of the Grantor. The
Grantor shall remain liable to observe and perform all the conditions and
obligations to be observed and performed by it under each contract, agreement or
instrument relating to the Collateral, including, without limitation, Sections
4.18 and 4.19 of the Indenture, all in accordance with the terms and conditions
thereof, and the Grantor agrees to indemnify and hold harmless the Collateral
Agent and the Secured Parties from and against any and all liability for such
performance.
SECTION 4.09. Insurance. (a) The Grantor, at its own expense,
shall maintain or cause to be maintained insurance covering physical loss or
damage to the Collateral, including without limitation such insurance as is
required pursuant to Section 4.20 of the Indenture.
(b) In the event that the Grantor at any time or times shall
fail to obtain or maintain any of the policies of insurance required hereby or
to pay any premium in whole or part relating thereto, the Collateral Agent may,
without waiving or releasing any obligation or liability of the Grantor
hereunder or any Event of Default, in its sole discretion, obtain and maintain
such policies of insurance and pay such premium and take any other actions with
respect thereto as the Collateral Agent deems advisable. Within ten days of
taking any action pursuant to this Section 4.09(b), the Collateral Agent shall
notify the Grantor of such action taken. All sums disbursed by the Collateral
Agent in connection with this Section, including reasonable attorney fees, court
costs, expenses and other charges relating thereto, shall be payable, upon
demand, by the Grantor to the Collateral Agent and shall be additional
Obligations secured hereby.
SECTION 4.10. Posting of Notices. The Grantor shall, with
respect to any telecommunications switch that constitutes
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Collateral currently owned by the Grantor or acquired by the Grantor, post a
notice on, or in the location housing, such telecommunications switch,
identifying the Grantor as the owner of the telecommunications switch and
stating that such telecommunication switch is subject to the Security Interest
under the Indenture and the Security Documents.
SECTION 4.11. FCC Approvals. Notwithstanding anything to the
contrary set forth herein, the Grantor agrees that to the extent prior FCC
approval is required pursuant to the Communications Act of 1934, as amended, for
(i) the operation and effectiveness of any grant, right or remedy hereunder or
under the Indenture or (ii) taking any action that may be taken by the
Collateral Agent hereunder or under the Indenture, such grant, right, remedy or
actions will be subject to such prior Federal Communications Commission ("FCC")
approval having been obtained by or in favor of the Collateral Agent, on behalf
of the Secured Parties (and Grantor will use its best efforts to obtain any such
approval as promptly as possible). Grantor agrees that, upon and during the
continuance of an Event of Default and at Collateral Agent's request, Grantor
will immediately file, or cause to be filed, such applications for approval and
shall take all other and further actions required by the Collateral Agent, on
behalf of the Secured Parties, to obtain such governmental authorizations,
including FCC authorizations, as are necessary to transfer ownership and control
to the Collateral Agent, on behalf of the Secured Parties, or their successors
or assigns, of the Collateral held by it, or its interest in any Person holding
any such Collateral.
SECTION 4.12. Restricted Subsidiaries. The Grantor Agrees to
cause each Restricted Subsidiary that it organizes to comply with the terms of
this Agreement as if such Restricted Subsidiary was a party to this Agreement
and, at the request of the Collateral Agent, to cause such Restricted Subsidiary
to enter into a security agreement with the Collateral Agent with terms and
provisions substantially similar to the terms and provisions contained in this
Agreement.
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ARTICLE V
Transfer and Sales of Collateral
SECTION 5.01. Transfer and Sales of Collateral. (a) Grantor
shall not, except as permitted by the terms of the Indenture from time to time
in effect, sell, assign (by operation of law or otherwise) or otherwise dispose
of any of the Collateral. For the avoidance of doubt, Grantor may lease
Telecommunications Equipment in the ordinary course of business without such
lease constituting a sale, assignment or other disposition prohibited by the
preceding sentence, and any consideration received by Grantor in respect of any
such lease shall not be subject to a security interest under the Security
Documents.
(b) As long as no Event of Default shall have occurred and be
continuing, and no event which, with the lapse of time or after notice, would
become an Event of Default shall have occurred and be continuing, Grantor shall
be entitled from time to time to request the Collateral Agent to release all or
a portion of the Collateral owned by it and subject to this Agreement; provided,
however, that such request must be in writing and accompanied by an Officers'
Certificate of Grantor and an Opinion of Counsel to Grantor (which counsel shall
be reasonably satisfactory to the Collateral Agent) stating that all conditions
precedent to the release of such Collateral pursuant to this Article V and the
Indenture have been complied with. Upon satisfaction of the conditions in this
Article V and the Indenture, the Lien of this Agreement on all Collateral to be
released shall be discharged without any further action on the part of the
Collateral Agent or any other Person. In furtherance of the foregoing, the
Collateral Agent shall execute and deliver to Grantor an instrument or
instruments prepared by Grantor acknowledging the release of such Collateral
from this Agreement and the discharge of the Lien on such Collateral created by
this Agreement, and will duly assign, transfer and deliver to Grantor (without
recourse and without any representation or warranty) such Collateral to be
released.
(c) No Collateral shall be released from the Lien of this
Agreement pursuant to any request described in paragraph (b) above unless (i) as
promptly as is practicable thereafter, the
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Grantor shall sell such Collateral, (ii) as promptly as is practicable
thereafter, the Grantor deposits with the Collateral Agent cash or cash
equivalents, if any, representing the Net Cash Proceeds from the sale of such
Collateral; and (iii) Grantor delivers to the Collateral Agent an Officers'
Certificate and an Opinion of Counsel to the effect that all conditions
precedent contained in the Indenture to the sale and release of such Collateral
shall have been satisfied in full. On or after deposit of the sums described in
clause (ii) of this paragraph (c), Grantor shall be entitled thereafter to
request release of such cash proceeds at such times and in such amounts in order
to either (i) comply with its obligations under, or otherwise in accordance
with, the Indenture, as a result of the disposition of such Collateral or (ii)
if such amounts are not required to be applied in accordance with clause (i)
above, to purchase Telecommunications Related Assets. Such releases of Net Cash
Proceeds shall not be made until and unless Grantor shall have delivered an
Officers' Certificate and an Opinion of Counsel to the Collateral Agent stating
that all conditions precedent to such release set forth in the Indenture shall
have been satisfied.
(d) The release of any Collateral from the terms hereof and of
the other Security Documents or the release of, in whole or in part, the Liens
created by the Security Documents, will not be deemed to impair the Lien on the
Collateral in contravention of the provisions of the Indenture if and to the
extent the Collateral or Liens are released pursuant to the applicable Security
Documents and pursuant to the terms of the Indenture. Each of the Secured
Parties acknowledge that a release of Collateral strictly in accordance with the
terms of the Security Documents and of the Indenture will not be deemed for any
purpose to be an impairment of the Lien on the Collateral in contravention of
the terms of the Indenture. To the extent applicable, Grantor shall cause
Section 314(d) of the Trust Indenture Act of 1939 ("TIA") relating to the
release of property or securities from the Lien of the Security Documents and of
the Indenture to be complied with. Any certificate or opinion required by
Section 314(d) of the TIA may be made by an officer of Grantor, except in cases
where Section 314(d) of the TIA requires that such certificate or opinion be
made by an independent person.
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ARTICLE VI
Power of Attorney
SECTION 6.01 Power of Attorney. The Grantor irrevocably makes,
constitutes and appoints the Collateral Agent (and all officers, employees or
agents designated by the Collateral Agent) as the Grantor's true and lawful
agent and attorney-in-fact, and in such capacity the Collateral Agent shall have
the right, with power of substitution for the Grantor and in the Grantor's name
or otherwise, for the use and benefit of the Collateral Agent and the Secured
Parties, upon the occurrence and during the continuance of an Event of Default
(a) to receive, endorse, assign and/or deliver any and all notes, acceptances,
checks, drafts, money orders or other evidences of payment relating to the
Collateral or any part thereof; (b) to demand, collect, receive payment of, give
receipt for and give discharges and releases of all or any of the Collateral;
(c) to sign the name of the Grantor on any invoice or bill of lading relating to
any of the Collateral; (d) to commence and prosecute any and all suits, actions
or proceedings at law or in equity in any court of competent jurisdiction to
collect or otherwise realize on all or any of the Collateral or to enforce any
rights in respect of any Collateral; (e) to settle, compromise, compound, adjust
or defend any actions, suits or proceedings relating to all or any of the
Collateral; (f) to notify, or to require the Grantor to notify third parties to
make payment directly to the Collateral Agent; and (g) to use, sell, assign,
transfer, pledge, make any agreement with respect to or otherwise deal with all
or any of the Collateral, and to do all other acts and things necessary to carry
out the purposes of this Agreement, as fully and completely as though the
Collateral Agent were the absolute owner of the Collateral for all purposes;
provided, however, that nothing herein contained shall be construed as requiring
or obligating the Collateral Agent or any Secured Party to make any commitment
or to make any inquiry as to the nature or sufficiency of any payment received
by the Collateral Agent or any Secured Party, or to present or file any claim or
notice, or to take any action with respect to the Collateral or any part thereof
or the moneys due or to become due in respect thereof or any property covered
thereby, and no action taken or omitted to be taken by the Collateral Agent or
any Secured Party with respect to the Collateral or any part thereof shall give
rise to any defense,
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counterclaim or offset in favor of the Grantor or to any claim or action against
the Collateral Agent or any Secured Party. It is understood and agreed that the
appointment of the Collateral Agent as the agent and attorney-in-fact of the
Grantor for the purposes set forth above is coupled with an interest and is
irrevocable. The provisions of this Section shall in no event relieve the
Grantor of any of its obligations hereunder or under the Indenture with respect
to the Collateral or any part thereof or impose any obligation on the Collateral
Agent or any Secured Party to proceed in any particular manner with respect to
the Collateral or any part thereof, or in any way limit the exercise by the
Collateral Agent or any Secured Party of any other or further right which it may
have on the date of this Agreement or hereafter, whether hereunder, under any
other Security Document, by law or otherwise.
ARTICLE VII
Remedies
SECTION 7.01 Remedies upon Default. Upon the occurrence and
during the continuance of an Event of Default, the Grantor agrees to deliver
each item of Collateral to the Collateral Agent on demand, and it is agreed that
the Collateral Agent shall have the right (subject to applicable law) to take
any of or all the following actions at the same or different times with or
without legal process and with or without previous notice or demand for
performance, to take possession of the Collateral and without liability for
trespass to enter any premises where the Collateral may be located for the
purpose of taking possession of or removing the Collateral and, generally, to
exercise any and all rights afforded to a secured party under the Uniform
Commercial Code or other applicable law. Without limiting the generality of the
foregoing, the Grantor agrees that the Collateral Agent shall have the right,
subject to the mandatory requirements of applicable law, to sell or otherwise
dispose of all or any part of the Collateral, at public or private sale, for
cash, upon credit or for future delivery as the Collateral Agent shall deem
appropriate. Each such purchaser at any such sale shall hold the property sold
absolutely, free from any claim or right on the part of the Grantor, and the
Grantor hereby waives (to the extent permitted by law) all rights of redemption,
stay and appraisal which the Grantor now has or may
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at any time in the future have under any rule of law or statute now existing or
hereafter enacted.
The Collateral Agent shall give the Grantor 15 days written
notice (which the Grantor agrees is reasonable notice within the meaning of
Section 9-504(3) of the Uniform commercial Code as in effect in the State of New
York or its equivalent in other jurisdictions) of the Collateral Agent's
intention to make any sale of Collateral. Such notice, in the case of a public
sale, shall state the time and place for such sale. Any such public sale shall
be held at such time or times within ordinary business hours and at such place
or places as the Collateral Agent may fix and state in the notice (if any) of
such sale. At any such sale, the Collateral, or portion thereof, to be sold may
be sold in one lot as an entirety or in separate parcels, as the Collateral
Agent may (in its sole and absolute discretion) determine. The Collateral Agent
shall not be obligated to make any sale of any Collateral if it shall determine
not to do so, regardless of the fact that notice of sale of such Collateral
shall have been given. The Collateral Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for sale, and such sale may,
without further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid by the purchaser or purchasers
thereof, but the Collateral Agent shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again upon like
notice. At any public sale made pursuant to this Section, any Secured Party may
bid for or purchase, free (to the extent permitted by law) from any right of
redemption, stay, valuation or appraisal on the part of the Grantor
(all said rights being also hereby waived and released to the extent permitted
by law), the Collateral or any part thereof offered for sale and may make
payment on account thereof by using any claim then due and payable to such
Secured Party from the Grantor as a credit against the purchase price, and such
Secured Party may, upon compliance with the terms of sale, hold, retain and
dispose of such property without further accountability to the Grantor therefor.
For purposes hereof, a written agreement to
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<PAGE> 17
purchase the Collateral or any portion thereof shall be treated as a sale
thereof; the Collateral Agent shall be free to carry out such sale pursuant to
such agreement and the Grantor shall not be entitled to the return of the
Collateral or any portion thereof subject thereto, notwithstanding the fact that
after the Collateral Agent shall have entered into such an agreement all Events
of Default shall have been remedied and the Obligations paid in full. As an
alternative to exercising the power of sale herein conferred upon it, the
Collateral Agent may proceed by a suit or suits at law or in equity to foreclose
this Agreement and to sell the Collateral or any portion thereof pursuant to a
judgment or decree of a court or courts having competent jurisdiction or
pursuant to a proceeding by a court-appointed receiver.
SECTION 7.02 Application of Proceeds. The Collateral Agent
shall apply the proceeds of any collection or sale of the Collateral, as well as
any Collateral consisting of cash, as follows:
FIRST, to the payment of all costs and expenses
incurred by the Trustee or the Collateral Agent (in its
capacity as such hereunder or under any other Security
Document) in connection with such collection or sale or
otherwise in connection with this Agreement or any of the
Obligations, including all court costs and the reasonable fees
and expenses of its agents and legal counsel, the repayment of
all advances made by the Collateral Agent hereunder or under
any other Security Document on behalf of the Grantor and any
other costs or expenses incurred in connection with the
exercise of any right or remedy hereunder or under any other
Security Document;
SECOND, to the payment of the fees and expenses of
the Secured Parties on an equal and ratable basis;
THIRD, to the payment of interest on and liquidated
damages, if any, with respect to the Obligations on an equal
and ratable basis;
FOURTH, to the payment of the unpaid principal
amount of the Obligations on an equal and ratable basis;
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FIFTH, to the payment of costs and expenses of, all
premiums on, and all other amounts due with respect to, the
Obligations on an equal and ratable basis; and
SIXTH, to the Grantor, its successors or assigns, or
as a court of competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to the
time of application of any such proceeds, moneys or balances in accordance with
this Agreement. Upon any sale of the Collateral by the Collateral Agent
(including pursuant to a power of sale granted by statute or under a judicial
proceeding), the receipt of the Collateral Agent or of the officer making the
sale shall be a sufficient discharge to the purchaser or purchasers of the
Collateral so sold and such purchaser or purchasers shall not be obligated to
see to the application of any part of the purchase money paid over to the
Collateral Agent or such officer or be answerable in any way for the
misapplication thereof.
ARTICLE VIII
Miscellaneous
SECTION 8.01. Notices. All communications and notices
hereunder shall (except as otherwise expressly permitted herein) be
in writing and given as provided in Section 10.02 of the Indenture.
SECTION 8.02. No Assumption of Duties; Reasonable Care. The
rights and powers granted to the Collateral Agent hereunder are being granted in
order to preserve and protect the Collateral Agent's and the Holders' of Notes
security interest in and to the Collateral granted hereby and shall not be
interpreted to, and shall not, impose any duties on the Collateral Agent in
connection therewith other than those imposed under applicable law. Except as
provided by applicable law, the Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which the Collateral Agent accords similar property in similar situations,
it being understood that the Collateral Agent shall not have any responsibility
for
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taking any necessary steps to preserve rights against any parties with respect
to any Collateral.
SECTION 8.03. Authority of the Collateral Agent.
(a) The Collateral Agent shall have and be entitled to
exercise all powers hereunder that are specifically granted to the Collateral
Agent by the terms hereof, together with such powers as are reasonably incident
thereto. The Collateral Agent 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 Collateral Agent, any director,
officer, employee, attorney or agent of the Collateral Agent nor the Holders of
Notes shall be liable to the Grantor for any action taken or omitted to be taken
by it or them hereunder, except for its or their own bad faith, gross negligence
or willful misconduct, nor shall the Collateral Agent be responsible for the
validity, effectiveness or sufficiency hereof or of any document or security
furnished pursuant hereto. The Collateral Agent and its directors, officers,
employees, attorneys and agents shall be entitled to rely on any communication,
instrument or document believed by it or them to be genuine and correct and to
have been signed or sent by the proper Person or Persons.
(b) The Grantor acknowledges that the rights and
responsibilities of the Collateral Agent under this Agreement with respect to
any action taken by the Collateral Agent or the exercise or non-exercise by the
Collateral Agent of any option, right, request, judgment or other right or
remedy provided for herein or resulting or arising out of this Agreement shall,
as between the Collateral Agent and the Holders of Notes, be governed by the
Indenture and by such other agreements with respect thereto as may exist from
time to time among them, but, as between the Collateral Agent and the Grantor,
the Collateral Agent 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 Grantor shall not be obligated or entitled to make any inquiry
respecting such authority.
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<PAGE> 20
(c) In the performance of its duties hereunder, the
Collateral Agent shall be entitled to the benefits of Sections
7.01, 7.02, 7.03 and 7.04 of the Indenture.
SECTION 8.04. Security Interest Absolute. All rights of the
Collateral Agent hereunder, the Security Interest and all obligations of the
Grantor hereunder shall be absolute and unconditional irrespective of (a) any
lack of validity or enforceability of the Indenture or any other Security
Document, any agreement with respect to any of the Obligations or any other
agreement or instrument relating to any of the foregoing, (b) any change in the
time, manner or place of payment of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any departure
from the Indenture, any other Security Document or any other agreement or
instrument, (c) any exchange, release or non-perfection of any Lien on other
collateral, or any release or amendment or waiver of or consent under or
departure from any guarantee, securing or guaranteeing all or any of the
Obligations, or (d) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Grantor in respect of the
Obligations or this Agreement.
SECTION 8.05. Severability. The provisions of this Agreement
are severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
SECTION 8.06. Headings. The headings in this Agreement have
been inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof.
SECTION 8.07. Counterparts. This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original but all of which when taken together shall
constitute a single contract, and shall become effective as provided in Section
8.10. Delivery of an executed signature page to this Agreement by
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<PAGE> 21
facsimile transmission shall be as effective as delivery of a manually signed
counterpart of this Agreement.
SECTION 8.08. Waivers; Amendment. (a) No failure or delay of
the Collateral Agent in exercising any power or right hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Collateral Agent hereunder
and of the Collateral Agent, the Trustee and the Holders under the other
Security Documents are cumulative and are not exclusive of any rights or
remedies which they would otherwise have. No waiver of any provisions of this
Agreement or any other Security Document or consent to any departure by the
Grantor therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on the Grantor in any case shall entitle the Grantor to any
other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Collateral Agent and the Grantor with respect to
which such waiver, amendment or modification is to apply, subject to any consent
required in accordance with Section 9.02 of the Indenture.
SECTION 8.09. Survival of Agreement. All covenants,
agreements, representations and warranties made by the Grantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Security Document shall be considered to
have been relied upon by the Holders, regardless of any investigation made by
the Holders or on their behalf, and shall continue in full force and effect
until this Agreement shall terminate.
SECTION 8.10. Binding Effect; Several Agreement. This
Agreement shall become effective as to the Grantor when a counterpart hereof
executed on behalf of the Grantor shall have been delivered to the Collateral
Agent and a counterpart hereof
21
<PAGE> 22
shall have been executed on behalf of the Collateral Agent, and thereafter shall
be binding upon the Grantor and the Collateral Agent and their respective
successors and assigns, and shall inure to the benefit of the Grantor, the
Collateral Agent and the other Secured Parties and their respective successors
and assigns, except that the Grantor shall not have the right to assign its
rights hereunder or any interest herein or in the Collateral except as expressly
contemplated by this Agreement or the Indenture.
SECTION 8.11. Successors and Assigns. Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of the Grantor or the Collateral Agent
that are contained in this Agreement shall bind and inure to the benefit of
their respective successors and assigns.
SECTION 8.12. Collateral Agent's Fees and Expenses;
Indemnification. (a) The Grantor agrees to pay upon demand to the Collateral
Agent the amount of any and all reasonable expenses, including the reasonable
fees, disbursements and other charges of its counsel and of any experts or
agents, which the Collateral Agent may incur in connection with (i) the
administration of this Agreement (including the customary fees of the Collateral
Agent for any ongoing monitoring or audits conducted by it with respect to the
Collateral), (ii) the custody or preservation of, or the sale of, collection
from or other realization upon any of the Collateral, (iii) the exercise,
enforcement or protection of any of the rights of the Collateral Agent hereunder
or (iv) the failure of the Grantor to perform or observe any of the provisions
hereof.
(b) The Grantor shall indemnify, hold harmless and defend the
Collateral Agent and its directors, officers, agents and employees, from and
against any and all claims, actions, obligations and liabilities, including
defense costs, investigative fees and costs, legal fees, and claims for damages,
arising from the Collateral Agent's acceptance of its duties hereunder or its
performance under this Agreement, except to the extent that such
claim, action, obligation or liability is directly attributable to the bad
faith, gross negligence or willful misconduct of such indemnified person. IT IS
THE INTENT OF THE GRANTOR TO INDEMNIFY AND HOLD HARMLESS THE COLLATERAL AGENT
FOR CLAIMS, ACTIONS,
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<PAGE> 23
OBLIGATIONS OR LIABILITIES ARISING FROM THE COLLATERAL AGENT'S PERFORMANCE UNDER
THIS AGREEMENT INCLUDING THE COLLATERAL AGENT'S NEGLIGENCE.
(c) Any such amounts payable as provided hereunder shall be
additional obligations secured hereby. The provisions of this Section shall
remain operative and in full force and effect regardless of the termination of
this Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Notes, the invalidity or unenforceability of any term or
provision of this Agreement or any other Security Document, or any investigation
made by or on behalf of the Collateral Agent or any Holder. All amounts due
under this Section shall be payable on written demand therefor.
SECTION 8.13. Termination or Release. (a) Except as provided
in Section 8.12, this Agreement and the Security Interest shall terminate (i)
when all the Obligations have been indefeasibly paid in full and the Grantor has
no further obligations to the Holders or (ii) when all the conditions precedent
to the Defeasance (as defined in the Indenture) of the outstanding Notes as set
forth in the Indenture have been complied with by the Grantor.
(b) In connection with any termination pursuant to paragraph
(a) above, upon the request of the Grantor accompanied by an Officers'
Certificate and opinion of Counsel stating that all conditions precedent to the
termination of the Security Interest pursuant to this Agreement and the
Indenture have been satisfied, the Collateral Agent shall execute and deliver to
the Grantor, at the Grantor's expense, all Uniform Commercial Code termination
statements and similar documents which the Grantor shall reasonably request to
evidence such termination. Any execution and delivery of termination statements
or documents pursuant to this Section 8.13 shall be without recourse to or
warranty by the Collateral Agent.
SECTION 8.14. GOVERNING LAW; SUBMISSION TO JURISDICTION;
WAIVER OR JURY TRIAL; WAIVER OF DAMAGES.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED UNDER
THE LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE
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<PAGE> 24
RELATIONSHIP ESTABLISHED BETWEEN THE GRANTOR, THE COLLATERAL AGENT AND THE
HOLDERS OF NOTES IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN
CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE
INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) AND DECISIONS OF
THE STATE OF NEW YORK.
(b) THE GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY
SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY
NEW YORK COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW
YORK CITY, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER SECURITY DOCUMENTS, OR
FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY
SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR,
TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES
HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY
RIGHT THAT THE COLLATERAL AGENT, THE TRUSTEE OR ANY HOLDER MAY OTHERWISE HAVE TO
BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE OTHER SECURITY
DOCUMENTS AGAINST THE GRANTOR OR ITS PROPERTIES IN THE COURTS OF ANY
JURISDICTION. THE GRANTOR AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS,
SETOFFS OR CROSS CLAIMS IN ANY PROCEEDING BROUGHT BY THE COLLATERAL AGENT TO
REALIZE ON SUCH PROPERTY OR TO ENFORCE A JUDGEMENT OR OTHER COURT ORDER IN FAVOR
OF THE COLLATERAL AGENT, EXCEPT FOR SUCH COUNTERCLAIMS, SETOFFS OR CROSS CLAIMS
WHICH, IF NOT ASSERTED IN ANY SUCH PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR
ASSERTED. THE GRANTOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF
THE COURT IN WHICH THE COLLATERAL AGENT HAS COMMENCED A PROCEEDING DESCRIBED IN
THIS PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
(c) THE GRANTOR AND THE COLLATERAL AGENT EACH WAIVE ANY RIGHT
TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT. INSTEAD, ANY
24
<PAGE> 25
DISPUTES RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER SECURITY DOCUMENTS, AS APPLICABLE, BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
(d) THE GRANTOR AGREES THAT NEITHER THE COLLATERAL AGENT NOR
ANY HOLDER OF NOTES SHALL HAVE ANY LIABILITY TO THE GRANTOR (WHETHER SOUNDING IN
TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE GRANTOR IN CONNECTION
WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE TRANSACTIONS CONTEMPLATED
AND THE RELATIONSHIP ESTABLISHED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR
EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND
NONAPPEALABLE JUDGMENT OF A COURT THAT IS BINDING ON THE COLLATERAL AGENT OR
SUCH HOLDER OF NOTES, AS THE CASE MAY BE, THAT SUCH LOSSES WERE THE RESULT OF
ACTS OR OMISSIONS ON THE PART OF THE COLLATERAL AGENT OR SUCH HOLDER OF NOTES,
AS THE CASE MAY BE, CONSTITUTING BAD FAITH, GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
(e) TO THE EXTENT PERMITTED BY APPLICABLE LAW, AND EXCEPT AS
OTHERWISE PROVIDED IN THIS AGREEMENT, THE GRANTOR WAIVES ALL RIGHTS OF NOTICE
AND HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE COLLATERAL AGENT OR ANY
HOLDER OF NOTES OF ITS RIGHTS DURING THE CONTINUANCE OF AN EVENT OF DEFAULT TO
REPOSSESS THE COLLATERAL WITH JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY
UPON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, THE GRANTOR WAIVES THE POSTING OF ANY BOND
OTHERWISE REQUIRED OF THE COLLATERAL AGENT OR ANY HOLDER OF NOTES IN CONNECTION
WITH ANY JUDICIAL PROCESS OR PROCEEDING TO OBTAIN POSSESSION OF, REPLEVY, ATTACH
OR LEVY UPON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS, TO ENFORCE
ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE COLLATERAL AGENT OR
ANY HOLDER OF NOTES, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY
RESTRAINING ORDER OR PRELIMINARY OR PERMANENT INJUNCTION, THIS AGREEMENT OR ANY
OTHER AGREEMENT OR DOCUMENT BETWEEN THE GRANTOR ON THE ONE HAND AND THE
COLLATERAL AGENT AND/OR THE HOLDERS OF NOTES ON THE OTHER HAND.
25
<PAGE> 26
[Signature page to follow]
26
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
MGC COMMUNICATIONS, INC.,
as Grantor
By:
-------------------------
Name:
Title:
MARINE MIDLAND BANK,
as Collateral Agent
By:
-------------------------
Name:
Title:
<PAGE> 28
Annex 1 to the
Security Agreement
[Form of]
STATUS CERTIFICATE
Reference is made to the Indenture dated as of September 29,
1997 (as amended, supplemented or otherwise modified from time to time, the
"Indenture"), among MGC COMMUNICATIONS, INC., a Nevada corporation ("MGC") and
MARINE MIDLAND BANK, as trustee (the "Trustee"), and to the Security Agreement
dated September 29, 1997 (as amended, supplemented or otherwise modified from
time to time, the "Security Agreement"), among MGC, as grantor (the "Grantor")
and MARINE MIDLAND BANK, in its capacity as Trustee under the Indenture, as
collateral agent (the "Collateral Agent"). Capitalized terms used herein and not
defined herein shall have the meanings assigned to such terms in the Indenture.
Under the Security Agreement, MGC is the Grantor of Security
Interests as defined therein. In order to facilitate the perfection of such
Security Interests, the Collateral Agent has requested that MGC provide the
information specified in this certificate for the Grantor.
The undersigned, executive officers of the Grantor, hereby
certify to the Collateral Agent and each other Secured Party as follows:
1. (a) The exact corporate name of the Grantor, as
such name appears in its certificate of incorporation, is as
follows:
(b) Set forth below is each other corporate name
the Grantor has had in the past five years, together with the date
of the relevant change:
<PAGE> 29
(c) Except as set forth in Schedule 1 hereto,
the Grantor has not changed its identity or corporate structure in any way
within the past five years. Changes in identity or corporate structure would
include mergers, consolidations and acquisitions, as well as any change in the
form, nature or jurisdiction of corporate organization. If any such change has
occurred, include in Schedule 1 the information required by sections 1 and 2 of
this certificate as to each acquiree or constituent party to a merger or
consolidation.
(d) The following is a list of all other names
(including trade names or similar appellations) used by the Grantor or any of
its divisions or other business units in connection with the conduct of its
business or the ownership of its properties at any time during the past five
years:
(e) Set forth below is the Federal Taxpayer
Identification Number of the Grantor:
2. Current Locations. (a) The chief executive office of
the Grantor is located at the address set forth on Schedule 2(a)
hereto.
(b) Set forth on Schedule 2(b) hereto are all
locations where the Grantor maintains (or intends to maintain) Collateral having
a purchase price in excess of $25,000 in such location.
(c) Set forth on Schedule 2(c) hereto are all
the places where the Grantor maintains an office or other facility not
identified in paragraph (a) or (b) above.
3. Unusual Transactions. All Telecommunications
Equipment has been purchased by the Grantor in the ordinary course
of its business.
4. UCC Filings. Duly signed financing statements on Form
UCC-1 in substantially the form of Schedule 4 hereto have been prepared for
filing with the Secretary of State or other
<PAGE> 30
appropriate office of each of the States of the United States in which the
Collateral is located.
5. Schedule of Filings. Attached hereto as Schedule 5
is a schedule setting forth, with respect to the filings described
in Section 4 above, each filing and the filing office in which such
filing has been made.
6. Filing Fees. All filing fees and taxes payable in
connection with the filings described in Section 4 above have been
paid.
<PAGE> 31
IN WITNESS WHEREOF, the undersigned has duly executed this
certificate on this 29th day of September, 1997.
MGC COMMUNICATIONS, INC.,
By:
---------------------------
Name:
Title:
By:
---------------------------
Name:
Title:
<PAGE> 32
SCHEDULE 1
CHANGES
<PAGE> 33
SCHEDULE 2(a)
CHIEF EXECUTIVE OFFICE
<PAGE> 34
SCHEDULE 2(b)
LOCATIONS OF COLLATERAL
<PAGE> 35
SCHEDULE 2(c)
OFFICES AND OTHER FACILITIES
<PAGE> 36
SCHEDULE 4
FORM UCC-1
See attached.
<PAGE> 37
SCHEDULE 5
UCC-1 FILINGS
<PAGE> 1
EXHIBIT 4.4
EXECUTION COPY
COLLATERAL PLEDGE AND SECURITY AGREEMENT
THIS Collateral Pledge and Security Agreement (the "Pledge
Agreement") is made and entered into as of September 29, 1997 by MGC
Communications, Inc., a Nevada corporation (the "Pledgor"), having its principal
office at 3165 Palm Centre Drive, Las Vegas Nevada 89103, in favor of Marine
Midland Bank, having an office at 140 Broadway, New York, New York 10555, in its
capacity as trustee under the Indenture (as defined below), as collateral agent
(the "Trustee") for the holders (the "Holders") of the Notes (as defined herein)
of the Pledgor.
WITNESSETH
WHEREAS, the Pledgor and the Trustee have entered into that
certain indenture dated as of September 29, 1997 (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 Secured Notes due 2004 (the "Notes") issued in
connection with an offering of 160,000 Units, each Unit consisting of $1,000
principal amount of Notes and one Warrant to purchase 8.07 shares of common
stock of the Company. Capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to such terms in the Indenture; and
WHEREAS, the Pledgor agreed, pursuant to the Indenture, to (i)
purchase securities that are direct obligations of, or obligations guaranteed
by, the United States of America for the payment of which guarantee or
obligations the full faith and credit of the United States is pledged (the
"Pledged Securities") in an amount sufficient upon receipt of scheduled interest
and principal payments in respect of Pledged Securities, in the opinion of a
nationally recognized firm of independent public accountants selected by the
Pledgor, to provide for payment in full of the first six scheduled interest
payments due on the Notes and (ii) place such Pledged Securities in an account
held by the Trustee for the benefit of Holders of the Notes; and
WHEREAS, the Pledgor is the legal and beneficial owner of the
Pledged Securities; and,
WHEREAS, to secure its obligations under the Indenture and the
Notes (the "Obligations"), the Pledgor has agreed to (i) pledge to the Trustee
for its benefit and the ratable benefit of the Holders of Notes, and grant to
the Trustee for its benefit and the ratable benefit of the Holders of Notes, a
security interest in the Pledged Securities and the Pledge Account (as defined
below) and (ii) execute and deliver this Pledge Agreement in order to secure the
payment and performance by the Pledgor of all such Obligations.
AGREEMENT
NOW, THEREFORE, in order to induce the Holders of Notes to
purchase the Notes, and for good and valuable consideration, the receipt of
which is hereby acknowledged, the Pledgor hereby agrees with the Trustee for its
benefit and for the ratable benefit of the Holders of Notes as follows:
<PAGE> 2
SECTION 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 (a) all of Pledgor's right, title and interest in the Pledged
Securities and the Pledge Account, (b) the certificates or other evidence of
ownership representing the Pledged Securities and the Pledge Account and (c)
except as otherwise provided herein, all products and proceeds of any of the
Pledged Securities, 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 the Pledged Securities (collectively, the "Collateral").
SECTION 2. Security for Obligations. This Pledge Agreement
secures the prompt and complete payment and performance when due (whether at
stated maturity, by acceleration or otherwise) of all Obligations.
SECTION 3. Delivery of Collateral; Pledge Account; Interest;
Substitution of Collateral.
3.1 All certificates or instruments 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. All funds deposited or
held in the Pledge Account shall be invested by the Trustee in accordance with
the instructions of the Pledgor. Pledgor hereby directs the Trustee to purchase
the securities listed on Schedule A hereto.
3.2 Concurrently with the execution and delivery hereof, the
Trustee shall establish an account for the deposit of the Pledged Securities
(the "Pledge Account") at its office at 140 Broadway, New York, New York 10555.
Subject to the other terms and conditions of this Pledge Agreement, all funds or
other property accepted by the Trustee pursuant to this Pledge Agreement shall
be held in the Pledge Account for the benefit of the Trustee and the ratable
benefit of the Holders of Notes.
3.3 All interest earned on any Collateral shall be retained in
the Pledge Account (or reinvested, as the case may be), pending disbursement
pursuant to the terms hereof.
3.4 Pending disbursement of funds from the Pledge Account as
contemplated hereby, the Trustee may, and at the direction of the Pledgor will,
reinvest any interest payments received in respect of the Pledged Securities in
money market deposit accounts issued or offered by an Eligible Institution
provided that any monies so reinvested and the securities acquired thereby must
be (a) held as Collateral in the Pledge Account, (b) subject to the security
interest created hereby and (c) otherwise subject to the terms hereof.
SECTION 4. Disbursements.
4.1 Up to five (5) Business Days prior to the date of any of
the first six scheduled Interest Payments due on the Notes, the Pledgor may, in
writing, direct the Trustee to transfer from the Pledge 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,
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the Trustee will take any action necessary to provide for the payment of such
interest Payment on the Notes directly to the Holders of Notes from proceeds of
the Pledged Securities in the Pledge Account.
4.2 If the Pledgor makes any interest payment or portion of an
interest payment for which the Pledged Securities are collateral from a source
of funds other than the Pledge Account ("Pledgor Funds"), the Pledgor may, after
payment in full of such interest payment, direct the Trustee in writing to
release to the Pledgor or at the direction of the Pledgor an amount of funds
from the Pledge Account less than or equal to the amount of Pledgor Funds so
expended. Upon receipt of a direction from the Pledgor and any other
documentation reasonably satisfactory to the Trustee to substantiate such use of
Pledgor Funds by the Pledgor (including the certificate described in the
following sentence), the Trustee will take any action necessary to enable it to
pay over to the Pledgor the requested amount. Concurrently with any release of
funds to the Pledgor pursuant to this Section 4.2, the Pledgor will deliver to
the Trustee an Officers' Certificate stating that such use of Pledgor Funds has
been duly authorized by all necessary corporate action, and does not contravene,
or constitute a default under, any provision of applicable law or regulation or
of the certificate of incorporation of the Pledgor 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.
4.3 If at any time the amount of Pledged Securities exceeds
100% of the amount sufficient, in the opinion of a nationally recognized firm of
independent public accountants 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. Upon receipt of a
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 overfunded amount.
4.4 Upon payment in full of the first six scheduled interest
payments on the Notes, the security interest in the Collateral evidenced by this
Pledge Agreement will terminate and be of no further force and effect.
Furthermore, upon the release of any Collateral from the Pledge Account in
accordance with the terms of this Pledge Agreement, whether upon release of
Collateral to Holders as payment of interest, to the Company or otherwise, the
security interest evidenced by this Pledge Agreement in the Collateral so
released will terminate and be of no further force and effect.
SECTION 5. Representations and Warranties. The Pledgor hereby
represents and warrants that:
(1) The execution, delivery and performance by the
Pledgor of this Pledge Agreement are within the Pledgor's corporate
powers, have been duly authorized by all necessary corporate action,
and do not contravene, or constitute a default under, any provision of
applicable law or regulation or of the certificate of incorporation of
the Pledgor 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 Pledge Agreement.
(2) The Pledgor is the record and beneficial owner of
the Collateral, free and clear of any Lien or claims of any Person
(except for the security interests granted under this Pledge
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Agreement). No financing statement covering the Pledged Securities is
on file in any public office other than the financing statements filed
pursuant to this Pledge Agreement.
(3) This Pledge Agreement has been duly executed and
delivered by the Pledgor and constitutes a valid and binding obligation
of the Pledgor, enforceable against the Pledgor in accordance with its
terms, except as such enforceability may be limited by the effect of
any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally or general
principles of equity and commercial reasonableness.
(4) Upon the delivery to the Trustee of the
certificates representing the Pledged Securities and any filing of
financial statements required by the Uniform Commercial Code (the
"UCC"), the pledge of the Collateral pursuant to this Pledge Agreement
creates a valid and perfected first priority security interest in and
to the Collateral, securing the payment of the 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.
(5) No consent of any other 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
(a) for the pledge by the Pledgor of the Collateral pursuant to this
Pledge Agreement or for the execution, delivery or performance of this
Pledge Agreement by the Pledgor (except for any filings necessary to
perfect Liens on the Collateral) or (b) for the exercise by the Trustee
of the rights provided for in this Pledge Agreement or the remedies in
respect of the Collateral pursuant to this Pledge Agreement.
(6) No litigation, proceeding, or, to the knowledge
of Pledgor, investigation of or before any arbitrator or governmental
authority is pending or, to the knowledge of the Pledgor, threatened by
or against the Pledgor with respect to this Pledge Agreement or any of
the transactions contemplated hereby, except as disclosed in the
Offering Memorandum.
(7) The pledge of the Collateral pursuant to this
Pledge Agreement is not prohibited by any applicable law or
governmental regulation, release, interpretation or opinion of the
Board of Governors of the 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).
SECTION 6. Further Assurance. The Pledgor will, promptly upon
request by the Trustee, execute and deliver or cause to be executed and
delivered, or use its best efforts to procure, all stock powers, proxies,
assignments, instruments and other documents, all in form and substance
satisfactory to the Trustee, deliver any instruments to the Trustee and take any
other actions that are necessary or, in the reasonable opinion of the Trustee,
desirable to perfect, continue the perfection of, or protect the first priority
of the Trustee's security interest in and to the Collateral, to protect the
Collateral against the rights, claims, or interests of third persons or to
effect the purposes of this Pledge Agreement. The Pledgor also hereby authorizes
the Trustee to file any financing or continuation statements with respect to the
Collateral without the signature of the Pledgor (to the extent permitted by
applicable law). The Pledgor will pay all costs incurred by the Trustee in
connection with any of the foregoing.
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SECTION 7. Covenants. The Pledgor covenants and agrees with
the Trustee and the Holders of Notes from and after the date of this Pledge
Agreement until 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 obligations due and owing under the Indenture and the Notes
in the event such obligations become due and payable prior to the payment of the
first six scheduled interest payments on the Notes:
(1) The Pledgor will not (a) sell or otherwise
dispose of, or grant any option or warrant with respect to, any of the
Collateral or (b) create or permit to exist any Lien upon or with
respect to any of the Collateral (except for the Lien created pursuant
to this Pledge Agreement) and at all times will be the sole beneficial
owner of the Collateral.
(2) The Pledgor will not (a) 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
(b) fail to pay or discharge any tax, assessment or levy of any nature
not later than five days prior to the date of any proposed sale under
any judgement, writ or warrant of attachment with regard to the
Collateral.
SECTION 8. Power of Attorney. In addition to all of the powers
granted to the Trustee pursuant to Article 6 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: (a) collection of proceeds of any Collateral; (b) conveyance of any
item of Collateral to any purchaser thereof; (c) giving of any notices or
recording of any Liens under Section 6 hereof; (d) making of any payments or
taking any acts under Section 9 hereof and (e) 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 to become the
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 or any other documents deemed necessary or appropriate by
the Trustee to preserve, protect 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 Trustee in this Pledge Agreement. This power of
attorney is coupled with an interest and is irrevocable by the Pledgor.
SECTION 9. Trustee May Perform. If the Pledgor fails to
perform any agreement contained herein in accordance with the terms hereof, 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.
SECTION 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 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. Except as provided by applicable law, the
Trustee shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which the Trustee accords similar property
in similar situations, it being
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understood that the Trustee shall not have any responsibility for (a)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
the Trustee has or is deemed to have knowledge of such matters or (b) taking any
necessary steps to preserve rights against any parties with respect to any
Collateral.
SECTION 11. Indemnity. The Pledgor shall indemnify, hold
harmless and defend the Trustee and its directors, officers, agents and
employees, from and against any and all claims, actions, obligations and
liabilities, including defense costs, investigative fees and costs, legal fees,
and claims for damages, arising from the Trustee's acceptance of its duties
hereunder or its performance under this Pledge Agreement, except to the extent
that such claim, action, obligation or liability is directly attributable to the
bad faith, gross negligence or willful misconduct of such indemnified person. IT
IS THE INTENT OF THE PLEDGOR TO INDEMNIFY AND HOLD HARMLESS THE TRUSTEE FOR
CLAIMS, ACTIONS, OBLIGATIONS OR LIABILITIES ARISING FROM THE TRUSTEE'S
PERFORMANCE UNDER THIS PLEDGE AGREEMENT INCLUDING THE TRUSTEE'S NEGLIGENCE.
SECTION 12. Remedies Upon Event of Default.
If an Event of Default under the Indenture shall have occurred
and be continuing:
(1) The Trustee and the Holders of Notes shall have,
in addition to all other rights given by law or by this Pledge
Agreement or the Indenture, all of the rights and remedies with respect
to the Collateral of a secured party under the UCC in effect in the
State of New York at that time. In addition, with respect to any
Collateral that shall then be in or shall thereafter come into the
possession or custody of the Trustee, the Trustee may sell or cause the
same to be sold at any broker's board or at a public or private sale,
in one or more sales or lots, at such price or prices as the Trustee
may deem best, for cash or on credit or for future delivery, without
assumption of any credit risk. The purchaser of any or all Collateral
so sold shall thereafter hold the same absolutely, free from any claim,
encumbrance or right of any kind whatsoever created by or through the
Pledgor. Unless any of the Collateral threatens, in the reasonable
judgment of the Trustee, to decline speedily in value or is or becomes
of a type sold on a recognized market, the Trustee will give the
Pledgor reasonable notice of the time and place of any public sale
thereof, or of the time after which any private sale or other intended
disposition is to be made. Any sale of the Collateral conducted in
conformity with reasonable commercial practices of banks, insurance
companies, commercial finance companies, or other financial
institutions disposing of property similar to the Collateral shall be
deemed to be commercially reasonable. Any requirements of reasonable
notice shall be met if such notice is mailed to the Pledgor as provided
in Section 15.1 hereof, at least thirty (30) days before the time of
the sale or disposition. The Trustee or any Holder of Notes may, in its
own name or in the name of a designee or nominee, buy any of the
Collateral at any public sale and, if permitted by applicable law, at
any private sale. All expenses (including court costs and reasonable
attorneys' fees, expenses and disbursements) of, or incident to, the
enforcement of any of the provisions hereof shall be recoverable from
the proceeds of the sale or other disposition of the Collateral.
(2) The Pledgor further agrees to use its best
efforts to do or cause to be done all such other acts as may be
necessary to make such sale or sales of all or any portion of the
Collateral pursuant to this Section 12 valid and binding and in
compliance with any and all other applicable requirements of law. The
Pledgor further agrees that a breach of any of the covenants
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contained in this Section 12 will cause irreparable injury to the
Trustee and the Holders of Notes, that the Trustee and the Holders of
Notes have no adequate remedy at law in respect of such breach and, as
a consequence, that each and every covenant contained in this Section
12 shall be specifically enforceable against the Pledgor, and the
Pledgor hereby waives and agrees not to assert any defenses against an
action for specific performance of such covenants except for a defense
that no Event of Default has occurred.
SECTION 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 counsel, experts
and agents retained by the Trustee that the Trustee may incur in connection with
(a) the administration of this Pledge Agreement, (b) the custody or preservation
of, or the sale of, collection from, or other realization upon, any of the
Collateral, (c) the exercise or enforcement of any of the rights of the Trustee
and the Holders of Notes hereunder or (d) the failure by the Pledgor to perform
or observe any of the provisions hereof.
SECTION 14. Security Interest Absolute. 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:
(1) any lack of validity or enforceability of the
Indenture or any other agreement or instrument relating thereto;
(2) any change in the time, manner or place of
payment of, or in any other term of, all or any of the Obligations, or
any other amendment or waiver of or any consent to any departure from
the Indenture;
(3) any exchange, surrender, release or
non-perfection of any Liens on any other collateral for all or any of
the Obligations; or
(4) to the extent permitted by applicable law, any
other circumstance which might otherwise constitute a defense available
to, or a discharge of, the Pledgor in respect of the Obligations or of
this Pledge Agreement.
SECTION 15. Miscellaneous Provisions.
15.1 Notices. All notices, approvals, consents or other
communications required or desired to be given hereunder shall be in the form
and manner, and delivered to each of the parties hereto at their respective
addresses, as set forth or provided for in Section 10.02 of the Indenture.
15.2 No Adverse Interpretation of Other Agreements. This
Pledge Agreement may not be used to interpret another pledge, security or debt
agreement of the Pledgor or any subsidiary thereof. No such pledge, security or
debt agreement may be used to interpret this Pledge Agreement.
15.3 Severability. The provisions of this Pledge Agreement are
severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part
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thereof, and shall not in any manner affect such clause or provision in any
other jurisdiction or any other clause or provision of this Pledge Agreement in
any jurisdiction.
15.4 Headings. The headings in this Pledge Agreement have been
inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof.
15.5 Counterpart Originals. This Pledge Agreement may be
signed in two or more counterparts, each of which shall be deemed an original,
but all of which shall together constitute one and the same agreement.
15.6 Benefits of Pledge Agreement. Nothing in this Pledge
Agreement, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Holders of Notes, any benefit or
any legal or equitable right, remedy or claim under this Pledge Agreement.
15.7 Amendments, Waivers and Consents. Any amendment or waiver
of any provision of this Pledge Agreement and any consent to any departure by
the Pledgor from any provision of this Pledge Agreement shall be effective only
if made or duly given in compliance with all of the terms and provisions of the
Indenture, and neither the Trustee nor any Holder of Notes shall be deemed, by
any act, delay, indulgence, omission or otherwise, to have waived any right or
remedy hereunder or to have acquiesced in any Default or Event of Default or in
any breach of any of the terms and conditions hereof. Failure of the Trustee or
any Holder of Notes to exercise, or delay in exercising, any right, power or
privilege hereunder shall not operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by the Trustee or any Holder of Notes of any right or remedy hereunder
on any one occasion shall not be construed as a bar to any right or remedy that
the Trustee or such Holder of Notes would otherwise have on any future occasion.
The rights and remedies herein provided are cumulative, may be exercised singly
or concurrently and are not exclusive of any rights or remedies provided by law.
15.8 Interpretation of Agreement. All terms not defined herein
or in the Indenture shall have the meaning set forth in the applicable Uniform
Commercial Code, except where the context otherwise requires. To the extent a
term or provision of this Pledge Agreement conflicts with the Indenture, the
Indenture shall control with respect to the subject matter of such term or
provision. Acceptance of or acquiescence in a course of performance rendered
under this Pledge Agreement shall not be relevant to determine the meaning of
this Pledge Agreement even though the accepting or acquiescing party had
knowledge of the nature of the performance and opportunity for objection.
15.9 Continuing Security Interest; Termination.
(1) This Pledge Agreement shall create a continuing
security interest in and to the Collateral and shall, unless otherwise
provided in the Indenture or in this Pledge Agreement, remain in full
force and effect until 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 obligations due and owing
under the Indenture and the Notes in the event such obligations become
payable prior to the payment of the first six scheduled interest
payments on the Notes. This Pledge Agreement shall be binding upon the
Pledgor, its successors and assigns, and shall inure, together with the
rights
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and remedies of the Trustee hereunder, to the benefit of the Trustee,
the Holders of Notes and their respective successors, transferees and
assigns.
(2) Subject to the provisions of Section 15.10
hereof, this Pledge 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
obligations due and owing under the Indenture and the Notes in the
event such 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 the Pledgor, reassign and redeliver to
the 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 Pledge Agreement and the Indenture. 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.
15.10 Survival of Provisions. All representations, warranties
and covenants of the Pledgor contained herein shall survive the execution and
delivery of this Pledge Agreement, and shall terminate only upon the termination
of this Pledge Agreement.
15.11 Waivers. The Pledgor waives presentment and demand for
payment of any of the Obligations, protest and notice of dishonor or default
with respect to any of the Obligations, and all other notices to which the
Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
15.12 Authority of the Trustee.
(1) 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 bad faith, 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 believed by it or them to be
genuine and correct and to have been signed or sent by the proper
Person or Persons.
(2) The Pledgor acknowledges that the rights and
responsibilities of the Trustee under this Pledge 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 Pledge 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 time to
time among them, but, as between the Trustee and the Pledgor, the
Trustee shall be conclusively presumed to be acting as agent for the
Holders of Notes with full and valid
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authority so to act or refrain from acting, and the Pledgor shall not
be obligated or entitled to make any inquiry respecting such authority.
(3) In the performance of its duties hereunder, the
Trustee shall be entitled to the benefits of Sections 7.01, 7.02, 7.03
and 7.04 of the Indenture.
15.13 Limitation by Law. All rights, remedies and powers
provided herein may be exercised only to the extent that they will not render
this Pledge Agreement not entitled to be recorded, registered or filed under
provisions of any applicable law.
15.14 Final Expression. This Pledge Agreement, together with
any other agreement executed in connection herewith, is intended by the parties
as a final expression of this Pledge Agreement and is intended as a complete and
exclusive statement of the terms and conditions thereof.
15.15 Rights of Holders of Notes. No Holder of Notes shall
have any independent rights hereunder other than those rights granted to
individual Holders of Notes pursuant to Section 6.06 of the Indenture; provided
that nothing in this subsection shall limit any rights granted to the Trustee
under the Notes or the Indenture.
15.16 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF
JURY TRIAL; WAIVER OF DAMAGES.
(1) THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED UNDER THE LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE
ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THE PLEDGOR, THE TRUSTEE AND THE
HOLDERS OF NOTES IN CONNECTION WITH THIS PLEDGE AGREEMENT, AND WHETHER
ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS
PROVISIONS) AND DECISIONS OF THE STATE OF NEW YORK.
(2) THE PLEDGOR HEREBY IRREVOCABLY AND UNCONDITIONALLY
SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF
ANY NEW YORK COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA
SITTING IN NEW YORK CITY, AND ANY APPELLATE COURT FROM ANY THEREOF,
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS PLEDGE
AGREEMENT OR THE OTHER SECURITY DOCUMENTS, OR FOR RECOGNITION OR
ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF
ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW
YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT.
EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED
BY LAW. THE PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS,
SETOFFS OR CROSS CLAIMS IN ANY PROCEEDING BROUGHT BY THE TRUSTEE TO
REALIZE ON SUCH PROPERTY OR TO ENFORCE A JUDGEMENT OR
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OTHER COURT ORDER IN FAVOR OF THE TRUSTEE, EXCEPT FOR SUCH
COUNTERCLAIMS, SETOFFS OR CROSS CLAIMS WHICH, IF NOT ASSERTED IN ANY
SUCH PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR ASSERTED. THE
PLEDGOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE
COURT IN WHICH THE TRUSTEE HAS COMMENCED A PROCEEDING DESCRIBED IN THIS
PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
(3) THE PLEDGOR AND THE TRUSTEE EACH WAIVE ANY RIGHT
TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED
TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH THIS PLEDGE AGREEMENT. INSTEAD, ANY DISPUTES RESOLVED
IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
(4) THE PLEDGOR AGREES THAT NEITHER THE TRUSTEE NOR
ANY HOLDER OF NOTES SHALL HAVE ANY LIABILITY TO THE PLEDGOR (WHETHER
SOUNDING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE
PLEDGOR IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO,
THE TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS
PLEDGE AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION
THEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE
JUDGMENT OF A COURT THAT IS BINDING ON THE TRUSTEE OR SUCH HOLDER OF
NOTES, AS THE CASE MAY BE, THAT SUCH LOSSES WERE THE RESULT OF ACTS OR
OMISSIONS ON THE PART OF THE TRUSTEE OR SUCH HOLDER OF NOTES, AS THE
CASE MAY BE, CONSTITUTING BAD FAITH, GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
(5) TO THE EXTENT PERMITTED BY APPLICABLE LAW, AND
EXCEPT AS OTHERWISE PROVIDED IN THIS PLEDGE AGREEMENT, THE PLEDGOR
WAIVES ALL RIGHTS OF NOTICE AND HEARING OF ANY KIND PRIOR TO THE
EXERCISE BY THE TRUSTEE OR ANY HOLDER OF NOTES OF ITS RIGHTS DURING THE
CONTINUANCE OF AN EVENT OF DEFAULT TO REPOSSESS THE COLLATERAL WITH
JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL OR
OTHER SECURITY FOR THE OBLIGATIONS. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE PLEDGOR WAIVES THE POSTING OF ANY BOND OTHERWISE
REQUIRED OF THE TRUSTEE OR ANY HOLDER OF NOTES IN CONNECTION WITH ANY
JUDICIAL PROCESS OR PROCEEDING TO OBTAIN POSSESSION OF, REPLEVY, ATTACH
OR LEVY UPON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS, TO
ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE
TRUSTEE OR ANY HOLDER OF NOTES, OR TO ENFORCE BY SPECIFIC PERFORMANCE,
TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR PERMANENT INJUNCTION,
THIS PLEDGE AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT BETWEEN THE
PLEDGOR ON THE ONE HAND AND THE TRUSTEE AND/OR THE HOLDERS OF NOTES ON
THE OTHER HAND.
[SIGNATURE PAGE FOLLOWS]
11
<PAGE> 12
IN WITNESS WHEREOF, the Pledgor and the Trustee have each
caused this Pledge Agreement to be duly executed and delivered as of the date
first above written.
Pledgor:
MGC COMMUNICATIONS, INC.
By:
----------------------------------
Name:
Title:
Trustee:
MARINE MIDLAND BANK, as Trustee
By:
----------------------------------
Name:
Title:
<PAGE> 13
Schedule A
14
<PAGE> 1
EXHIBIT 10.2
Employee: NIELD J. MONTGOMERY
Address: 9975 Parvin Street
Las Vegas, Nevada 89123
Effective Date: June ___, 1996
EMPLOYMENT/STOCK REPURCHASE AGREEMENT
This Employment/Stock Repurchase Agreement (hereinafter "Agreement")
is entered into by the above-referenced party (hereinafter "Employee") whose
address is as shown above, and NevTEL ,Inc. a Nevada corporation (hereinafter
the "Company"). Employee and the Company collectively designated herein as the
"Parties" and the "Party" shall mean either one of the Parties.
The "Effective Date" of this Agreement is shown above.
WHEREAS, the Company requires the services of a party such as
Employee to perform Services (as hereinafter defined); and
WHEREAS, Employee represents that he is qualified and desires to
perform said Services;
NOW, THEREFORE, for and in consideration of the foregoing recitals
and the promises, covenants, terms, conditions and obligations hereinafter set
forth, the Parties agree as follows:
I. SCOPE OF SERVICES
1. The work, activities and services (hereinafter
"Services") to be performed by Employee pursuant to the terms and conditions of
this Agreement shall include, but are not limited to, the work, activities and
services set forth in Exhibit "A" hereto. All other work, activities and
services performed by Employee for the benefit of the Company at the direction,
request or authorization of the Company shall also be deemed Services. Employee
will serve the Company faithfully and to the best of his ability.
2. Employee will devote his full time, effort,
energy and skill to such employment. Employee shall perform such services as the
Company shall direct.
II. ASSIGNMENT AND DELEGATION
The Parties agree that the Services as defined herein are
unique personal services and that the Company is relying upon Employee's
experience, expertise and other qualifications in entering into this Agreement.
Employee shall not assign or delegate any right, obligation or duty hereunder to
any other person or entity without the express written consent of the Company.
III. COMPENSATION AND EXPENSES
1. Compensation for Services shall be as set
forth in Exhibit "B" hereto.
2. The Company shall also reimburse Employee for
all reasonable and necessary expenses actually incurred by Employee in
performing Services hereunder to the extent approved by the Company. Employee
shall prepare and submit to the Company a periodic statement of charges in such
detail and supported by such receipts, evidence and documentation as the Company
may reasonably require.
<PAGE> 2
3. The Company shall provide Employee such fringe
benefits, including but not limited to participation in any pension, disability
income insurance and other employee benefit plans that may be maintained by the
Company from time to time as are made generally available to other employees of
the Company in accordance with Company policies. The Company reserves the right
to change the benefits available under such plans at any time or times.
IV. DURATION OF SERVICES
A. Term of Agreement. The term of this Agreement
shall be for two (2) years, unless sooner terminated as provided herein. The
Parties, by their mutual written consent, may extend the term of this Agreement.
B. Termination for Cause. The Company may
terminate this Agreement for "Cause", effective immediately upon delivery of
notice to Employee, in the event Employee (i) shall be arrested for commission
of a felony or other act involving moral turpitude, (ii) shall commit any act,
specifically including but not limited to drug or alcohol abuse, which is
materially and objectively harmful to the Company or its business, (iii) shall
commit any act of fraud, dishonesty or theft, whether or not related to his
activities on behalf of the Company, (iv) shall fail to perform satisfactorily
or shall negligently perform reasonable duties assigned to him by the Company
and shall fail to cure such failure within ten (10) days after receipt of
written notice thereof from the Company, (v) shall fail to comply with Company
policies or procedures and shall fail to cure such failure within ten (10) days
after receipt written of notice thereof from the Company, or (vi) shall
otherwise default in the performance of his obligations under the terms of this
Agreement and shall fail to cure such default within ten (10) days after receipt
of written notice thereof from the Company; provided, however, that in no event
shall Employee have the right to cure more than one such failure under (iv), (v)
or (vi) in any one calendar year; and provided, further, that any termination
under clause (iv) or (v) above shall require an arbitrator to determine that the
circumstances justify termination for cause, with such arbitrator being
appointed in accordance with the rules of the American Arbitration Association.
The cost of said arbitration (including each party's attorney's fees) shall be
borne by Employee if the arbitrator determines that cause exists and by the
Company if the arbitrator determines that no cause exists.
C. Termination Without Cause:
1. Employee may terminate this Agreement
by giving to the Company thirty (30) days written notice and such termination
shall be effective on the thirtieth (30th) day following the date of such
notice; provided, however, that the Company may, in its sole and absolute
discretion, accelerate the effective date of Employee's voluntary termination to
any date following the date of such notice.
2. The Company may, without cause,
terminate this Agreement at any time by giving to Employee thirty (30) days
written notice and such termination shall be effective on the thirtieth (30th)
day following the date of such notice.
D. Disability. If Employee shall fail or be unable
to perform the Services required hereunder because of any physical or mental
infirmity, and such failure or inability shall continue for 60 consecutive days,
the Company shall have the right to terminate Employee's employment after
delivering written notice thereof to Employee. The Company shall in no way be
obligated to compensate Employee after the expiration of the initial 60 days of
disability.
E. Death. Employee's employment shall terminate
upon his death.
F. Termination of Company's Obligations. The
Company's obligations under Section III shall terminate upon the expiration of
the term of this Agreement or upon termination of Employee's employment as
provided in this Section IV.
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<PAGE> 3
G. Termination of Employee's Obligations. Except
for Employee's obligation to perform Services and Employee's obligations under
Section I, Employee's obligations under this Agreement shall survive the
expiration of the term of this Agreement and termination of Employee's
employment as provided in this Section IV.
V. NON-COMPETITION
A. The Employee and the Company agree that the
Company's activities are of a unique and special nature and that if Employee's
services were used in competition with the Company, such use would cause serious
and possibly irreparable harm to the Company. Accordingly, Employee agrees to
the commitments of noncompetitive activities as described herein:
1. Employee agrees that during the
period of employment with the Company and for a period of eighteen (18) months
thereafter if Employee (i) is terminated for Cause as provided in Section IV B
above, (ii) is terminated by the Company without Cause as provided in Section
IVC2 above or as a result of his disability as provided in Section IVD above and
Employee's shares in the Company are repurchased as a result of such termination
of employment in accordance with the terms of this Agreement, or (iii)
voluntarily leaves his employment with the Company, that Employee shall not
directly or indirectly: (a) call on, solicit, take away or attempt to take away
for the benefit of Employee or of any other person or entity, any customer,
supplier or client or prospective customer, supplier or client of Company with
whom Employee became acquainted prior to or during employment with Company, or
(b) solicit, take away, or attempt to take away, for the benefit of Employee or
of any other person or entity, any employee, officer or consultant of the
Company.
2. Employee agrees that during the
period of employment with the Company and for a period of eighteen (18) months
thereafter if Employee (i) is terminated for Cause as provided in Section IV B
above, (ii) is terminated by the Company without Cause as provided in Section
IVC2 above or as a result of his disability as provided in Section IVD above and
Employee's shares in the Company are repurchased as a result of such termination
of employment in accordance with the terms of this Agreement, or (iii)
voluntarily leaves his employment with the Company, that Employee shall not
directly or indirectly engage, either as a consultant, independent contractor,
proprietor, stockholder, partner, owner, officer, director, employee or
otherwise in any business which (a) engages in any business which competes with
the business of the Company as such business is conducted or planned to be
conducted as of the date of termination of employment, or (b) calls on,
solicits, takes away, sells to, or otherwise deals with any customers, supplier
or contact of the Company, or (c) which otherwise competes with the Company in
Nevada.
B. The parties hereto agree that: (i) the covenants
and agreements of Employee contained in Paragraph A of this Section are
reasonably necessary to protect the interests of the Company in whose favor said
covenants and agreements are imposed in light of the nature of the Company's
business and the professional involvement of Employee in such business; (ii) the
restrictions imposed by Paragraph A of this Section are not greater than are
necessary for the protection of the Company in light of the substantial harm
that the Company will suffer should Employee breach any of the provisions of
said covenants or agreements; (iii) the covenants and agreements of Employee
contained in Paragraph A of this Section have been independently negotiated
between the parties hereto and serve as a material inducement for certain
investors to invest in the Company; (iv) the periods of restriction and
restricted area referred to in Paragraph A of this Section are fair and
reasonable in that they are reasonably required for the protection of the
Company; and (v) the nature, kind and character of the activities Employee is
prohibited to engage in are reasonable and necessary to protect the Company in
that the Company will rely on Employee for many important aspects of its
business.
C. Employee acknowledges that a breach by him of
any part of Paragraph A of this Section will result in irreparable and
continuing damage to the Company and any breach or threatened breach of the
covenants provided in Paragraph A of this Section shall be subject to specific
performance by temporary as well as permanent injunction or any other equitable
remedies of any court of competent jurisdiction.
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<PAGE> 4
D. The covenants and agreements on the part of
Employee contained in Paragraph A of this Section shall be construed as
agreements independent of any other agreement between Employee and the Company.
The existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of each of such covenants and
agreements or otherwise affect the remedies to which the Company is entitled
hereunder.
VI. COMPANY OPTION TO REPURCHASE EMPLOYEE'S SHARES
A. The Company shall have the option to repurchase
the shares of stock in the Company (the "Shares") owned by Employee upon the
terms set forth in this Item. The terms of Paragraph B below shall apply to
2,000 of the 3,000 Shares owned by Employee as of the date hereof (the
"Restricted Shares"). The terms of Paragraph C below shall apply to all other
Shares owned by Employee (the "Remaining Shares"), which Remaining Shares shall
include any portion of the Restricted Shares that are no longer subject to
Paragraph B.
B. The Company shall have the option to repurchase
the Restricted Shares owned by Employee upon the terms set forth in this
Paragraph B.
1. The Restricted Shares shall, as of
the date hereof, consist of two thousand (2,000) Shares. In the event of the
termination of Employee's employment with the Company prior to April 1, 1999, as
a result of his death or disability, the number of Restricted Shares shall be
reduced by 55.5 Shares for each full month of employment after the date of this
Agreement and until the termination of Employee's employment with the Company.
In the event of the termination of Employee's employment with the Company for
"Cause" (as defined herein) before April 1, 1999, the number of Restricted
Shares shall not be reduced. In the event of the termination of Employee's
employment with the Company for any other reason, the number of Restricted
Shares shall be reduced by 666 Shares as of April 1, 1997 if Employee remains in
the employ of the Company as of such date and by an additional 667 Shares as of
April 1, 1998, if Employee remains in the employ of the Company as of such date.
Notwithstanding the foregoing, the number of Restricted Shares shall be reduced
to zero (0) if (i) Employee remains in the employ of the Company as of April 1,
1999, or (ii) in the event there is a "Change in Control" (as hereinafter
defined) of the Company and Employee's employment with the Company is terminated
within one year after such Change in Control either by Employee but only if the
location of the Company's principal offices is moved out of the Las Vegas,
Nevada area, or Employee's basic duties are materially changed as a result of
the Change in Control, or by the Company without "Cause" (as defined in this
Agreement). A "Change in Control" shall be deemed to have occurred if: (i) more
than 50% of the outstanding Shares of the Company are acquired within a period
of one year by persons other than the members of NevTEL, LLC, employees of the
Company, immediate family members and affiliates and there is a change in the
membership of the Company's Board within a one year period thereafter such that
fewer than 50% of the members of the Board are persons who served in such
position prior to the change in ownership; (ii) the Company sells all or
substantially all of its assets; or (iii) the Company is a party to a merger or
consolidation under which the Company is not the surviving company. All Shares
that were at any time Restricted Shares but are no longer Restricted Shares
shall be considered to be Remaining Shares which are subject to the terms of
Paragraph C below.
2. If Employee is at any time prior to
April 1, 1999, not an employee of the Company (whether voluntarily or
involuntarily and for any reason whatsoever including death or disability) (the
date of his termination of employment being hereinafter referred to as the
"Termination Date"), then the remaining stockholders shall have the option to
purchase, whereupon Employee or his legal representative shall sell, all, but
not less than all, of the Restricted Shares in the Company owned by Employee or
any Affiliate of his on the Termination Date, and such Restricted Shares shall
be sold free and clear of any and all liens and encumbrances. The purchase price
for all of the Restricted Shares shall be $4.00 per Share.
3. The option provided herein shall be
exercised, if at all, by delivery of written notice by the remaining
stockholders within sixty (60) days after the Termination Date. Those
stockholders electing to exercise such option shall determine between themselves
the proportional amounts of Restricted Shares that they
-4-
<PAGE> 5
each shall purchase, if any, and if they fail to agree upon such division, then
each stockholder electing to purchase Restricted Shares shall purchase a
fraction of such Restricted Shares equal to the number of Shares owned by such
stockholder divided by the total number of Shares owned by all stockholders
electing to purchase a portion of the Restricted Shares. If a majority interest
of the remaining stockholders request that the Restricted Shares be purchased by
the Company and if the Board of Directors approves such repurchase, then the
Company shall, in the place and stead of the remaining stockholders, purchase
the Restricted Shares under this Section in accordance with the terms set forth
herein.
4. The closing of the purchase and sale
hereunder shall occur within thirty (30) days following the exercise of said
option and at a time and place as the remaining stockholders may designate by
written notice to Employee at least five (5) days in advance of such closing.
The parties hereto hereby agree to execute any and all instruments and documents
to transfer full and complete title to such Restricted Shares to effectuate the
foregoing. At the closing, the purchase price shall be paid in cash.
5. The number of Restricted Shares and
the purchase price per Share set forth in this Paragraph B shall be adjusted
appropriately in the event of any stock split, stock dividend or other similar
change in the capitalization of the Company. The Board of Directors of the
Company shall make the determination of any such adjustments and shall provide
Employee with written notice thereof.
C. The Company shall have the option to repurchase
the Remaining Shares owned by Employee upon the terms set forth in this
Paragraph C.
1. If Employee is at any time prior to
April 1 2001, not an employee of the Company (whether voluntarily or
involuntarily and for any reason whatsoever including death or disability) (the
date of his termination of employment being hereinafter referred to as the
"Termination Date"), then the remaining stockholders shall have the option to
purchase, whereupon Employee or his legal representative shall sell, all, but
not less than all, of the Remaining Shares in the Company owned by Employee or
any Affiliate of his on the Termination Date, and such Remaining Shares shall be
sold free and clear of any and all liens and encumbrances. The purchase price
for all of the Shares shall be the Purchase Price (as defined in subparagraph 4
below).
2. The option provided herein shall be
exercised, if at all, by delivery of written notice by the remaining
stockholders within sixty (60) days after the later of the Termination Date or
the date the Purchase Price has been determined. Those stockholders electing to
exercise such option shall determine between themselves the proportional amounts
of Remaining Shares that they each shall purchase, if any, and if they fail to
agree upon such division, then each stockholder electing to purchase Remaining
Shares shall purchase a fraction of such Remaining Shares equal to the number of
Shares owned by such stockholder divided by the total number of Shares owned by
all stockholders electing to purchase a portion of the Remaining Shares. If a
majority interest of the remaining stockholders request that the Remaining
Shares be purchased by the Company and if the Board of Directors approves such
repurchase, then the Company shall, in the place and stead of the remaining
stockholders, purchase the Remaining Shares under this Section in accordance
with the terms set forth herein.
3. The closing of the purchase and sale
hereunder shall occur within thirty (30) days following the exercise of said
option and at a time and place as the remaining stockholders may designate by
written notice to Employee at least five (5) days in advance of such closing.
The parties hereto hereby agree to execute any and all instruments and documents
to transfer full and complete title to such Remaining Shares to effectuate the
foregoing. At the closing, the purchase price shall be paid by the payment of
ten percent (10%) of the Purchase Price in cash at closing with the balance of
such Purchase Price being paid by the execution and delivery to Employee of a
promissory note payable in equal quarterly installments of principal and
interest over a period of four (4) years with interest being calculated at one
percent (1%) plus the prime rate as reported in The Wall Street Journal as of
the date immediately preceding the day of closing.
-5-
<PAGE> 6
4. In the event of Employee's
termination of employment as a result of his resignation or termination for
Cause on or before April 1, 1998, the Purchase Price shall be the net book value
of the Remaining Shares as of the last day of the last month ending on or before
the date of termination of employment; provided, however, that the Purchase
Price for any Remaining Shares that were acquired by exercise of Options within
six (6) months of the date of termination of employment shall in no event exceed
the amount paid for such Remaining Shares. The determination of net book value
and the Purchase Price shall be made by the certified public accountants then
serving the Company. The determination by such certified public accountants
shall be final and binding on the parties hereto. In all other cases, the
Purchase Price shall be the Fair Market Value of the Remaining Shares. If the
Fair Market Value is determined by an appraisal, then such determination shall
be final and binding on the parties hereto.
5. The Fair Market Value of Remaining
Shares shall be determined by agreement of Employee and the Company and if they
fail to reach agreement as to Fair Market Value, then the determination shall be
made by a qualified independent appraiser selected by the Board of Directors of
the Company.
D. All certificates representing Shares shall bear
the following restrictive legend (in addition to any other legends required to
be placed thereon):
The Shares represented by this certificate are
subject to repurchase by the Company pursuant to
the terms of an Employment/Share Repurchase
Agreement dated __________________, 1996, a copy
of which is on file with the Company.
VII. PROFESSIONAL RESPONSIBILITY
A. Employee agrees that he will provide in
connection with the performance of all Services under this Agreement the
standards of care, skill and diligence normally provided by competent
professionals in the performance of services similar to that contemplated by
this Agreement.
B. Employee represents that he has no conflicts of
interest in rendering his professional services to the Company.
VIII. CONFIDENTIAL INFORMATION, CONFIDENTIAL MATERIAL
A. "Confidential Information" as used herein,
whether or not reduced to writing and in any and all stages of development,
shall include all relevant information concerning, in use or under consideration
with respect to intended research or production areas of interest of the
Company, but shall not be limited to designs, procedures, experiments,
protocols, test results, specifications, documentation, identity of and class of
agreements with third parties, costs, profits, revenues, financial statements,
and any and all other information, data, financial information, names or lists
of names of suppliers and customers, interpretations, analyses, surveys, ideas,
strategies, forecasts, discoveries, marketing plans, development plans,
techniques, processes, specialized software and databases, know-how and trade
secrets which are (a) directly or indirectly disclosed or revealed to Employee
by the Company or any of its Management Committee members, officers, employees,
agents, attorneys or representatives, or (b) created, developed, conceived or
originated by Employee at any time prior to the termination of Employee's
employment hereunder, it being acknowledged that any Confidential Information
developed by Employee prior to his employment with the Company nevertheless
belongs to the Company as a result of the transfer of assets to the Company in
consideration for the direct or indirect share ownership that Employee is
receiving from the Company.
B. "Confidential Material" as used herein shall be
any and all tangible materials and objects which embody Confidential Information
or from which Confidential Information can be read, reproduced, developed or
utilized.
-6-
<PAGE> 7
C. Anything which is legitimately and lawfully
disclosed to Employee by a third party shall be released from the provisions and
restrictions of this Agreement, but only to the extent necessary to permit such
use and disclosure as are permitted by said third party.
IX. CONFIDENTIALITY
A. Except as first authorized by the Company,
Employee shall not:
1. directly or indirectly disclose,
reveal, report, duplicate or
transfer any Confidential
Information or Confidential
Material to any other person or
entity;
2. directly or indirectly aid, encourage,
direct or allow any other person or
entity to gain possession of or access
to Confidential Information or
Confidential Material;
3. directly or indirectly copy or reproduce
Confidential Material or create
Confidential Material from Confidential
Information;
4. directly or indirectly use, sell or
exploit any Confidential Information or
any Confidential Material or aid,
encourage, direct or allow any other
person or entity to use, sell or exploit
any Confidential Information or
Confidential Material; or
5. directly or indirectly disclose to any
third party the nature of the Services,
the Company's interest in the Services,
or any results of the Services.
B. Upon receipt of a written request by the
Company, Employee agrees to surrender and return to the Company all Confidential
Material.
X. MISCELLANEOUS
A. This Agreement may only be amended in writing,
signed by each Party hereto. The terms of this Agreement shall be interpreted
under the laws of the State of Nevada. This Agreement constitutes the entire
agreement between the Parties with respect to the subject matter hereof.
B. Employee agrees to execute such additional
documents and do such further acts and deeds as may be necessary or desirable to
effectuate the purposes hereof and for the perfection of the rights and
interests of the Company expressed herein.
C. Employee agrees that any actual or threatened
breach hereof could subject the Company to substantial, immediate and
irreparable damages and consents that the Company would be entitled to equitable
relief in the event thereof. Employee agrees that Nevada law applies and that
any adjudication of interests hereunder be proved in Nevada courts.
D. For all purposes of this Agreement, action or
consent by the Company shall require the action or consent of the Company's
Board of Directors without participation by Employee.
E. The waiver by either party of any provision of
this Agreement shall not operate as, or be construed to be, a waiver of any
subsequent breach hereof.
-7-
<PAGE> 8
F. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors.
G. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the subject matter hereof, and this Agreement contains all the covenants and
agreements among the parties with respect to such subject matter.
H. The headings contained in the Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the Agreement.
I. Any provision of this Agreement which is
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provision of this Agreement
invalid, illegal or unenforceable in any other jurisdiction.
J. In the event it should become necessary for any
party to bring an action, including arbitration either at law or in equity, to
enforce or interpret the terms of this Agreement, the prevailing party in such
action shall be entitled to recover its reasonable attorneys' fees as a part of
any judgment therein, in addition to any other award which may be granted.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
on or as of the date first above written.
THE COMPANY: EMPLOYEE:
NevTEL, Inc.
By:
-------------------------- -----------------------------
Nield J. Montgomery Nield J. Montgomery
Its: President
--------------------------
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<PAGE> 9
EXHIBIT "A"
SERVICES
Employee shall perform for the benefit of the Company the following
work, activities and services ("Services"):
All duties associated with the positions of President and CEO of the
Company.
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<PAGE> 10
EXHIBIT "B"
COMPENSATION
(Arrangements for payment of "Compensation")
Salary
1. $5,000.00 per month from April 1, 1996 until such time as the Company
commences revenue producing operations on a regular basis.
2. $10,000.00 per month thereafter.
Severance Pay
1. If Employee's employment is terminated by the Company without cause as
provided in Section IVC, then the Company will pay severance pay to
Employee as follows:
a. Termination notice given before October 1, 1996 - severance
pay of $60,000.00 payable $10,000.00 per month for the ensuing
six months.
b. Termination notice given on or after October 1, 1996 but
before April 1, 1997 - severance pay of $90,000.00 payable
$10,000.00 per month for the ensuing nine months.
c. Termination notice given on or after April 1, 1997 but before
April 1, 1998 - severance pay of $120,000.00 payable
$10,000.00 per month for the ensuing twelve months.
2. No severance pay will be payable if Employee's employment is terminated
(i) with cause as provided in Section IVB, (ii) by Employee's
resignation under Section IVC1, or (iii) as a result of Employee's
disability or death.
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<PAGE> 11
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement (the "Amendment") is made
and entered into this 1st day of September, 1997 by and between MGC
Communications, Inc. ("Employer") and Nield J. Montgomery ("Employee");
W I T N E S S E T H:
WHEREAS, Employer and Employee entered into that certain Employment
Agreement dated _____________________, 1996 (the "Agreement"); and
WHEREAS, the parties now desire to amend the Agreement as hereinafter
set forth;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
1.
The term of the Agreement (Paragraph A of Article IV of the Agreement)
is hereby extended to and through September 1, 2000.
2.
Beginning September 1, 1997, Employee's Base Salary in Exhibit "B" to
the Agreement is increased from $120,000 per annum to $150,000 per annum payable
in accordance with the Agreement.
3.
Item 1c under Severance Pay in Exhibit "B" to the Agreement is hereby
amended to read as follows:
"c. Termination notice given on or after September
1, 1997 but before April 1, 1998 - $150,000.00,
payable $12,500.00 per month for the ensuing twelve
months."
4.
Except as modified by the Amendment, the Agreement remains in full
force and effect, whole and unmodified.
<PAGE> 12
IN WITNESS WHEREOF, the parties have affixed their hands and seals the
day and year first above written.
EMPLOYER:
MGC COMMUNICATIONS, INC.
By:_______________________________
Its____________________________
(CORPORATE SEAL)
EMPLOYEE:
___________________________(SEAL)
Nield J. Montgomery
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AND STOCK REPURCHASE AGREEMENT
THIS EMPLOYMENT AND STOCK REPURCHASE AGREEMENT (the "Agreement") is
made and entered into as of the 15th day of May, 1997, by and between MGC
COMMUNICATIONS, INC., a Nevada corporation (the "Company") and JOHN BOERSMA
("Employee").
W I T N E S S E T H T H A T:
The parties, for and in consideration of the mutual and reciprocal
covenants and agreements hereinafter contained, do contract and agree as
follows:
1. Employment: Company hereby employs Employee and Employee hereby
accepts employment by Company upon all of the terms and conditions as are
hereinafter set forth.
2. Duties: Employee shall devote his full-time and effort to the
business of Company. Employee shall serve Company in the capacity of Vice
President of Operations, and shall perform his assigned duties and carry out
his responsibilities to the best of his skills and abilities. Employee's duties
and responsibilities shall include, but shall not be limited to, overseeing the
Company's product delivery and support functions (including the NevTEL
operations in Nevada) and such further duties which are consistent with
Employee's abilities and training as shall be reasonably assigned to him from
time to time by the President or Board of Directors of the Company.
3. Term of Agreement: This Agreement shall be effective as of May 15,
1997 (the "Effective Date") and Employee's employment hereunder shall continue
until May 14, 1998, unless sooner terminated by either party as provided in
Item 12 herein. Thereafter, this Agreement shall be automatically renewed on a
year-to-year basis after the expiration of the initial or any subsequent term
of this Agreement unless terminated by either party as provided in Item 12
hereof.
4. Limitations of Executive Duties: Employee shall not, without
consent first being given by the President or Board of Directors of the
Company:
A. Take part in activities detrimental to the best interests of
Company, including rendering any services to any other firm or entity which
conflict or interfere with the performance of Employee's duties hereunder.
B. Enter into any contract, oral or written, in the name of, for or
on behalf of Company.
C. Use any money belonging to Company or pledge its credit.
<PAGE> 2
D. Commit or suffer to be committed any act whereby Company's
property may be subject to attachment or seizure.
E. Cause Company to become a guarantor, surety or endorser or give
any note for the benefit of any other person whomsoever.
Employee shall indemnify and hold Company harmless from and against
any and all damages, actions, causes of action, claims and other liabilities,
contingent or otherwise, directed toward Company by others as a result of
Employee's violation of any of the provisions hereof.
5. No Outside Employment: It is the specific intention of the parties
that Employee shall devote 100% of his business time and energy as an employee
of Company and shall not, during the term of this Agreement, either directly or
indirectly, be employed by, actively engaged in or associated with any other
business whether within Company's industry or not. Any such outside employment
by Employee shall be a breach of this Agreement as a result of which Company
shall have the right to terminate this Agreement as provided in Item 12 hereof.
6. Compensation: During the term of this Agreement, Company agrees to
pay to Employee, and Employee agrees to accept from Company, in full payment
for services rendered by Employee and work to be performed by him under the
terms of this Agreement, the following:
A. An annual base salary of One Hundred Five Thousand Dollars
($105,000.00), payable in installments in accordance with the Company's payroll
practices.
B. Employee may be entitled to a bonus up to fifty percent (50%) of
his Base Salary each calendar year based on Employee's performance as
determined by the Company's Board of Directors and the Company's performance as
measured by EBITDA (earnings before interest, taxes, depreciation and
amortization) as determined by the Company's certified public accountants. The
Company currently intends that approximately ten percent (10%) of the Company's
EBITDA each year will fund a bonus pool to be used to pay bonuses to Employee
and others, as determined by the Company's senior management. If Employee
purchases shares of stock in the Company financed by a promissory note to the
Company, then seventy percent (70%) of Employee's bonus shall be paid over to
or retained by the Company to be applied against Employee's obligations to the
Company thereunder.
7. Vacation and Fringe Benefits: Company shall provide Employee such
vacation time, sick leave and fringe benefits, including but not limited to
participation in any pension, medical reimbursement and employee benefit plans
that may be maintained by Company from time to time as are made generally
available to other employees of Company in accordance with Company policies. In
connection therewith, the Company shall pay seventy-five percent (75%) of the
cost of coverage of Employee and his family under the Company's medical/dental
insurance plan. In addition to the vacation time otherwise allowable to
Employee, Employee shall be entitled to an unpaid leave of absence during the
period from June 6, 1997 through June 29, 1997. The Company reserves the right
to change the benefits available under its benefit plans at any time or times.
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<PAGE> 3
8. Moving Expenses. The Company shall pay or reimburse Employee for up
to $15,000 of Employee's moving expenses (including temporary living expenses,
house hunting trips, household relocation and miscellaneous moving expenses).
Such amount will be payable fifteen percent (15%) within the first week of
employment, an additional fifteen percent (15%) at the end of the second month
of employment and the remaining seventy percent (70%) at the time of Employee's
household move provided that same is completed within six (6) months of
Employee's employment commencement date. In the event Employee's employment
with the Company is terminated prior to May 14, 1998 for any reason whatsoever,
Employee shall be required to repay to the Company all amounts paid by the
Company under this Item.
9. Deductions: Deductions shall be made from Employee's salary for
social security, Medicare, federal and state withholding taxes, and any other
such taxes as may from time to time be required by governmental authority.
10. Fiduciary Relationship. Both parties acknowledge and agree that a
fiduciary and confidential relationship has existed and will continue to exist
between them and that said relationship will continue during the term of this
Agreement.
11. Working Facilities and Expenses.
A. Company shall furnish to Employee an office supplied, furnished
and equipped as may be reasonably necessary for the conduct of Company's
business.
B. During the term of this Agreement, Company agrees to reimburse
Employee, after presentation of receipts and other appropriate documentation,
for all reasonable, ordinary and necessary travel costs and other necessary
expenses incurred by Employee in performing his duties pursuant to this
Agreement to the extent such expenses have been approved by the President of
Company.
12. Termination:
A. Employee's employment hereunder shall be terminated upon his
death or disability, in which event, Company shall not be liable for any
compensation, bonus or fringe benefits after the date of Employee's death or
disability.
B. Employee may, without cause, terminate this Agreement by giving
to Company thirty (30) days written notice and such termination shall be
effective on the date (the "Termination Date"), which shall be the date
specified by Employee but in no event earlier than the thirtieth (30th) day
following the date of such notice or such earlier date specified by Company
after receipt of Employee's notice of termination. In such event, Employee
shall continue to render his services up to the Termination Date if so
requested by Company.
C. Company may, without cause, terminate this Agreement at any time
by giving to Employee thirty (30) days written notice and such termination
shall be effective on the date specified by Company but in no event earlier
than the thirtieth (30th) day following the date of such notice. At the option
of Company, Employee shall immediately cease performing his duties
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<PAGE> 4
hereunder upon receipt of the notice. If terminated without cause pursuant to
this Paragraph C, Employee shall continue to receive his full base salary and
related fringe benefits for a period of thirty (30) days following the date of
such notice.
D. Employee may terminate this Agreement immediately for "cause".
Cause shall be defined as failure of Company to make any payment or provide any
benefit to Employee hereunder, which failure is not cured within ten (10) days
after Company's receipt of written notice of such default. Any termination
under this Paragraph D shall take effect immediately upon Company's receipt of
written notice from Employee.
E. Company may terminate this Agreement immediately for "cause".
Cause shall be defined as any of the following: (i) Employee shall commit a
felony or other act involving moral turpitude, (ii) Employee shall commit any
act of prohibitive conduct as set forth in Item 4 of this Agreement, (iii)
Employee shall commit any act, specifically including but not limited to drug
or alcohol abuse, which act is materially harmful to Company, (iv) intentional
or gross neglect of Employee's duties, (v) intentional disruption of or
interference with Company's normal business operations, (vi) outside employment
of Employee prohibited by Item 5 hereof, (vii) failure to comply with Company
policies after receipt of written notice of the violation and failure to cure
such violation within ten (10) days after receipt of such notice; (viii)
repeated failure to comply with Company policies after receipt of written
notice of any prior violation of such policies; or (ix) breach of any other
provision of this Agreement after receipt of written notice of the breach and
failure to cure such breach within ten (10) days after receipt of such notice.
Any termination under this Paragraph E shall take effect immediately upon
Employee's receipt of written notice from Company to Employee. The failure of
Company to terminate Employee's employment hereunder for cause as a result of
any of the foregoing at any one or more times shall not affect Company's
ability to terminate Employee's employment hereunder for cause as a result of
the subsequent occurrence of any act giving rise to "cause" hereunder.
13. Specific Covenants and Agreements:
A. For purposes of this Agreement, the following terms and
provisions shall have the following meanings:
1. "Confidential Information" shall mean all of the Company's
technical information, trade secrets, training materials, notebooks, video
tapes or discs, operating procedures, processes, business plans, financial
information relating to or arising out of Company's business operations,
computer programs, specialized software and databases, sales and marketing
information, methods of organizing and financing Company's business, personnel
records, pricing information and financial information concerning or relating
to the business, accounts, employees, agents, members, sponsors, creditors,
suppliers and affairs of Company, whether the same were produced by Employee as
an employee of Company or any other employee or agent of Company and all
physical embodiments or repositories of the foregoing, all of which are hereby
agreed to be the property of and confidential to Company. Notwithstanding the
foregoing, any and all such information as described in this Item 131A, which
may constitute common and/or public knowledge shall be specifically excluded
from this definition of "Confidential Information."
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<PAGE> 5
2. "Prohibited Geographic Area" shall mean the State of Nevada.
3. "Prohibited Time Period" shall mean the period beginning on
the date of execution hereof and ending on the date that is six (6) months after
the termination of this Agreement for any reason whatsoever.
4. "Prohibited Business" shall mean the provision of local, long-
distance and related telephone services.
B. Employee agrees that during the Prohibited Time Period, Employee
shall not, for any reason, without the prior written consent of Company, on his
own behalf or in the service or on behalf of others, participate, whether as an
owner, stockholder, partner, employee, consultant, agent, independent
contractor or otherwise, in any entity involved in the Prohibited Business,
which entity seeks to hold meetings in the Prohibited Geographic Area or to
communicate with telecommunication personnel located in the Prohibited
Geographic Area.
C. Employee hereby acknowledges and agrees that (i) Company has
expended considerable and substantial time, effort and capital resources to
develop the Confidential Information, (ii) the Confidential Information is
innovative and must receive confidential treatment to protect Company's
competitive position in the market and Company's proprietary interest therein
from irreparable damage, (iii) Employee, by virtue of his relationship with
Company, has had and will have access to the Confidential Information, and (iv)
the Confidential Information and all physical embodiments or other repositories
of the same shall be and at all times remain the sole and exclusive property of
Company. Employee covenants and agrees that throughout the period of Employee's
employment with Company and at any time after the termination of Employee's
employment with Company for any reason whatsoever, Employee shall not directly
or indirectly use, publish, disseminate, divulge or otherwise disclose to any
person or entity any of Company's Confidential Information, other than in the
performance of his duties hereunder. In the event of a breach or threatened
breach by Employee of the provisions of this Item, Company shall be entitled to
an injunction restraining Employee from disclosing, in whole or in part, the
list of Company's clients or any other Confidential Information, or from
rendering any services to any person, firm, corporation, association or other
entity to whom such list or other Confidential Information, in whole or in
part, has been disclosed or is threatened to be disclosed. Upon receipt of a
written request by Company, Employee agrees to surrender and return to Company
all documents, records, memoranda, notebooks and similar repositories of
Confidential Information of every character or description.
D. The parties hereto acknowledge and agree that (i) the covenants
contained in Paragraphs A, B and C of this Item are reasonably necessary to
protect the interest of Company in whose favor said covenants are imposed; (ii)
the restrictions imposed by Paragraphs A, B and C of this Item are not greater
than are necessary for the protection of Company in light of the substantial
harm that Company will suffer should Employee breach any such covenant; (iii)
the period of restriction and geographical area of restriction contained in
Paragraphs A, B and C of this Item are fair and reasonable in that they are
reasonably required for the protection of Company; (iv) the nature, kind and
character of the activities Employee is prohibited to engage in as described in
Paragraphs A, B and C of this Item are reasonable and necessary to protect
Company and shall not
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<PAGE> 6
be interpreted or construed as prohibiting Employee from rendering any other
services or performing any other activities not referenced therein, and (v) the
covenants and agreements of Employee contained in Paragraphs A, B and C of this
Item have been specifically negotiated by the parties and are material
inducements to Company to enter into this Agreement, and, but for such
covenants made by Employee herein, Company would not have entered into this
Agreement.
E. Employee acknowledges and agrees that each of the covenants and
agreements contained in Paragraphs A, B and C of this Item of this Agreement is
made by him in consequence of and as a specific inducement to Company to enter
into this Agreement and to protect and preserve the benefit of this Agreement
to Company; that each of the covenants contained in Paragraphs A, B and C of
this Item is reasonable and necessary to protect and preserve the benefits
received by Company under this Agreement; irreparable loss and damage will be
suffered by Company should Employee breach any of such covenants and
agreements; each of such covenants and agreements is separate, distinct and
severable not only from the other of such covenants and agreements but also
from the other and remaining provisions of this Agreement; that the
unenforceability of any such covenant or agreement shall not affect the
validity or enforceability of any other such covenant or agreements or any
other provision or provisions of this Agreement; and that, in addition to other
remedies available to it, Company shall be entitled to both temporary and
permanent injunctions to prevent a breach or contemplated breach by Employee of
any of such covenants or agreements. In the event Company should seek an
injunction hereunder, Employee hereby waives any requirement that Company
submit proof of the economic value of any Confidential Information or that
Company post a bond or any other security.
F. If the provisions of this Item should ever be adjudicated to
exceed the time, geographic or other limitations permitted by applicable law in
any jurisdiction, then such provisions shall be deemed reformed in such
jurisdiction to the maximum time, geographic or other limitation permitted by
applicable law.
G. The covenants and agreements on the part of Employee contained in
Paragraphs A, B and C of this Item shall be construed as agreements independent
of any other agreement between Company and Employee. The existence of any claim
or cause of action of Employee against Company, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Company of each of such covenants and agreements.
H. Nothing contained in this Item shall restrict Employee from being
a stockholder of any corporation that directly or indirectly competes with
Company provided the stock of such competing corporation is publicly held and
listed on a regional or national stock exchange.
14. Option Grants and Company Option to Repurchase Employee's Shares.
A. Through September 30, 1997, Employee may purchase up to 50,000
shares of Common Stock of Employer at a purchase price of $2.00 per share. This
option shall lapse at midnight September 30, 1997.
B. Through September 30, 1997, Employee may purchase up to 100,000
shares of Common Stock of Employer at $2.50 per share. At Employee's election,
the Company
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<PAGE> 7
will finance the purchase price of this tranche of stock, and Employee will
execute a full recourse promissory note (the "Note") in favor of the Company.
The Note will be secured by Employee's Common Stock in MGC. The term of the
Note will be three (3) years, and the Note will bear interest at the rate of
7.5% per annum on the unpaid balance. The Note may be prepaid at any time
without penalty, and prepayment will be required within 45 days after
termination of employment. The Note will be repaid over the term of the Note at
Employee's discretion; however, at a minimum, 70% of Employee's annual bonus
will be applied to reduction of outstanding principal and accrued interest.
C. The Restriction and Representations set forth in paragraph 6 of
Share Option Agreement of even date herewith are incorporated herein by
reference.
D. The Company shall have the option to repurchase certain shares of
stock in the Company (the "Shares") owned by Employee upon the terms set forth
in this Item. The terms of Paragraph B below shall apply to all Shares (up to
50,000) purchased by Employee at a price of $2.00 per share prior to September
30, 1997 and all Shares (up to 100,000) purchased by Employee at a price of
$2.50 per share prior to September 30, 1997 (collectively, the "Restricted
Shares").
B. If Employee is at any time prior to June 1, 2000, not an employee
of the Company as a result of Employee's resignation from the Company or as a
result of the Company's termination of Employee's employment for cause as
provided herein (the date of his termination of employment being hereinafter
referred to as the "Termination Date"), then the Company shall have the option
to purchase, whereupon Employee or his legal representative shall be obligated
to sell any portion or all of the Restricted Shares in the Company owned by
Employee or any Affiliate of his on the Termination Date, and such Restricted
Shares shall be sold free and clear of any and all liens and encumbrances. The
purchase price for all of the Restricted Shares shall be the amount per share
paid by Employee for such Restricted Shares (excluding any interest paid as a
result of Employee's making deferred payments for such Shares).
C. The option provided herein shall be exercised, if at all, by
delivery of written notice by the Company within ninety (90) days after the
Termination Date.
D. The closing of the purchase and sale hereunder shall occur within
thirty (30) days following the exercise of said option and at a time and place
as the Company may designate by written notice to Employee at least five (5)
days in advance of such closing. The parties hereto hereby agree to execute any
and all instruments and documents to transfer full and complete title to such
Restricted Shares to effectuate the foregoing. At the closing, the purchase
price shall be paid in cash.
E. The number of Restricted Shares and the purchase price per Share
set forth in this Item shall be adjusted appropriately in the event of any
stock split, stock dividend or other similar change in the capitalization of
the Company. The Board of Directors of the Company shall make the determination
of any such adjustments and shall provide Employee with written notice thereof.
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<PAGE> 8
F. All certificates representing Restricted Shares shall bear the
following restrictive legend (in addition to any other legends required to be
placed thereon):
The Shares represented by this certificate are subject to repurchase
by the Company pursuant to the terms of an Employment/Stock Repurchase
Agreement dated May 15, 1997, a copy of which is on file with the
Company.
15. Assignment: This Agreement, as it relates to the employment of
Employee, is a personal contract and the rights and interests of Employee
hereunder may not be sold, transferred, assigned, pledged or hypothecated.
However, this Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns including, without limitation, any
corporation or other entity into which the Company is merged or which acquires
all or substantially all of the outstanding common stock or assets of the
Company.
16. Breach by Company. If there is a dispute regarding the payment of any
sum by Company hereunder, Company shall not be deemed to have failed to have
made a payment hereunder if pending the resolution of such dispute, Company
pays the amount in dispute into court or into an escrow account at Company's
bank or with Company's corporate counsel.
17. Remedies Not Exclusive. The rights, remedies and benefits herein
expressly specified are cumulative and not exclusive of any rights, remedies or
benefits which any party may otherwise have.
18. Invalid Provisions: The invalidity of any one or more of the clauses
or words contained in this Agreement shall not affect the reasonable
enforceability of the remaining provisions of this Agreement, all of which are
inserted herein conditionally upon being valid in law; and in the event that
one or more of the words or clauses contained herein shall be invalid, this
instrument shall be construed as if such invalid words or clauses had not been
inserted or, alternatively, said words or clauses shall be reasonably limited
to the extent that the applicable court interpreting the provisions of this
Agreement considers to be reasonable.
19. Specific Performance: The parties hereby agree that any violation by
Employee of the covenants and agreements contained herein shall cause
irreparable damage to Company, and Company may, as a matter of course, enjoin
and restrain said violation by Employee by process issued out of a court of
competent jurisdiction, in addition to any other remedies that said court may
see fit to award.
20. Binding Effect: All the terms of this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective legal
representatives, successors and assigns.
21. Jurisdiction: Each of the undersigned further agrees that any action
or proceeding brought or initiated in respect of this Agreement may be brought
or initiated in the State Court of Clark County, Nevada, and each of the
undersigned consents to the exercise of personal jurisdiction and the placement
of venue in any of such courts, or in any jurisdiction allowed by law, in any
such
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<PAGE> 9
action or proceeding and further consents that service of process may be
effected in any such action or proceeding in such manner as may be permitted by
law. Each of the undersigned further agrees that no such action shall be
brought against any party hereunder except in one of the courts above named.
22. Attorney's Fees: In the event an action is taken by either party to
enforce this Agreement or resolve a dispute in connection herewith, the
prevailing party shall be entitled to recover the costs incurred with the
prosecution and defense of such action, including reasonable attorney's fees.
23. Waiver of Breach or Violation Not Deemed Continuing: The waiver by
either party of any provision of this Agreement shall not operate as, or be
construed to be, a waiver of any subsequent breach hereof.
24. Entire Agreement; Law Governing: This Agreement supersedes any and all
other agreements, either oral or in writing, between the parties hereto with
respect to the subject matter hereof, by and between Company and Employee, and
contains all the covenants and agreements among the parties with respect to
such subject matter. This Agreement, along with a Share Option Agreement of
even date herewith, supersede the terms of an employment letter dated May 8,
1997, between the parties hereto except to the extent such letter grants
Employee the right to purchase Restricted Shares (as defined in Item 14
hereof). This Agreement shall be construed in accordance with the laws of the
State of Nevada.
25. Item Headings: The item headings contained in this Agreement are for
convenience only and shall in no manner be construed as a part of this
Agreement.
26. CERTIFICATION BY EMPLOYEE: EMPLOYEE CERTIFIES THAT HE HAS READ THE
ENTIRE CONTENTS OF THIS AGREEMENT BEFORE SUBSCRIBING HIS NAME HERETO; THAT HE
WAS ENCOURAGED AND AFFORDED SUFFICIENT OPPORTUNITY BY COMPANY TO OBTAIN
INDEPENDENT LEGAL ADVICE PRIOR TO HIS EXECUTING THIS AGREEMENT; THAT HE FULLY
UNDERSTANDS ALL THE TERMS, CONDITIONS, RESTRICTIONS AND PROVISIONS SET FORTH IN
THIS AGREEMENT, PARTICULARLY INCLUDING, BUT NOT LIMITED TO THE RESTRICTIVE
COVENANTS CONTAINED HEREIN, AND THAT HE ACKNOWLEDGES THAT EACH SAID TERM,
CONDITION, RESTRICTION AND PROVISION IS FAIR AND REASONABLE INSOFAR AS IT
PERTAINS TO HIM; THAT HE HAS RECEIVED A COPY OF THIS AGREEMENT AS SIGNED BY
HIM; AND THAT HIS BEING BOUND BY THIS AGREEMENT IS A CONDITION PRECEDENT TO THE
EXECUTION HEREOF BY COMPANY.
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<PAGE> 10
IN WITNESS WHEREOF, Company has hereunto caused this Agreement to be
executed by a duly authorized officer and its seal to be affixed and Employee
has hereunto set his hand and seal as of the day and year first above written.
EMPLOYEE: [SEAL]
-------------------
JOHN BOERSMA
EMPLOYER:
MGC COMMUNICATIONS, INC.
By:
------------------------------
President
[CORPORATE SEAL]
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<PAGE> 1
EXHIBIT 10.4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of the 29th day of August, 1997, by and between MGC
COMMUNICATIONS, INC., a Nevada corporation (the "Company") and MITCHELL ALLEE
("Allee").
W I T N E S S E T H T H A T:
The parties, for and in consideration of the mutual and reciprocal
covenants and agreements hereinafter contained, do contract and agree as
follows:
1. Option to Acquire Stock: The Company hereby confirms that
Allee shall have the right to purchase shares of Common Stock in the Company as
follows:
A. 200,000 shares at $2.00 per share, exercisable by payment
of the purchase price for all or a portion of such shares on or before
September 30, 1997.
B. 175,000 shares at $2.50 per share, exercisable by the
execution and delivery to the Company of a promissory note for the purchase
price for all or a portion of the shares being purchased on or before September
30, 1997. The promissory note will: (i) be secured by a pledge of the MGC stock
being purchased with such promissory note, (ii) provide for interest at the
rate of 7.5% per annum, (iii) provide for final maturity on the earlier of 45
days after Allee's termination of employment with the Company for any reason
whatsoever or September 30, 2000, (iv) require payments of principal equal to
70% of any annual bonus otherwise payable by the Company to Allee (the Company
shall have the right to apply such portion of Allee's annual bonus directly
against such payments due under the note), and (v) be prepayable at any time
without premium or penalty.
2. Company Option to Repurchase Allee's Shares.
A. The Company shall have the option to repurchase certain
shares of stock in the Company (the "Shares") owned by Allee upon the terms set
forth in this Item. The terms of Paragraph B below shall apply to all Shares
(up to 200,000) purchased by Allee under Item 1A of this Agreement at a price
of $2.00 per share and all Shares (up to 175,000) purchased by Allee under Item
1B of this Agreement at a price of $2.50 per share (collectively, the
"Restricted Shares").
B. If Allee is at any time prior to June 1, 2000, not an
employee of or regular consultant to the Company as a result of Allee's
resignation from the Company or as a result of the Company's termination of
Allee's engagement for cause as provided herein (the date of his termination
being hereinafter referred to as the "Termination Date"), then the Company
shall have the option to purchase, whereupon Allee or his legal representative
shall be obligated to sell any portion or all of the"Prorated Restricted
Shares" (as hereinafter defined) in the Company owned by Allee or any Affiliate
of his on the Termination Date, and such Prorated Restricted Shares shall be
sold free and clear of any and all liens and encumbrances. The purchase price
for all of the Prorated Restricted Shares shall be the amount per share paid by
Allee for such Prorated
<PAGE> 2
Restricted Shares (excluding any interest paid as a result of Allee's making
deferred payments for such Shares). For purposes of this Agreement, the
"Prorated Restricted Shares" shall be equal to the Restricted Shares multiplied
by a fraction the numerator of which is the number of days from the Termination
Date to May 31, 2000, and the denominator of which is 1,096.
C. The Company's right to repurchase Prorated Restricted
Shares shall in no event apply in the event Allee's engagement with the Company
is terminated as a result of his death or disability. For these purposes,
Allee's disability shall be defined as inability, as a result of a physical or
mental impairment, to perform his usual duties for the Company for a period of
more than six (6) consecutive months.
D. For purposes of this Agreement, Cause shall be defined as
any of the following: (i) Allee shall commit a felony or other act involving
moral turpitude, (ii) Allee commit any act, specifically including but not
limited to drug or alcohol abuse, which act is materially harmful to Company,
(iii) intentional or gross neglect of Allee's duties, (iv) intentional
disruption of or interference with Company's normal business operations, (v)
failure to comply with Company policies after receipt of written notice of the
violation and failure to cure such violation within ten (10) days after receipt
of such notice; or (vi) repeated failure to comply with Company policies after
receipt of written notice of any prior violation of such policies.
E. The option provided herein shall be exercised, if at all,
by delivery of written notice by the Company within ninety (90) days after the
Termination Date.
F. The closing of the purchase and sale hereunder shall occur
within thirty (30) days following the exercise of said option and at a time and
place as the Company may designate by written notice to Allee at least five (5)
days in advance of such closing. The parties hereto hereby agree to execute any
and all instruments and documents to transfer full and complete title to such
Restricted Shares to effectuate the foregoing. At the closing, the purchase
price shall be paid in cash.
G. The number of Restricted Shares and the purchase price per
Share set forth in this Item shall be adjusted appropriately in the event of
any stock split, stock dividend or other similar change in the capitalization
of the Company. The Board of Directors of the Company shall make the
determination of any such adjustments and shall provide Allee with written
notice thereof.
H. All certificates representing Restricted Shares shall bear
the following restrictive legend (in addition to any other legends required to
be placed thereon):
The Shares represented by this certificate are subject to
repurchase by the Company pursuant to the terms of a Stock
Purchase Agreement dated August 29, 1997, a copy of which
is on file with the Company.
3. Assignment: This Agreement shall inure to the benefit of and
be binding upon the Company and its successors and assigns including, without
limitation, any corporation or other entity into which the Company is merged or
which acquires all or substantially all of the outstanding common stock or
assets of the Company.
4. Invalid Provisions: The invalidity of any one or more of the
clauses or words contained in this Agreement shall not affect the reasonable
enforceability of the remaining provisions of this Agreement, all of which are
inserted herein conditionally upon being valid in law; and in the event that
one or more of the words or clauses contained herein shall be invalid, this
instrument shall be construed as if such invalid words
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<PAGE> 3
or clauses had not been inserted or, alternatively, said words or clauses shall
be reasonably limited to the extent that the applicable court interpreting the
provisions of this Agreement considers to be reasonable.
5. Specific Performance: The parties hereby agree that any
violation by Allee of the agreements contained herein shall cause irreparable
damage to Company, and Company may, as a matter of course, seek specific
performance by process issued out of a court of competent jurisdiction, in
addition to any other remedies that said court may see fit to award.
6. Binding Effect: All the terms of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective legal representatives, successors and assigns.
7. Jurisdiction: Each of the undersigned further agrees that any
action or proceeding brought or initiated in respect of this Agreement may be
brought or initiated in the State Court of Clark County, Nevada, and each of
the undersigned consents to the exercise of personal jurisdiction and the
placement of venue in any of such courts, or in any jurisdiction allowed by
law, in any such action or proceeding and further consents that service of
process may be effected in any such action or proceeding in such manner as may
be permitted by law. Each of the undersigned further agrees that no such action
shall be brought against any party hereunder except in one of the courts above
named.
8. Attorney's Fees: In the event an action is taken by either
party to enforce this Agreement or resolve a dispute in connection herewith,
the prevailing party shall be entitled to recover the costs incurred with the
prosecution and defense of such action, including reasonable attorney's fees.
9. Waiver of Breach or Violation Not Deemed Continuing: The
waiver by either party of any provision of this Agreement shall not operate as,
or be construed to be, a waiver of any subsequent breach hereof.
10. Entire Agreement; Law Governing: This Agreement supersedes any
and all other agreements, either oral or in writing, between the parties hereto
with respect to the subject matter hereof, by and between Company and Allee,
and contains all the covenants and agreements among the parties with respect to
such subject matter. This Agreement shall be construed in accordance with the
laws of the State of Nevada.
11. Item Headings: The item headings contained in this Agreement
are for convenience only and shall in no manner be construed as a part of this
Agreement.
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<PAGE> 4
IN WITNESS WHEREOF, Company has hereunto caused this Agreement to
be executed by a duly authorized officer and its seal to be affixed and Allee
has hereunto set his hand and seal as of the day and year first above written.
[SEAL]
---------------------------
MITCHELL ALLEE
MGC COMMUNICATIONS, INC.
By:
------------------------------
President
[CORPORATE SEAL]
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<PAGE> 1
EXHIBIT 10.5
NEVTEL, INC.
STOCK OPTION PLAN
1. PURPOSE AND EFFECT OF THE PLAN. This Stock Option Plan
(the "Plan") is intended to promote the interests of NevTEL, Inc., a Nevada
corporation (the "Company") and its owners by encouraging certain selected key
employees (including officers of the Company), consultants and Board of
Directors members who will be responsible for the future growth and continued
development of the Company to own, and to increase their ownership of, the
Company's Shares thereby giving them, as owners, an increased personal interest
in, and a greater concern for, the Company's success and progress. The Plan is
also intended to aid the Company in competing with other enterprises for the
services of new executives and key employees needed to help insure continued
development.
2. NAME. The Plan shall be known as "NevTEL, Inc. Stock Option
Plan."
3. DEFINITION OF TERMS. In addition to words and terms that may
be defined elsewhere in the Plan, the following words and terms as used in the
Plan shall have the following meanings unless the context or use fairly
indicates another or different meaning or intent, which definitions shall be
equally applicable to both the singular and plural forms of such words and
terms.
A. "Board" shall mean the Board of Directors of the Company.
B. "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
C. "Committee" shall have the meaning set forth in Item 5
hereof.
D. "Common Stock" shall mean the common stock of the Company,
no par value per share.
E. "Disinterested Persons" shall mean disinterested persons
within the meaning of Rule 16b-3, as promulgated under the Securities and
Exchange Act of 1934, as amended.
F. "Employee" shall mean any employee of the Company,
including officers or directors of the Company who are employees of the
Company.
G. "Fair Market Value" shall mean the fair market value of a
share of Common Stock on a particular date determined as follows. In the event
the Company's Common Stock is listed upon an established stock exchange, Fair
Market Value shall be deemed to be the closing price of the Company's Common
Stock on such stock exchange on such date or, if no sale of the Company's
Common Stock shall have been made on any stock exchange on that day, the Fair
Market Value shall be determined as such price for the next preceding day upon
which a sale shall have occurred. In the event the Company's Common Stock is
not listed upon an established exchange but is quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), the
Fair Market Value shall be deemed to be the closing sale price (if included in
the national market list) or the mean between the closing dealer "bid" and
"asked" prices for the Company's Common Stock as quoted on NASDAQ for such
date, and if no closing sale price or "bid" and "asked" prices are quoted for
that day, the Fair Market Value shall be determined by reference
<PAGE> 2
to such prices on the next preceding day on which such prices are quoted. In
the event the Company's said Common Stock is neither listed on an established
stock exchange nor quoted on NASDAQ, the Fair Market Value on such date shall
be determined by the Committee.
H. "ISO" shall mean any Option under this Plan which is
intended to be an incentive stock option under Code Section 422.
I. "Non-Employees" shall mean any consultant of the Company
or director of the Company who is not an employee of the Company.
J. "NQSO" shall mean any Option granted under this Plan which
is not intended to qualify as an incentive stock option under Code Section 422.
K. "Option" shall mean a stock option, whether an ISO or
NQSO, granted under the Plan.
L. "Option Price" shall mean the purchase price of a Share of
Common Stock under an Option.
M. "Participant" shall mean an Employee or Non-Employee to
whom an Option is granted under the Plan.
N. "Parent" shall mean any corporation which at the time
qualifies as a parent of the Company under the definition of "parent
corporation" contained in Code Section 424(e).
O. "SEC" shall mean the Securities and Exchange Commission.
P. "Shares" shall represent the shares of Common Stock in the
Company that may be acquired by exercise of Options hereunder.
Q. "Subsidiary" shall mean any corporation which at the time
qualifies as a subsidiary of the Company under the definition of "subsidiary
corporation" contained in Code Section 424(f).
4. CHARACTERIZATION OF OPTIONS. Options granted in accordance
with the terms hereof within the limits prescribed by Item 9A(iv) hereof and
which are specified in the option agreement as intended to be incentive stock
options, are to be incentive stock options as provided in Code Section 422. All
other Options granted hereunder shall be nonqualified options as provided in
Code Section 83.
5. ADMINISTRATION. The Plan shall be administered by a Stock
Option Committee (the "Committee") consisting of not less than two members all
of whom shall be Disinterested Persons.
A. The Committee shall be appointed by the Board from its
membership. Until such time as the Committee is appointed, the entire Board
shall serve as the Committee. The members of the Committee shall serve at the
pleasure of the Board, which shall have the power, at any time and from time to
time, to remove members from the Committee or to add members thereto. Vacancies
on the Committee, however caused, shall be filled by the Board.
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<PAGE> 3
B. Except as provided in Item 7, members of the Committee
shall not include any person who is not, during the one (1) year preceding the
date on which such member is first appointed to the Committee and during the
time he serves on the Committee, granted or awarded equity securities or
options therefor under this Plan or any other plan of the Company or any of its
affiliates.
C. The Committee may interpret the Plan, prescribe, amend and
rescind any rules and regulations necessary or appropriate for the
administration of the Plan and make such other determinations and take such
other action as it deems necessary or desirable for the administration of the
Plan and the protection of the Company except as otherwise reserved to the
Board or the stockholders of the Company. Without limiting the generality of
the foregoing, the Committee, in its discretion, may treat all or any part of
any period during which a Participant is on military duty or on an approved
leave of absence from the Company as a period of employment of such Participant
by the Company for purposes of accrual of his rights under his Option. In
addition, the Committee shall have the specific authority to grant Options with
different terms to different Participants and shall further have the specific
authority to require a minimum holding period between the grant and exercise of
any Option, to determine that the Options granted to a Participant may be
exercised only in installments and to specify such conditions precedent to the
exercise of any Option as the Committee may deem advisable. The Committee may
at any time, with the consent of the Participant, at its sole discretion,
cancel any Option and issue to the Participant a new Option for any equivalent
or lesser number of Shares, and at a lesser Option Price. Any interpretation,
determination or other action made or taken by the Committee shall be final,
binding and conclusive.
D. No member of the Committee shall be liable for any action
taken or omitted or determination made in good faith with respect to the Plan
or any Option granted under the Plan.
6. SHARES SUBJECT TO PLAN. Options may be granted by the Company
from time to time to purchase an aggregate of 6,000 Shares subject to
adjustment as provided in Item 11 below. The Shares issued upon exercise of
Options granted under the Plan may be authorized and unissued Shares or Shares
repurchased by the Company. If any Option granted under the Plan shall
terminate, expire or, with the consent of the Participant, be canceled as to
any Shares, new Options may thereafter be granted covering any such Shares.
7. ELIGIBILITY. Options may be granted to those Employees and
Non-Employees of the Company selected by the Committee in its sole discretion
from time to time who have and exercise key management functions for the
Company or who discharge other responsibilities important to the success of the
Company. Notwithstanding anything to the contrary in this Plan, Options may be
granted to a director who is a member of the Committee if otherwise exempt from
Section 16(b) of the Securities Exchange Act of 1934 pursuant to Regulation
Section 240.16b-3, SEC interpretations thereof or any subsequently promulgated
rule or regulation. The granting of an Option to any Participant shall neither
entitle such Participant to, nor disqualify such Participant from,
participation in any future Option grants.
8. GRANT OF OPTIONS. The Committee shall have the authority,
subject to the terms of the Plan, to: (a) determine and designate from time to
time those key employees (including officers), consultants and directors to
whom Options are to be granted; (b) determine the number of Shares subject to
each Option; (c) determine the duration of the exercise period for any Option;
(d) determine that the Options granted to a Participant may be exercised only
in installments; and (e) specify such other terms and conditions of each Option
as the Committee in its sole discretion deems advisable. The date of grant of
an Option under the Plan will be the date on which the Option is awarded by the
Committee.
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<PAGE> 4
9. TERMS AND CONDITIONS OF OPTIONS. Each Option shall be
evidenced by an Option Agreement which shall contain such terms and conditions
consistent with the provisions of the Plan as may be approved by the Committee
and shall be signed by an officer of the Company and the Participant. Each
Option granted under the Plan shall be subject to such terms and conditions as
follows:
A. Terms of ISO's. ISO's granted hereunder shall be subject
to the terms and conditions contained in subparagraphs (i)-(viii) below and to
such other terms and conditions as the Committee may deem appropriate;
provided, however, that no Option that is intended to qualify as an ISO shall
be subject to any condition that is inconsistent with the provisions of Code
Section 422(b). In the event that any condition imposed hereunder on an Option
intended to qualify as an ISO is at any time determined by the Internal Revenue
Service or a court of competent jurisdiction to be inconsistent with Code
Section 422, then such Option shall be deemed to have been granted without such
condition and such Option shall continue in effect under such remaining terms
and conditions as may be applicable as if the invalid condition had not been
included.
(i) Option Period. Each ISO Option Agreement shall
specify the period during which the ISO thereunder is exercisable
(which shall not exceed ten years from the date of grant) and shall
provide that the ISO shall expire at the end of such period.
(ii) Option Price. The Option Price per share shall
be determined by the Committee at the time any ISO is granted and
shall not be less than one hundred percent (100%) of the Fair Market
Value of a share of Common Stock on the day that the ISO is granted.
Such price shall be subject to adjustment as provided in Item 11.
(iii) Ten Percent Stockholders. ISO's shall not be
granted to any Employee who, immediately before the ISO is granted,
owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of its
Parent or Subsidiary; provided, however, that this prohibition shall
not apply if at the time such ISO is granted the Option Price is at
least one hundred ten percent (110%) of the Fair Market Value of the
Common Stock and such ISO is not exercisable after the expiration of
five (5) years from the date such ISO is granted.
(iv) Limit on Incentive Stock Options. To the extent
the aggregate Fair Market Value of the shares (valued at the time of
grant in accordance with subparagraph (ii) above) with respect to
which ISO's (determined without regard to this subparagraph (iv)) are
exercisable for the first time by any individual during any calendar
year (under all incentive stock option plans of the Company and any
Parent and Subsidiary) exceeds $100,000, such ISO's in excess of
$100,000 shall be treated as Options which are NQSO's. This
subparagraph (iv) shall be applied by taking ISO's into account in the
order in which they were granted.
(v) Termination of Employment other than as a Result
of Death or Disability. An ISO of any Participant who shall cease to
be an Employee other than as a result of his death or disability (as
defined in (vi) below) shall be exercisable only to the extent
exercisable on the date of termination of employment and must be
exercised on or before the option expiration date specified in the
Option Agreement but in no event later than the date that is three (3)
months following the date of termination of employment. To the extent
any ISO is not exercisable on the date of termination of employment,
such ISO shall terminate on the date of termination of employment. To
the extent any ISO is not exercised within the time period
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<PAGE> 5
provided, such ISO shall terminate as of the date of expiration of
such time period. Nothing in the Plan shall be construed as imposing
any obligation on the Company to continue the employment of any
Participant or shall interfere or restrict in any way the rights of
the Company to discharge any Employee at any time for any reason
whatsoever, with or without cause.
(vi) Termination of Employment as a Result of Death
or Disability. In the event of the death or disability of the
Participant while in the employ of the Company, the personal
representative of the Participant (in the event of his death) or the
Participant (in the event of his disability) may, subject to the
provisions hereof and before the date (the "Option Termination Date")
specified in the ISO Option Agreement, which date is not later than
the earlier of the ISO's expiration date or the expiration of one (1)
year after the date of such death or disability, exercise the ISO
granted to such Participant to the same extent the Participant might
have exercised such ISO on the date of his death or disability, but,
unless otherwise provided in the ISO Option Agreement, not further or
otherwise. To the extent any ISO is not, and does not in accordance
with the terms of the Option Agreement become, exercisable as of the
date of the death or disability of a Participant, such ISO shall
terminate on the date of death or disability. To the extent any ISO is
not exercised within the time period provided, such ISO shall
terminate as of the date of expiration of such time period. For
purposes of this subparagraph (vi), a Participant shall be considered
to be subject to a disability when such Participant is disabled within
the meaning of Code Section 22(e)(3), and the date of any such
disability shall be deemed to be the day following the last day the
Participant performed services for the Company.
(vii) Period to Exercise Option. Any ISO granted
hereunder may, prior to its expiration or termination, be exercised
from time to time, in whole or in part, up to the total number of
shares with respect to which it shall have then become exercisable. An
ISO granted hereunder may become exercisable in installments as
determined by the Committee; provided, however, that if the Committee
grants an ISO or ISO's exercisable in more than one installment, and
if the employment of a Participant holding such ISO is terminated,
then unless the ISO Option Agreement provides otherwise, the ISO shall
be exercisable in accordance with the terms of subparagraph (v) or
(vi) only as to such number of shares as to which the Participant had
the right to exercise the ISO on the date of termination of
employment.
(viii) Non-Employees. No ISO may be granted to any
person who is a Non-Employee.
B. Terms of NQSO's. NQSO's granted hereunder shall be subject
to the terms and conditions contained in subparagraphs (i)-(iii) below and to
such other terms and conditions as the Committee may deem appropriate.
(i) Option Period. Each NQSO Option Agreement shall specify
the period during which the Option thereunder is exercisable (which shall not
exceed ten years from the date of grant) and shall provide that the NQSO shall
expire at the end of such period.
(ii) Option Price. The Option Price per Share shall be
determined by the Committee at the time any NQSO is granted. Such price shall
be subject to adjustment as provided in Item 11.
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<PAGE> 6
(iii) Period to Exercise Option. Any NQSO granted
hereunder may, prior to its expiration or termination, be exercised from time
to time, in whole or in part, up to the total number of Shares with respect to
which it shall have then become exercisable. An NQSO granted hereunder may
become exercisable in installments as determined by the Committee; provided,
however, that if the Committee grants an Option exercisable in more than one
installment, and if the employment of an Employee-Participant holding such
Option is terminated, then unless the Option Agreement provides otherwise, the
Option shall be exercisable only as to such number of Shares as to which the
Participant had the right to exercise the Option on the date of termination of
employment.
10. EXERCISE OF OPTION. The exercise of any Option under the Plan
shall be subject to the provisions of Paragraphs A, B and C below.
A. Method of Exercising Option. Any Option granted hereunder
or any portion thereof (in whole Shares only) may be exercised by the
Participant by (i) delivering to the Company at its main office (attention its
Secretary, Assistant Secretary or Chief Financial Officer) written notice which
shall set forth the Participant's election to exercise a portion or all of his
Option, the number of Shares with respect to which the Option rights are being
exercised, and such other representations and agreements as may be required by
the Company to comply with applicable securities laws and loan agreements to
which the Company is a party, and (ii) paying in full the Option Price of the
Shares purchased. Upon receipt of such notice and payment, the Company shall
issue and deliver to the Participant a certificate for the number of Shares
with respect to which Options were so exercised. In the Option Agreement, the
Committee may require the exercise of Options by any Participant to comply with
the requirements of the SEC.
B. Payment of Option Price. The Option Price of the Shares as
to which an Option is exercised shall be paid in full to the Company at the
time of exercise. The payment may be made either in cash or its equivalent or,
where permitted by law and approved by the Committee in its sole discretion:
(i) by delivery of a promissory note on terms and conditions acceptable to the
Committee; (ii) by cancellation of indebtedness of the Company to the
Participant; (iii) by surrender of shares of Common Stock of the Company having
a Fair Market Value equal to the exercise price of the Option; (iv) by
instructing the Company to withhold shares otherwise issuable pursuant to an
exercise of an Option having a Fair Market Value equal to the exercise price of
the Option (including withheld shares); (v) by waiver of compensation due or
accrued to the Participant for services rendered; or (vi) by any other means
approved by the Committee. Participants who are not Employees shall not be
entitled to purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares so purchased.
Notwithstanding anything to the contrary above, the
Committee, in its discretion, may suspend or terminate the right of
Participants to pay in a form other than cash should the Committee deem such
action to be in the best interests of the Company.
C. Withholding Taxes. The Company may, in its discretion,
require a Participant to pay to the Company at the time of exercise the amount
that the Company deems necessary to satisfy its obligation to withhold federal,
state or local income or other taxes incurred by reason of the exercise. Where
the exercise of an Option does not give rise to an obligation to withhold
federal income taxes on the date of exercise, the Company may, in its
discretion, require a Participant to place Shares purchased under the Option in
escrow for the benefit of the Company until such time as federal income tax
withholding is required on amounts included in the gross income of the
Participant as a result of the exercise of an Option or the disposition of
Shares acquired pursuant thereto. At such time, the Company, in its discretion,
may require the Participant to pay to the Company the amount that the Company
deems necessary to satisfy its
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<PAGE> 7
obligation to withhold federal, state or local income or other taxes incurred
by reason of the exercise of the Option or the disposition of Shares, in which
case the Shares will be released from escrow to the Participant.
D. No Fractional Shares. Notwithstanding anything herein to
the contrary, no fractional Shares may be issued under the Plan.
11. CAPITAL ADJUSTMENTS. The number and price of Shares covered
by each Option, the number of Shares that become exercisable at any one time
and the total number of Shares that may be optioned and sold under the Plan
shall be proportionately adjusted to reflect any Share dividend, Share split or
Share combination or any recapitalization of the Company. In the event of any
merger, consolidation, reorganization, liquidation or dissolution of the
Company or any exchange of Shares, any Option granted under the Plan shall
automatically be deemed to pertain to the securities and other property which a
holder of the number of Shares covered by the Option would have been entitled
to receive in connection with any such event. No Option granted pursuant to
this Plan which was intended to be an incentive stock option at the time of
grant shall be adjusted in a manner that causes the Option to fail to qualify
as an incentive stock option within the meaning of Code Section 422. Except as
expressly provided in this Item 11, the Participant shall have no rights by
reason of any change in the Shares of the Company. The grant of an Option
pursuant to this Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure or to merge, consolidate, dissolve,
liquidate, sell or transfer all or any part of its business or assets. The
Committee shall have the sole discretion to make all interpretations and
terminations required under this Item to the extent it deems equitable and
appropriate.
12. RESERVATION OF SHARES. The Company, during the term of any
Options granted hereunder, will at all times reserve and keep available, and
will seek to obtain from any regulatory body having jurisdiction any requisite
authority in order to issue and sell such number of Shares as shall be
sufficient to satisfy the requirements of the Options granted under the Plan.
If, in the opinion of the Company's counsel, the issuance or sale of any Shares
hereunder shall not be lawful for any reason, including the inability of the
Company to obtain from any regulatory body having jurisdiction authority deemed
by such counsel to be necessary for such issuance or sale, the Company shall
not be obligated to issue or sell any such Shares.
13. SECURITIES LAWS. Upon the exercise of an Option at a time
when there is not in effect under the Securities Act of 1933, as amended (the
"Act"), a current registration statement relating to the Shares to be received
upon such exercise, the Participant shall represent and warrant in writing to
the Company that the Shares purchased are being acquired for investment and not
with a view to the distribution thereof and shall agree to the imposition of a
legend on the certificate or certificates representing said Shares in
substantially the following form and such other restrictive legends as are
required or advisable under the provisions of any applicable laws:
This share certificate and the Shares represented hereby have not been
registered under the Securities Act of 1933, as amended (the "Act"),
nor under the securities laws of any state and shall not be
transferred at any time in the absence of (i) an effective
registration statement under the Act and any other applicable state
law with respect to such Shares at such time; or (ii) an opinion of
counsel satisfactory to the Company and its counsel to the effect that
such transfer at such time will not violate the Act or any applicable
state securities laws; or (iii) a "no action" letter from the
Securities and Exchange Commission
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<PAGE> 8
and a comparable ruling from any applicable state agency with respect
to such state's securities laws.
No Shares shall be issued or sold upon the exercise of any Option
unless and until (i) the full amount of the purchase price has been paid as
provided in Item 10 hereof and (ii) the then applicable requirements of the
Act, the applicable securities laws of any other jurisdiction, as any of the
same may be amended, the rules and regulations of the SEC and any other
regulations of any securities exchange on which the Shares may be listed shall
have been fully complied with and satisfied.
14. TRANSFERABILITY OF OPTIONS. No Option shall be assignable or
transferable by a Participant except by will or by the laws of descent and
distribution. Any distributee by will or by the laws of descent and
distribution shall be bound by the provisions of the Plan. During the life of a
Participant, the Option shall be exercisable only by such Participant. Any
attempt to assign, pledge, transfer, hypothecate or otherwise dispose of an
Option and any levy of execution, attachment or similar process on an Option
shall be null and void.
15. NO RIGHTS AS STOCKHOLDERS. A Participant shall not have any
rights as a stockholder with respect to any Shares covered by any Option
granted hereunder until the issuance of a certificate for such Shares. No
adjustment shall be made on the issuance of a share certificate to a
Participant as to any distributions or other rights for which the record date
occurred prior to the date of issuance of such certificate.
16. INDEMNIFICATION AND EXCULPATION. Each person who is or shall
have been a member of the Management Committee or of the Committee shall be
indemnified and held harmless by the Company against and from any and all loss,
costs, liability or expense that may be imposed upon or reasonably incurred by
him in connection with or resulting from any claim, action, suit or proceeding
to which he may be or become involved by reason of any action taken or failure
to act under the Plan and against and from any and all amounts paid by him in
settlement thereof (with the Company's written approval) or paid by him in
satisfaction of a judgment in any such action, suit or proceeding, except a
judgment in favor of the Company based upon a finding of his lack of good
faith; subject, however, to the condition that upon the institution of any
claim, action, suit or proceeding against him, he shall in writing give the
Company an opportunity, at its expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other right to which such person
may be entitled as a matter of law or otherwise, or any power that the Company
may have to indemnify him or hold him harmless. Each member of the Board or of
the Committee and each officer and employee of the Company shall be fully
justified in relying or acting in good faith upon any information furnished in
connection with the administration of the Plan by any appropriate person or
persons other than himself. In no event shall any person who is or shall have
been a member of the Board or of the Committee, or an officer or employee of
the Company, be held liable for any determination made, or other action taken,
or any omission to act in reliance upon any such information as referred to in
the preceding sentence, or for any action (including the furnishing of
information) taken, or any omission to act, when any such determination, action
or omission is made in good faith.
17. USE OF PROCEEDS. Proceeds from the sale of Shares pursuant to
Options granted under the Plan shall constitute general funds of the Company.
18. AMENDMENT AND DISCONTINUANCE. The Board of the Company may
terminate or amend the Plan in any respect at any time, except that no action
of the Board may alter or impair a Participant's
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<PAGE> 9
rights under any outstanding Option without his consent and, without the prior
approval of a majority interest of the stockholders: (i) the total number of
Shares that may be optioned and sold under the Plan may not be increased
(except by adjustment pursuant to Item 11); (ii) the expiration date of the
Plan may not be extended; (iii) the class or persons eligible to participate in
the Plan may not be changed; (iv) the benefits accruing to the Participants
under the Plan may not be materially increased, and (v) the requirements for
eligibility to participate in the Plan may not be materially modified.
19. TERM OF PLAN. The Plan shall be effective as of the date of
the adoption of the Plan by the Board and stockholders of the Company and shall
expire on June ___, 2006, unless sooner terminated as provided in Item 18
hereof.
20. GENERAL. Except as the same may be governed by the Code and
any applicable federal securities laws, the Plan and any Options granted
hereunder shall be governed by and construed in accordance with the laws of the
State of Nevada. The granting of an Option shall impose no obligation upon the
Participant to exercise such Option. As herein used, the singular number shall
include the plural, the plural the singular, and the use of any gender shall be
applicable to all genders, unless the context or use shall fairly require a
different construction. Section or paragraph headings are employed herein
solely for convenience of reference, and such headings shall not affect the
validity, meaning or enforceability of any provision of the Plan. All
references herein to "Item" or "paragraph" shall mean the appropriately
numbered Item or paragraph of the Plan except where reference is made to the
Code or any other specified law or instrument.
AS APPROVED BY THE BOARD OF DIRECTORS OF THE COMPANY ON JUNE _____, 1996.
-9-
<PAGE> 1
EXHIBIT 10.6
MGC COMMUNICATIONS, INC.
160,000 Units Consisting of
$160,000,000 of
13% Senior Secured Notes due 2004
and
Warrants to Purchase 1,291,200 Shares of Common Stock
PURCHASE AGREEMENT
September 24, 1997
BEAR, STEARNS & CO. INC.
FURMAN SELZ LLC
<PAGE> 2
MGC COMMUNICATIONS, INC.
160,000 Units Consisting of
$160,000,000 of
13% Senior Secured Notes due 2004
and
Warrants to Purchase 1,291,200 Shares of Common Stock
PURCHASE AGREEMENT
September 24, 1997
New York, New York
BEAR, STEARNS & CO. INC.
FURMAN SELZ LLC
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Ladies & Gentlemen:
MGC Communications, Inc., a Nevada corporation (the "Company"),
proposes to issue and sell to Bear, Stearns & Co. Inc. and Furman Selz LLC
(together, the "Initial Purchasers") 160,000 units (the "Units") consisting of
$160,000,000 aggregate principal amount of 13% Senior Secured Notes due 2004
(the "Senior Notes") and Warrants (the "Warrants") to purchase an aggregate of
1,291,200 shares of common stock, $.001 par value (the "Common Stock"), of the
Company (the "Warrant Shares"), subject to the terms and conditions set forth
herein. Each Unit will consist of $1,000 principal amount of the Senior Notes
and one Warrant to purchase 8.07 shares of Common Stock. The Senior Notes will
be issued pursuant to an indenture (the "Indenture"), to be dated the Closing
Date (as defined below), between the Company and Marine Midland Bank, as trustee
(the "Trustee"). The Warrants will be issued pursuant to a warrant agreement
(the "Warrant Agreement") to be dated the Closing Date, between the Company and
Marine Midland Bank, as warrant agent (the "Warrant Agent"). The Senior Notes
and the Warrants will not trade separately until the earlier of (i) 90 days from
the date of issuance, (ii) such date as the Initial Purchasers may, in their
discretion, deem appropriate, (iii) in the event a Change in Control (as defined
in the Indenture) occurs, the date the Company mails notice thereof to holders
of Senior Notes and Warrants and (iv) the date on which the Exchange Offer (as
defined below) is consummated (such date, the "Separation Date"). The Units, the
Senior Notes and the Warrants are more fully described in the Offering
memorandum referred to below.
1. Issuance of Securities. The Company proposes to, upon
the terms and subject to the conditions set forth herein, issue and sell to the
Initial Purchasers the Units. The Senior Notes forming a part of the Units and
the Exchange Notes (as defined below) issuable in exchange therefore are
hereinafter referred to as the Notes. The Units, the Notes and the Warrants
<PAGE> 3
are collectively referred to herein as the "Securities". Capitalized terms used
but not otherwise defined herein shall have the meanings given to such terms in
the Indenture.
The proceeds to the Company from the sale to the Initial
Purchasers of the Units will be used to fund the Interest Reserve Account,
capital expenditures in connection with the Company's expansion and for working
capital.
Upon original issuance thereof, and until such time as the same is no
longer required under the applicable requirements of the Securities Act of 1933
(as amended, the "Act"), the Units, the Notes, the Warrants and the Warrant
Shares (and all securities issued in exchange therefor or in substitution
thereof) shall bear the following legend:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY
WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE
SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE
SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION
5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE
HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT
OF THE ISSUER THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A PERSON THAT
IS NOT A U.S. PERSON (AS DEFINED IN RULE 902 UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 904 UNDER THE SECURITIES ACT, (d) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2) (3)
OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AN "IAI")
THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE AND
WARRANT AGENT A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE UNITS, NOTES
AND WARRANTS (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM
THE TRUSTEE OR WARRANT AGENT) OR (e) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (IN THE CASE OF (b), (c), (d) OR (e), BASED
UPON AN OPINION OF COUNSEL IF THE ISSUER OR TRUSTEE, REGISTRAR
OR TRANSFER AGENT FOR THE SECURITIES SO REQUESTS), (2) TO THE
ISSUER OR (3) PURSUANT TO AN EFFECTIVE
2
<PAGE> 4
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER
WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE
RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
2. Offering. The Units will be offered and sold to the
Initial Purchasers pursuant to an exemption from the registration requirements
under the Securities Act of 1933, as amended (the "Act"). The Company has
prepared a preliminary offering memorandum, dated September 4, 1997 (the
"Preliminary Offering Memorandum"), and a final offering memorandum, dated
September 24, 1997 (the "Offering Memorandum"), relating to the Company and the
Units.
The Initial Purchasers have advised the Company that the
Initial Purchasers will make offers (the "Exempt Resales") of the Units on the
terms set forth in the Offering Memorandum, as amended or supplemented, solely
to persons whom any of the Initial Purchasers reasonably believe to be
"qualified institutional buyers," as defined in Rule 144A under the Act
("QIBs"), and to non-U.S. persons outside the United States within the meaning
of Regulation S under the Act ("Regulation S Investors"). Such QIBs and
Regulation S Investors shall be referred to herein as the "Eligible Purchasers."
The Initial Purchasers will offer the Units to such QIBs and Regulation S
Investors initially at a purchase price equal to 100% of the amount thereof.
Such price may be changed at any time without notice.
Pursuant to the terms of a security agreement to be dated the
Closing Date (the "Security Agreement"), the Notes will be secured by a lien on
certain Telecommunications Equipment (as defined in the Indenture) owned or to
be owned by the Company. Pursuant to the terms of a collateral pledge agreement
to be dated the Closing Date (the "Collateral Pledge Agreement"), the Company
will deposit a portion of the proceeds from the sale of the Units to the Initial
Purchasers sufficient to provide for payment in full of the first six interest
payments on the Notes in a segregated account (the "Interest Reserve Account")
that will be used to purchase a portfolio of United States government securities
which will be pledged to secure payment of the principal of and interest on the
Notes.
Holders (including subsequent transferees) of the Notes will
have the registration rights set forth in the registration rights agreement
relating thereto (the "Registration Rights Agreement"), and holders (including
subsequent transferees) of the Warrants and Warrant Shares will have the
registration rights set forth in the registration rights agreement relating
thereto (the "Warrant Registration Rights Agreement"), to be dated the Closing
Date for so long as such Notes, Warrants or any Warrant Shares constitute
"Transfer Restricted Securities" (as defined in such agreements). Pursuant to
the Registration Rights Agreement, the Company will agree to file with the
Securities and Exchange Commission (the "Commission"), under the circumstances
set forth therein, (i) a registration statement under the Act (the "Exchange
Offer Registration Statement") with respect to an offer to exchange (the
"Exchange Offer") the Notes for 13% Series B Senior Secured Notes due 2004 (the
"Exchange Notes") to be offered in exchange for the Notes and (ii) a shelf
registration statement pursuant to Rule 415 under the Act (the "Shelf
Registration Statement") relating to the resale by certain holders of the Notes,
and to use its best efforts to cause such
3
<PAGE> 5
Registration Statements to be declared effective and consummate the Exchange
Offer. This Agreement, the Securities, the Warrant Shares, the Indenture, the
Security Agreement, the Collateral Pledge Agreement, the Warrant Agreement, the
Registration Rights Agreement and the Warrant Registration Rights Agreement are
hereinafter sometimes referred to collectively as the "Operative Documents."
3. Purchase, Sale and Delivery. (a) On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to its terms and conditions, the Company agrees to issue and sell to
each Initial Purchaser, and each Initial Purchaser agrees severally and not
jointly to purchase from the Company, that amount of Units set forth opposite
its name on Schedule I hereto. The purchase price for the Units shall be $1,000
per Unit.
(b) Delivery of, and payment of the purchase price for, the Units shall
be made, against payment of the purchase price, at the offices of Kronish, Lieb,
Weiner & Hellman LLP, 1114 Avenue of the Americas, New York, New York 10036, or
such other location as may be mutually acceptable. Such delivery and payment
shall be made at 9:00 A.M. New York time, on September 29, 1997 or at such other
time as shall be agreed upon by the Initial Purchasers and the Company. The time
and date of such delivery and payment are herein called the "Closing Date."
(c) Units sold to Regulation S Investors will initially be represented
by one or more permanent Units in global definitive, fully registered form
without interest coupons (each a "Regulation S Global Unit") registered in the
name of Cede & Co., as nominee of the Depository Trust Company ("DTC"), for the
accounts of the Euroclear System ("Euroclear") and Cedel Bank, societe anonyme
("Cedel"), having an aggregate amount corresponding to the aggregate amount of
the Units sold to Regulation S Investors. Units sold to QIBs will be represented
by one or more permanent global Units in definitive, fully registered form
without interest coupons (each a "Restricted Global Unit", and together with the
Regulation S Global Unit, the "Global Units") 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 QIBs. Each Global Unit will be comprised
of one or more global certificates for the Notes (the "Global Notes") and one or
more global certificates for the Warrants (the "Global Warrants" and, together
with the Global Notes and Global Units, the "Global Securities"). The Global
Securities shall be delivered by the Company to the Initial Purchasers (or as
the Initial Purchasers direct), against payment by the Initial Purchasers of the
purchase price therefor, by wire transfer of immediately available funds to an
account specified by the Company or as the Company may direct in writing,
provided that the Company shall give at least two business days' prior written
notice to the Initial Purchasers of the information required to effect such wire
transfers. The Global Units, Global Notes and Global Warrants shall be made
available to the Initial Purchasers for inspection not later than 9:30 a.m., New
York City time, on the business day immediately preceding the Closing Date.
4. Agreements of the Company. The Company covenants and agrees
with each of the Initial Purchasers as follows:
(a) To advise the Initial Purchasers promptly and, if
requested by the Initial Purchasers, confirm such advice in writing,
(i) of the issuance by any state securities commission of any stop
order suspending the qualification or exemption from qualification of
any Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purpose by any state securities
commission or other regulatory authority and (ii) of the happening of
any event that, in the reasonable opinion of counsel to the Company,
makes any statement of a material fact made in the Preliminary Offering
Memorandum or the Offering Memorandum untrue or that requires the
making of any additions to or changes
4
<PAGE> 6
in the Preliminary Offering Memorandum or the Offering Memorandum in
order to make the statements therein, in the light of the circumstances
under which they are made, not misleading. The Company shall use its
best efforts to prevent the issuance of any stop order or order
suspending the qualification or exemption of any Securities under any
state securities or Blue Sky laws and, if at any time any state
securities commission or other regulatory authority shall issue an
order suspending the qualification or exemption of any Securities under
any state securities or Blue Sky laws, the Company shall use its best
efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish the Initial Purchasers and those persons
identified by the Initial Purchasers to the Company, without charge, as
many copies of the Preliminary Offering Memorandum and the Offering
Memorandum, and any amendments or supplements thereto, as the Initial
Purchasers may reasonably request. The Company consents to the use of
the Preliminary Offering Memorandum and the Offering Memorandum, and
any amendments and supplements thereto required pursuant hereto, by the
Initial Purchasers in connection with Exempt Resales.
(c) Not to amend or supplement the Preliminary Offering
Memorandum or the Offering Memorandum prior to the Closing Date unless
the Initial Purchasers shall previously have been advised thereof and
shall not have objected thereto within a reasonable time after being
furnished a copy thereof. The Company shall promptly prepare, upon the
Initial Purchasers' request, any amendment or supplement to the
Preliminary Offering Memorandum or the Offering Memorandum that may be
necessary or advisable in connection with Exempt Resales.
(d) If, after the date hereof and prior to consummation
of any Exempt Resale, any event shall occur as a result of which, in
the judgment of the Company or in the reasonable opinion of either
counsel to the Company or counsel to the Initial Purchasers, it becomes
necessary or advisable to amend or supplement the Preliminary Offering
Memorandum or Offering Memorandum in order to make the statements
therein, in the light of the circumstances when such Offering
Memorandum is delivered to an Eligible Purchaser which is a prospective
purchaser, not misleading, or if it is necessary or advisable to amend
or supplement the Preliminary Offering Memorandum or Offering
Memorandum to comply with applicable law, (i) notify the Initial
Purchasers and (ii) forthwith to prepare an appropriate amendment or
supplement to such Offering Memorandum so that the statements therein
as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that such
Offering Memorandum will comply with applicable law.
(e) To cooperate with the Initial Purchasers and counsel
to the Initial Purchasers in connection with the qualification or
registration of the Units under the securities or Blue Sky laws of such
jurisdictions as the Initial Purchasers may reasonably request and to
continue such qualification in effect so long as required for the
Exempt Resales; provided, however that the Company shall not be
required in connection therewith to register or qualify as a foreign
corporation where it is not now so qualified or to take any action that
would subject it to service of process in suits or taxation, in each
case, other than as to matters and transactions relating to the
Preliminary Offering Memorandum, the
5
<PAGE> 7
Offering Memorandum or Exempt Resales, in any jurisdiction where it is
not now so subject.
(f) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement becomes effective or is
terminated, to pay all costs, expenses, fees and taxes incident to the
performance of the obligations of the Company hereunder, including in
connection with: (i) the preparation, printing, filing and distribution
of the Preliminary Offering Memorandum and the Offering Memorandum
(including, without limitation, financial statements) and all
amendments and supplements thereto required pursuant hereto, (ii) the
preparation (including, without limitation, duplication costs) and
delivery of all preliminary and final Blue Sky memoranda prepared and
delivered in connection herewith and with the Exempt Resales, (iii) the
issuance, transfer and delivery by the Company of the Securities to the
Initial Purchasers, (iv) the qualification or registration of the
Securities for offer and sale under the securities or Blue Sky laws of
the several states (including, without limitation, the cost of printing
and mailing a preliminary and final Blue Sky Memorandum and the
reasonable fees and disbursements of counsel to the Initial Purchasers
relating thereto), (v) furnishing such copies of the Preliminary
Offering Memorandum and the Offering Memorandum, and all amendments and
supplements thereto, as may be requested for use in connection with
Exempt Resales, (vi) the preparation of certificates for the Securities
(including, without limitation, printing and engraving thereof), (vii)
the fees, disbursements and expenses of the Company's counsel and
accountants, (viii) all expenses and listing fees in connection with
the application for quotation of the Securities in the National
Association of Securities Dealers, Inc. ("NASD") Automated Quotation
System - PORTAL ("PORTAL"), (ix) all fees and expenses (including fees
and expenses of counsel to the Company) of the Company in connection
with the approval of the Securities by DTC for "book-entry" transfer,
(x) rating the Securities by rating agencies, (xi) the reasonable fees
and expenses of the Trustee and its counsel in connection with the
Indenture and the Notes, (xii) the reasonable fees and expenses of the
Warrant Agent and its counsel in connection with the Warrant Agreement
and the Warrants, (xiii) the performance by the Company of its other
obligations under this Agreement and the other Operative Documents and
(ix) "roadshow" travel and other expenses incurred in connection with
the marketing and sale of the Units, the Notes and the Warrants (other
than out-of-pocket expenses incurred by the Initial Purchasers for
travel, meals and lodgings), provided, however, that the expenses
incurred pursuant to clauses (ii) and (iv) above shall not exceed
$5,000 without the consent of the Company.
(g) To use the proceeds from the sale of the Units in the
manner described in the Offering Memorandum under the caption "Use of
Proceeds."
(h) Not to voluntarily claim, and to resist actively any
attempts to claim, the benefit of any usury laws against the holders of
any Securities.
(i) To do and perform all things required to be done and
performed under this Agreement by it prior to or after the Closing Date
and to satisfy all conditions precedent on its part to the delivery of
the Units.
(j) Not to sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in the
Act) that would be integrated with the sale of the Units in a manner
that would require the registration under the Act of the sale to the
Initial Purchasers, the QIBs or the Regulation S Investors of the
Units, the Notes or the Warrants
6
<PAGE> 8
or to take any other action that would result in the Exempt Resales not
being exempt from registration under the Act.
(k) For so long as any of the Securities remain
outstanding and during any period in which the Company is not subject
to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), to make available to any beneficial owner
of Units, Notes or Warrants in connection with any sale thereof and any
prospective purchaser of such Units, Notes or Warrants from such
beneficial owner, the information required by Rule 144A(d)(4) under the
Act.
(l) To cause the Exchange Offer to be made in the
appropriate form to permit registered Exchange Notes to be offered in
exchange for the Notes and to comply with all applicable federal and
state securities laws in connection with the Exchange Offer.
(m) To comply with all of its agreements set forth in the
Registration Rights Agreement and the Warrant Registration Rights
Agreement and all agreements set forth in the representation letters of
the Company to DTC relating to the approval of the Securities by DTC
for "book-entry" transfer.
(n) To use its best efforts to effect the inclusion of
the Securities in PORTAL and to obtain approval of the Securities by
DTC for "book-entry" transfer.
(o) During a period of five years following the Closing
Date, to deliver without charge to each of the Initial Purchasers,
promptly upon their becoming available, copies of (i) all reports or
other publicly available information that the Company shall mail or
otherwise make available to its stockholders and (ii) all reports,
financial statements and proxy or information statements filed by the
Company with the Commission or any national securities exchange and
such other publicly available information concerning the Company,
including without limitation, press releases.
(p) Prior to the Closing Date, to furnish to each of the
Initial Purchasers, as soon as they have been prepared in the ordinary
course by the Company, copies of any consolidated financial statements
or any unaudited interim financial statements of the Company for any
period subsequent to the periods covered by the financial statements
appearing in the Offering Memorandum.
(q) The Company will not take, directly or indirectly,
any action designed to, or that might reasonably be expected to, cause
or result in stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Securities.
Except as permitted by the Act, the Company will not distribute any
Preliminary Offering Memorandum, Offering Memorandum or other offering
material in connection with the offering and sale of the Securities.
(r) To comply with the agreements in the Indenture, the
Security Agreement, the Collateral Pledge Agreement, the Warrant
Agreement, the Registration Rights Agreement, the Warrant Registration
Rights Agreement and any other Operative Document; and
7
<PAGE> 9
(s) To reserve and continue to reserve as long as any
Warrants remain outstanding, a sufficient number of shares of Common
Stock for issuance upon exercise of the Warrants.
5. Representations and Warranties. (a) The Company represents and
warrants to each of the Initial Purchasers that:
(i) The Preliminary Offering Memorandum and the Offering
Memorandum have been prepared in connection with the Exempt Resales.
The Preliminary Offering Memorandum and the Offering Memorandum do not,
and any supplement or amendment to them will not, contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
the representations and warranties contained in this paragraph shall
not apply to statements in or omissions from the Preliminary Offering
Memorandum and the Offering Memorandum (or any supplement or amendment
thereto) made in reliance upon and in conformity with information
relating to the Initial Purchasers furnished to the Company in writing
by the Initial Purchasers expressly for use therein. Any projections
and other information contained in the Preliminary Offering memorandum
and the Offering Memorandum or provided to the Initial Purchasers or
any Eligible Purchaser have been prepared in good faith and are based
upon assumptions which, in light of the circumstances under which they
were made, are reasonable. No stop order preventing the use of the
Preliminary Offering Memorandum or the Offering Memorandum, or any
amendment or supplement thereto, or any order asserting that any of the
transactions contemplated by this Agreement are subject to the
registration requirements of the Act, has been issued.
(ii) When the Units, the Notes and the Warrants are issued
and delivered pursuant to this Agreement, no Unit, Note or Warrant will
be of the same class (within the meaning of Rule 144A under the Act) as
securities of the Company that are listed on a national securities
exchange registered under Section 6 of the Exchange Act or that are
quoted in a United States automated inter-dealer quotation system.
(iii) The Company (A) has been duly organized, is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, (B) has all requisite corporate power
and authority to carry on its business as it is currently being
conducted and as described in the Offering Memorandum and to own, lease
and operate its properties, and (C) is duly qualified and in good
standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification. The Company does not
own, directly or indirectly, any capital stock of or any equity
interest in, any other person.
(iv) All of the outstanding shares of capital stock of the
Company have been duly authorized, validly issued, and are fully paid
and nonassessable and were not issued in violation of any preemptive or
similar rights. At June 30, 1997, after giving effect to the issuance
and sale of the Units pursuant hereto and to the offering of
Convertible Preferred Stock (the "Preferred Stock Offering") or the
closing of binding commitments from investors to purchase Common Stock
of the Company for $15 million if the Preferred Stock Offering has not
been consummated within 60 days of the Closing Date, the Company had an
authorized and outstanding consolidated capitalization as set forth in
the Offering Memorandum under the caption "Capitalization."
8
<PAGE> 10
(v) All of the outstanding shares of the Common Stock
were issued in reliance on the exemption from registration pursuant to
Section 4(2) of the Act and in compliance with the requirements thereof
and any other statute, judgment, decree, order, rule or regulation of
any court, regulatory body or administrative agency or other
governmental body, domestic or foreign, having jurisdiction over the
Company or the issuance of the Common Stock.
(vi) The dissolution of MGC Communications, LLC, a Georgia
limited liability company, formerly known as NevTEL, LLC (the "LLC"),
and the distribution of the shares of Common Stock of the Company held
by the LLC (the "Reorganization") was consummated in compliance with
all applicable statutes, judgments, decrees, orders, rules and
regulations of any court, regulatory body or administrative agency or
other governmental body, domestic or foreign, having jurisdiction over
the LLC, Company or the Reorganization. No person was or is entitled to
receive any shares of capital stock of the Company or other
consideration, other than shares of capital stock or other
consideration which have been distributed, as a result of the
Reorganization.
(vii) Except as disclosed in the Offering Memorandum, there
are not currently, and will not be as a result of the Offering, any
outstanding subscriptions, rights, warrants, calls, commitments of sale
or options to acquire, or instruments convertible into or exchangeable
for, any capital stock or other equity interest of the Company.
(viii) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement, the Indenture, the Security Agreement, the Collateral Pledge
Agreement, the Warrant Agreement, the Registration Rights Agreement,
the Warrant Registration Rights Agreement and the other Operative
Documents and to consummate the transactions contemplated hereby and
thereby, including, without limitation, the corporate power and
authority to issue, sell and deliver the Securities as provided herein
and therein and the power to effect the Use of Proceeds as described in
the Offering Memorandum.
(ix) This Agreement has been duly and validly authorized,
executed and delivered by the Company and is the legal, valid and
binding agreement of the Company, enforceable against it in accordance
with its terms, except insofar as indemnification and contribution
provisions may be limited by applicable law or equitable principles and
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity.
(x) The Indenture has been duly and validly authorized by
the Company and, when duly executed and delivered by the Company, will
be the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization or
similar laws affecting the rights of creditors generally and subject to
general principles of equity. The Offering Memorandum contains a fair
summary of the terms of the Indenture.
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<PAGE> 11
(xi) The Security Agreement has been duly and validly
authorized by the Company and, when duly executed and delivered by the
Company, will be the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity. The Offering
Memorandum contains a fair summary of the terms of the Security
Agreement required to be described in the Offering Memorandum.
(xii) The Collateral Pledge Agreement has been duly and
validly authorized by the Company and, when duly executed and delivered
by the Company, will be the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity. The Offering
Memorandum contains a fair summary of the terms of the Collateral
Pledge Agreement required to be described in the Offering Memorandum.
(xiii) The Units have been duly and validly authorized by
the Company for issuance and sale to the Initial Purchasers pursuant to
the terms of this Agreement. The Offering Memorandum contains a fair
summary of the Units.
(xiv) The Notes have been duly and validly authorized by
the Company, and have been duly and validly authorized for issuance and
sale to the Initial Purchasers by the Company pursuant to this
Agreement and, when issued and authenticated in accordance with the
terms of the Indenture and delivered against payment therefor in
accordance with the terms hereof and thereof, will be the legal, valid
and binding obligations of the Company, enforceable against the Company
in accordance with their terms and entitled to the benefits of the
Indenture, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity. The
Offering Memorandum contains a fair summary of the terms of the Notes.
(xv) The Exchange Notes have been duly and validly
authorized for issuance by the Company and, when issued and
authenticated in accordance with the terms of the Exchange Offer and
the Indenture, will be the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms
and entitled to the benefits of the Indenture, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization or
similar laws affecting the rights of creditors generally and subject to
general principles of equity. The Offering Memorandum contains a fair
summary of the terms of the Exchange Notes.
(xvi) The Registration Rights Agreement has been duly and
validly authorized by the Company and, when duly executed and delivered
by the Company, will be the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity. The Offering
Memorandum contains a fair summary of the terms of the Registration
Rights Agreement.
(xvii) The Warrant Agreement has been duly and validly
authorized by the Company, and, when duly executed and delivered by the
Company, will be the legal, valid
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<PAGE> 12
and binding obligation of the Company, enforceable against the Company
in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization or similar laws
affecting the rights of creditors generally and subject to general
principles of equity. The Offering Memorandum contains a fair summary
of the terms of the Warrant Agreement.
(xviii) The Warrants have been duly and validly authorized
for issuance and sale to the Initial Purchasers by the Company pursuant
to this Agreement and, when issued and countersigned in accordance with
the terms of the Warrant Agreement and delivered against payment
therefor in accordance with the terms hereof and thereof, will be the
legal, valid and binding obligation of the Company, enforceable against
the Company in accordance with their terms and entitled to the benefits
of the Warrant Agreement, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization or similar laws affecting the
rights of creditors generally and subject to general principles of
equity. The Offering Memorandum contains a fair summary of the terms of
the Warrants.
(xix) The Warrants are exercisable for Warrant Shares in
accordance with the terms of the Warrant Agreement. The Warrant Shares
have been duly authorized for issuance by the Company and, when issued
and paid for upon exercise of the Warrants in accordance with the terms
thereof, will be validly issued, fully paid and nonassessable, free of
any preemptive or similar rights. The Company has reserved sufficient
shares of Common Stock for issuance upon the exercise of the Warrants.
(xx) The Warrant Registration Rights Agreement has been
duly and validly authorized by the Company and, when duly executed and
delivered by the Company, will be the legal, valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization or similar laws
affecting the rights of creditors generally and subject to general
principles of equity. The Offering Memorandum contains a fair summary
of the terms of the Warrant Registration Rights Agreement.
(xxi) The Company is not, and, after giving effect to the
Offering, will not be (A) in violation of its charter or bylaws, (B) in
default in the performance of any bond, debenture, note, indenture,
mortgage, deed of trust or other agreement or instrument to which it is
a party or by which it is bound or to which any of its properties is
subject, or (C) in violation of any local, state or Federal law,
statute, ordinance, rule, regulation, requirement, judgment or court
decree (including, without limitation, the Communications Act and the
rules and regulations of the FCC and environmental laws, statutes,
ordinances, rules, regulations, judgments or court decrees) applicable
to the Company or any of its assets or properties (whether owned or
leased) other than, in the case of clauses (B) and (C), any default or
violation that could not reasonably be expected to (x) individually or
in the aggregate, result in a material adverse effect on the
properties, business, results of operations, condition (financial or
otherwise), affairs or prospects of the Company, taken as a whole, (y)
interfere with or adversely affect the issuance or marketability of the
Units pursuant hereto or (z) in any manner draw into question the
validity of this Agreement or any other Operative Document or the
transactions described in the Offering Memorandum under the caption
"Use of Proceeds" (any of the events set forth in clauses (x), (y) or
(z), a
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<PAGE> 13
"Material Adverse Effect") or (2) which is disclosed in the Offering
Memorandum. There exists no condition that, with notice, the passage of
time or otherwise, would constitute a default under any such document
or instrument, except as disclosed in the Offering Memorandum.
(xxii) None of (A) the execution, delivery or performance by
the Company of this Agreement and the other Operative Documents, (B)
the issuance and sale of the Securities and (C) consummation by the
Company of the transactions described in the Offering Memorandum under
the caption "Use of Proceeds" violate, conflict with or constitute a
breach of any of the terms or provisions of, or a default under (or an
event that with notice or the lapse of time, or both, would constitute
a default), or require consent under, or result in the imposition of a
lien or encumbrance on any properties of the Company, or an
acceleration of any indebtedness of the Company pursuant to, (i) the
charter or bylaws of the Company, (ii) any bond, debenture, note,
indenture, mortgage, deed of trust or other agreement or instrument to
which the Company is a party or by which the Company or its property is
or may be bound, (iii) any statute, rule or regulation applicable to
the Company or any of its assets or properties or (iv) any judgment,
order or decree of any court or governmental agency or authority having
jurisdiction over the Company or any of its assets or properties,
except in the case of clauses (ii), (iii) and (iv) for such violations
conflicts, breaches, defaults, consents, impositions of liens or
accelerations that (x) would not singly, or in the aggregate, have a
Material Adverse Effect or (y) which are disclosed in the Offering
Memorandum. Other than as described in the Offering Memorandum, no
consent, approval, authorization or order of, or filing, registration,
qualification, license or permit of or with, (A) any court or
governmental agency, body or administrative agency (including, without
limitation, the FCC) or (B) any other person is required for (1) the
execution, delivery and performance by the Company of this Agreement
and the other Operative Documents, (2) the issuance and sale of the
Securities and the transactions contemplated hereby and thereby, except
(x) such as have been obtained and made (or, in the case of the
Registration Rights Agreement, will be obtained and made) under the
Act, the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act") and state securities or Blue Sky laws and regulations or such as
may be required by the NASD or (y) where the failure to obtain any such
consent, approval, authorization or order of, or filing registration,
qualification, license or permit would not reasonably be expected to
result in a Material Adverse Effect.
(xxiii) There is (i) no action, suit or proceeding before or
by any court, arbitrator or governmental agency, body or official,
domestic or foreign, now pending or, to the best knowledge of the
Company, threatened or contemplated to which the Company is a party or
to which the business or property of the Company is subject, (ii) no
statute, rule, regulation or order that has been enacted, adopted or
issued by any governmental agency or that has been proposed by any
governmental body or (iii) no injunction, restraining order or order of
any nature by a federal or state court or foreign court of competent
jurisdiction to which the Company is or may be subject or to which the
business, assets, or property of the Company is or may be subject,
that, in the case of clauses (i), (ii) and (iii) above, is required to
be disclosed in the Preliminary Offering Memorandum and the Offering
Memorandum and that is not so disclosed.
(xxiv) No action has been taken and no statute, rule,
regulation or order has been enacted, adopted or issued by any
governmental agency that prevents the issuance of the Securities or
prevents or suspends the use of the Offering Memorandum; no injunction,
restraining order or order of any nature by a federal or state court of
competent jurisdiction
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<PAGE> 14
has been issued that prevents the issuance of the Securities, prevents
or suspends the sale of the Securities in any jurisdiction referred to
in Section 4(e) hereof or that could adversely affect the consummation
of the transactions contemplated by this Agreement, the Operative
Documents or the Offering Memorandum; and every request of any
securities authority or agency of any jurisdiction for additional
information has been complied with in all material respects.
(xxv) There is (i) no significant unfair labor practice
complaint pending against the Company nor, to the best knowledge of the
Company, threatened against the Company, before the National Labor
Relations Board, any state or local labor relations board or any
foreign labor relations board, and no significant grievance or
significant arbitration proceeding arising out of or under any
collective bargaining agreement is so pending against the Company or,
to the best knowledge of the Company, threatened against the Company,
(ii) no significant strike, labor dispute, slowdown or stoppage pending
against the Company nor, to the best knowledge of the Company,
threatened against the Company and (iii) to the best knowledge of the
Company, no union representation question existing with respect to the
employees of the Company that, in the case of clauses (i), (ii) or
(iii), could reasonably be expected to result in a Material Adverse
Effect. To the best knowledge of the Company, no collective bargaining
organizing activities are taking place with respect to the Company. The
Company has not violated (A) any federal, state or local law or foreign
law relating to discrimination in hiring, promotion or pay of employees
(except as set forth in the Offering Memorandum), (B) any applicable
wage or hour laws or (C) any provision of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or the rules and
regulations thereunder, which in the case of clause (A), (B) or (C)
above could reasonably be expected to result in a Material Adverse
Effect.
(xxvi) The Company is in compliance with and has not
violated any environmental, safety or similar law or regulation
applicable to it or its business or property relating to the protection
of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental
Laws"), lacks any permit, license or other approval required of it
under applicable Environmental Laws or is violating any term or
condition of such permit, license or approval which could reasonably be
expected to, either individually or in the aggregate, have a Material
Adverse Effect. No facilities owned or leased by the Company, or to the
knowledge of the Company, any facilities of any predecessor in interest
of the Company, is listed or, to the knowledge of the Company, formally
proposed for listing on the National Priorities List or the
Comprehensive Environmental Response, Compensation, and Liability
Information System, both as promulgated under the Comprehensive
Environmental Response, Compensation and Liability Act. ("CERCLA"), or
on any comparable state list, or listed or, to the knowledge of the
Company, formally proposed for listing, on any comparable local list,
and the Company has not received any written notification of potential
or actual liability, or any written request for information, pursuant
to CERCLA or any comparable state, local or foreign environmental law.
(xxvii) The Company has (i) good and marketable title to all
of the properties and assets described in the Offering Memorandum as
owned by it, free and clear of all liens, charges, encumbrances and
restrictions, except such as are described in the Offering
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<PAGE> 15
Memorandum or as would not have a Material Adverse Effect, (ii)
peaceful and undisturbed possession under all material leases to which
it is a party as lessee, (iii) all licenses, certificates, permits,
authorizations, approvals, franchises and other rights from, and has
made all declarations and filings with, all federal, state and local
authorities (including, without limitation, the FCC), all
self-regulatory authorities and all courts and other tribunals (each an
"Authorization") necessary to engage in the business conducted by the
Company in the manner described in the Offering Memorandum, except as
described in the Offering Memorandum, and no such Authorization
contains a materially burdensome restriction that is not disclosed in
the Offering Memorandum and (iv) no reason to believe that any
governmental body or agency is considering limiting, suspending or
revoking any such Authorization. Except where the failure to be in full
force and effect would not have a Material Adverse Effect, all such
Authorizations are valid and in full force and effect and the Company
is in compliance in all material respects with the terms and conditions
of all such Authorizations and with the rules and regulations of the
regulatory authorities having jurisdiction with respect thereto. All
material leases to which the Company is a party are valid and binding
and no default by the Company has occurred and is continuing thereunder
and, to the best knowledge of the Company no material defaults by the
landlord are existing under any such lease that could reasonably be
expected to result in a Material Adverse Effect.
(xxviii) The Company owns, possesses or has the right to
employ all patents, patent rights, licenses (including all FCC, state,
local or other jurisdictional regulatory licenses), inventions,
copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, software,
systems or procedures), trademarks, service marks and trade names,
inventions, computer programs, technical data and information
(collectively, the "Intellectual Property") presently employed by it in
connection with the businesses now operated by it or which are proposed
to be operated by it free and clear of and without violating any right,
claimed right, charge, encumbrance, pledge, security interest,
restriction or lien of any kind of any other person and the Company has
not received any notice of infringement of or conflict with asserted
rights of others with respect to any of the foregoing except as could
not reasonably be expected to have a Material Adverse Effect. The use
of the Intellectual Property in connection with the business and
operations of the Company does not infringe on the rights of any
person, except as could not reasonably be expected to have a Material
Adverse Effect.
(xxix) The Company, or to the best knowledge of the Company,
any of its officers, directors, partners, employees, agents or
affiliates or any other person acting on behalf of the Company has not,
directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or
agent of a customer or supplier, official or employee of any
governmental agency (domestic or foreign), instrumentality of any
government (domestic or foreign) or any political party or candidate
for office (domestic or foreign) or other person who was, is or may be
in a position to help or hinder the business of the Company (or assist
the Company in connection with any actual or proposed transaction)
which (i) might subject the Company, or any other individual or entity
to any damage or penalty in any civil, criminal or governmental
litigation or proceeding (domestic or foreign), (ii) if not given in
the past, might have had a material adverse effect on the assets,
business or operations of the Company or (iii) if not continued in the
future, might have a Material Adverse Effect.
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(xxx) All material tax returns required to be filed by the
Company in all jurisdictions have been so filed. All taxes, including
withholding taxes, penalties and interest, assessments, fees and other
charges due or claimed to be due from such entities or that are due and
payable have been paid, other than those being contested in good faith
and for which adequate reserves have been provided or those currently
payable without penalty or interest. To the knowledge of the Company,
there are no material proposed additional tax assessments against the
Company, the assets or property of the Company.
(xxxi) The Company is not (i) an "investment company" or a
company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended (the "Investment Company
Act"), or (ii) a "holding company" or a "subsidiary company" or an
"affiliate" of a holding company within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
(xxxii) Except as disclosed in the Offering Memorandum, there
are no holders of securities of the Company who, by reason of the
execution by the Company of this Agreement or any other Operative
Document to which it is a party or the consummation by the Company of
the transactions contemplated hereby or thereby, have the right to
request or demand that the Company register under the Act or analogous
foreign laws and regulations securities held by them.
(xxxiii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that: (i)
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect
thereto.
(xxxiv) The Company maintains insurance covering its
properties, operations, personnel and businesses. Such insurance
insures against such losses and risks as are adequate in accordance
with customary industry practice to protect the Company and its
business. The Company has not received notice from any insurer or agent
of such insurer that substantial capital improvements or other
expenditures will have to be made in order to continue such insurance.
All such insurance is outstanding and duly in force on the date hereof,
subject only to changes made in the ordinary course of business,
consistent with past practice, which do not, singly or in the
aggregate, materially alter the coverage thereunder or the risks
covered thereby.
(xxxv) The Company has not (i) taken, directly or
indirectly, any action designed to, or that might reasonably be
expected to, cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale
of the Units, the Notes or the Warrants or (ii) since the date of the
Preliminary Offering Memorandum (A) sold, bid for, purchased or paid
any person any compensation for soliciting purchases of, the Units, the
Notes or the Warrants or (B) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of
the Company.
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<PAGE> 17
(xxxvi) No registration under the Act of the Units the Notes
or the Warrants is required for the sale of the Units to the Initial
Purchasers as contemplated hereby or for the Exempt Resales assuming
(i) that the purchasers who buy the Units in the Exempt Resales are
either QIBs or Regulation S Investors and (ii) the accuracy of the
Initial Purchasers' representations regarding the absence of general
solicitation in connection with the sale of Units to the Initial
Purchasers and the Exempt Resales contained herein. No form of general
solicitation or general advertising was used by the Company or any of
its representatives (other than the Initial Purchasers, as to which the
Company makes no representation or warranty) in connection with the
offer and sale of any of the Securities in connection with Exempt
Resales, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine, or similar medium
or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising. No securities of the same class as the Securities have
been issued and sold by the Company within the six-month period
immediately prior to the date hereof except warrants issued in
connection with the Common Stock Commitment.
(xxxvii) No employee pension benefit plan (within the meaning
of Section 3(2) of ERISA, but excluding any "multiemployer plan" within
the meaning of Section 3(37) of ERISA) established or maintained by the
Company or to which the Company has made contributions, which is
subject to Part 3 or Subtitle B of Title I of ERISA, or Section 412 of
the Internal Revenue Code of 1986 (the "Code"), had an accumulated
funding deficiency (as such term is defined in Section 302 of ERISA or
Section 412 of the Code), whether or not waived, as of the last day of
the most recent plan year of such plan heretofore ended for which an
excise tax is due (or would be due if such deficiency were not waived).
The Company has made all contributions required to be made by it to any
"multiemployer pension plan" (within the meaning of Section 3(37) of
ERISA). Neither the Company nor any Related Person (as such term is
defined below) has incurred, or is expecting to incur, any withdrawal
liability (determined under Section 4201 of ERISA) with respect to any
plan covered by Title IV of ERISA and in respect of which the Company
or a Related Person is an "employer" as defined in Section 3(5) of
ERISA, and to the best of the Company's knowledge, there has not been
any "reportable event" (within the meaning of Section 4043 of ERISA and
regulations thereunder, other than an event for which the 30-day notice
requirement has been waived), or any other event or condition which
presents a material risk of the termination of any such plan,
including, but not limited to, a termination by action of the Pension
Benefit Guaranty Corporation, which termination would create a material
liability of the Company or a Related Person to the Pension Benefit
Guaranty Corporation. "Related Person" shall mean any trade or business
(whether or not incorporated) which is under common control (as defined
in Section 414(b) and (c) of the Code) with the Company within the
meaning of Section 4001(b) of ERISA. As of the last day of the most
recent plan year heretofore ended of each employee benefit plan
described in the preceding sentence (other than a "multiemployer
plan"), the present value of all accrued benefits under each such
employee benefit plan (calculated on the basis of the actuarial
assumptions specified in the most recent actuarial valuation for each
such plan) did not exceed the fair market value of the assets of such
plan allocable to such benefit by more than $1,000,000. Neither any
employee pension benefit plan (excluding any "multiemployer plan"
within the meaning of Section 3(37) of ERISA) established or maintained
by the Company or to which the Company has made contributions, nor any
trust created thereunder, nor any trustee or administrator thereof
(including the Company), has engaged in any non-exempt prohibited
transaction (as described in Section 406 of ERISA or
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<PAGE> 18
in Section 4975 of the Code) that could subject the Company either
directly or indirectly through an obligation to indemnify to any
material tax or material penalty on prohibited transactions imposed
under said Section 4975 of the Code or under ERISA. The execution and
delivery of this Agreement, the other Operative Documents and the sale
of the Units to be purchased by the QIBs and the Regulation S Investors
will not involve any prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Code. Each employee benefit
plan described in the preceding sentence is in compliance in all
material respects with all applicable provisions of ERISA and the Code,
except for plan amendments required or permitted by such statutes as to
which applicable grace periods for making such amendments have not
expired, and the Company has made, accrued or provided for all
contributions heretofore required to be made by the Company and the
Company has complied in all material respects with the continuation
coverage requirements of Title X of the Consolidated Omnibus Budget Act
of 1985, as amended. The Company has no material "expected
post-retirement benefit obligation" (within the meaning of Financial
Accounting Standards Board Statement No. 106). The consummation of the
transactions contemplated by this Agreement (including, without
limitation, the Use of Proceeds) will not result in any material
payment (including, without limitation, severance, golden parachute or
otherwise) becoming due from the Company to any employee of the Company
as a consequence of such transaction.
(xxxviii) Each of the Preliminary Offering Memorandum and the
Offering Memorandum, as of its date, and each amendment or supplement
thereto, as of its date, contains the information specified in, and
meets the requirements of, Rule 144A(d)(4) under the Act.
(xxxix) Subsequent to the respective dates as of which
information is given in the Offering Memorandum and up to the Closing
Date, except as set forth in the Offering Memorandum, (i) the Company
has not incurred any liabilities or obligations, direct or contingent,
which are material, individually or in the aggregate, to the Company
taken as a whole, nor entered into any transaction not in the ordinary
course of business, (ii) there has not been, singly or in the
aggregate, any change or development which could reasonably be expected
to result in a Material Adverse Effect and (iii) there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(xl) None of the execution, delivery and performance of
this Agreement, the issuance and sale of the Securities, the
application of the proceeds from the issuance and sale of the
Securities and the consummation of the transactions contemplated
thereby as set forth in the Offering Memorandum, will violate
Regulations G, T, U or X promulgated by the Board of Governors of the
Federal Reserve System or analogous foreign laws and regulations.
(xli) To the best knowledge of the Company, the
accountants who have certified or will certify the financial statements
included or to be included as part of the Offering Memorandum are
independent accountants. The historical financial statements of the
Company comply as to form in all material respects with the
requirements applicable to registration statements on Form S-1 under
the Act and present fairly in all material respects
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<PAGE> 19
the financial position and results of operations of the Company at the
respective dates and for the respective periods indicated. Such
financial statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout
the periods presented. The pro forma financial statements included in
the Offering Memorandum have been prepared on a basis consistent with
such historical statements, except for the pro forma adjustments
specified therein, and give effect to assumptions made on a reasonable
basis and present fairly in all material respects the historical and
proposed transactions contemplated by this Agreement, the other
Operative Documents; and such pro forma financial statements comply as
to form in all material respects with the requirements applicable to
pro forma financial statements included in registration statements on
Form S-1 under the Act. The other financial and statistical information
and data included in the Offering Memorandum, historical and pro forma,
are accurately presented in all material respects and prepared on a
basis consistent with the financial statements, historical and pro
forma, included in the Offering Memorandum and the books and records of
the Company, as applicable.
(xlii) The Company does not intend to, nor does it believe
that it will, incur debts beyond its ability to pay such debts as they
mature. The present fair saleable value of the assets of the Company on
a consolidated basis exceeds the amount that will be required to be
paid on or in respect of the existing debts and other liabilities
(including contingent liabilities) of the Company on a consolidated
basis as they become absolute and matured. The assets of the Company on
a consolidated basis do not constitute unreasonably small capital to
carry out the business of the Company, taken as a whole, as conducted
or as proposed to be conducted. Upon the issuance of the Units, the
present fair saleable value of the assets of the Company on a
consolidated basis will exceed the amount that will be required to be
paid on or in respect of the existing debts and other liabilities
(including contingent liabilities) of the Company on a consolidated
basis as they become absolute and matured. Upon the issuance of the
Units, the assets of the Company on a consolidated basis will not
constitute unreasonably small capital to carry out its businesses as
now conducted, including the capital needs of the Company on a
consolidated basis, taking into account the projected capital
requirements and capital availability.
(xliii) Except pursuant to this Agreement, there are no
contracts, agreements or understandings between the Company and any
other person that would give rise to a valid claim against the Company
or either of the Initial Purchasers for a brokerage commission,
finder's fee or like payment in connection with the issuance, purchase
and sale of the Securities.
(xliv) The Company has or will have good and valid rights in
and title to the Collateral (as defined in the Security Agreement) that
it will grant a Lien in pursuant to the Security Agreement and has full
power and authority to grant to the Collateral Agent (as defined in the
Security Agreement) the Security Interest (as defined in the Security
Agreement) pursuant to the Security Agreement and to execute, deliver
and perform its obligations in accordance with the terms of the
Security Agreement, without the consent or approval of other persons
other than any consent or approval which has already been obtained.
(xlv) Prior to the Closing Date fully executed Uniform
Commercial Code financing statements or other appropriate filings,
recordings or registrations containing a description of the Collateral
will have been filed with the Secretary of State or other appropriate
office
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<PAGE> 20
of each State of the United States in which Collateral is located and
in such other governmental, municipal or other office as specified in
the Security Agreement.
(xlvi) As of the Closing Date, the Security Interest granted
by the Company pursuant to the terms of the Security Agreement will
constitute a legal and valid Lien in all the Collateral. The Security
Interest will be perfected only to the extent that the filings referred
to in Section 5(a)(xlv) are sufficient to perfect such Security
Interest. The Security Interest is prior to any other Lien on any of
the Collateral as of the Closing Date.
(xlvii) As of the Closing Date, the Collateral will be owned
by the Company free and clear of any Lien. The Grantor has not filed or
consented to the filing of any financing statement or analogous
document under the Uniform Commercial Code or any other applicable laws
covering any Collateral and which financing statement or analogous
document will still be in effect on the Closing Date, except for the
Liens and financing statements expressly created or permitted by the
Security Agreement or the Indenture.
(xlvii) Each certificate signed by any officer of the Company
and delivered to the Initial Purchasers or counsel for the Initial
Purchasers shall be deemed to be a representation and warranty by the
Company to the Initial Purchasers as to the matters covered thereby.
The Company acknowledges that each of the Initial
Purchasers and, for purposes of the opinions to be delivered to the Initial
Purchasers pursuant to Section 8 hereof, counsel to the Company and counsel to
the Initial Purchasers, will rely upon the accuracy and truth of the foregoing
representations and hereby consents to such reliance.
(b) Each of the Initial Purchasers severally and not jointly
represents, warrants and covenants to the Company and agrees that:
(i) Such Initial Purchaser is a QIB, with such knowledge
and experience in financial and business matters as are necessary in
order to evaluate the merits and risks of an investment in the Units.
(ii) Such Initial Purchaser (A) is not acquiring the Units with a view
to any distribution thereof that would violate the Act or the
securities laws of any state of the United States or any other
applicable jurisdiction and (B) will be reoffering and reselling the
Units only to QIBs in reliance on the exemption from the registration
requirements of the Act provided by Rule 144A and to Regulation S
Investors in an offshore transaction exempt from the registration
requirements of the Act.
(iii) No form of general solicitation or general
advertising has been or will be used by either of the Initial
Purchasers or any of their representatives in connection with the offer
and sale of any of the Units, including, but not limited to, articles,
notices or other communications published in any newspaper, magazine,
or similar medium or broadcast over television or radio, or any seminar
or meeting whose attendees have been invited by any general
solicitation or general advertising.
(iv) Each of the Initial Purchasers agrees that, in
connection with the Exempt Resales, it will solicit offers to buy the
Units only from, and will offer to sell the Units only
19
<PAGE> 21
to, QIBs and Regulation S Investors. The Initial Purchasers further
agree (A) that they will offer to sell the Units only to, and will
solicit offers to buy the Units only from (1) QIB's who in purchasing
such Units will be deemed to have represented and agreed that they are
purchasing the Units for their own accounts or accounts with respect to
which they exercise sole investment discretion and that they or such
accounts are QIBs and (2) Regulation S Investors in offers and sales
that occur outside the United States to persons other than U.S. persons
who in purchasing such Units will be deemed to have represented that
they are acquiring the Units in an offshore transaction within the
meaning of Regulation S under the Act and (B) that, in the case of such
QIBs and Regulation S Investors, acknowledges and agrees that such
Units will not have been registered under the Act and may be resold,
pledged or otherwise transferred only (x)(I) to a person who the seller
reasonably believes is a QIB in a transaction meeting the requirements
of Rule 144A, (II) in a transaction meeting the requirements of Rule
144, (III) outside the United States to a person that is not a U.S.
Person (as defined in Rule 902 under the Act) in a transaction meeting
the requirements of Rule 904 under the Act, (IV) to an institutional
"Accredited Investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Act) that, prior to such transfer, furnishes to
the Trustee and Warrant Agent a signed letter containing certain
representations and agreements relating to the Units, Notes and
Warrants (the form of such letter can be obtained from the Trustee or
Warrant Agent), or (V) in accordance with another exemption from the
registration requirements of the Act (in the case of II, III, IV or V,
based upon an opinion of counsel if the Company or Trustee, Registrar
or Transfer Agent for the Securities so requests), (y) to the Company
or (z) pursuant to an effective registration statement under the Act
and, in each case, in accordance with any applicable securities laws of
any state of the United States and (C) that the holder will, and each
subsequent holder is required to, notify any purchaser of the security
evidenced thereby of the resale restrictions set forth in (B) above.
(v) Each of the Initial Purchasers understands that the
Company and, for purposes of the opinions to be delivered to the
Initial Purchasers pursuant to Section 8 hereof, counsel to the Company
and counsel to the Initial Purchasers will rely upon the accuracy and
truth of the foregoing representations and hereby consents to such
reliance.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless
(i) each of the Initial Purchasers, (ii) each person, if any, who
controls either of the Initial Purchasers within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act and (iii) the
respective officers, directors, partners, employees, representatives
and agents of any of the Initial Purchasers or any controlling person
to the fullest extent lawful, from and against any and all losses,
liabilities, claims, damages and expenses whatsoever (including but not
limited to attorneys' fees and any and all expenses whatsoever incurred
in investigating, preparing or defending against any investigation or
litigation, commenced or threatened, or any claim whatsoever, and any
and all amounts paid in settlement of any claim or litigation), joint
or several, to which they or any of them may become subject under the
Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Preliminary
Offering Memorandum or the Offering Memorandum, or in any supplement
thereto or amendment thereof, or arise out
20
<PAGE> 22
of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company will not
be liable in any such case to the extent, but only to the extent, that
any such loss, liability, claim, damage or expense arises out of or is
based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of the Initial Purchasers expressly for use therein. This
indemnity agreement will be in addition to any liability which the
Company may otherwise have, including, under this Agreement.
(b) Each Initial Purchaser, severally and not
jointly, agrees to indemnify and hold harmless the Company and each
person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against any losses,
liabilities, claims, damages and expenses whatsoever (including but not
limited to attorneys' fees and any and all expenses whatsoever incurred
in investigating, preparing or defending against any investigation or
litigation, commenced or threatened, or any claim whatsoever and any
and all amounts paid in settlement of any claim or litigation), joint
or several, to which they or any of them may become subject under the
Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Preliminary
Offering Memorandum or the Offering Memorandum, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading, in each case to the extent, but only to the extent, that
any such loss, liability, claim, damage or expense arises out of or is
based upon any untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by or on behalf of
either Initial Purchaser expressly for use therein; provided, however,
that in no case shall either Initial Purchaser be liable or responsible
for any amount in excess of the discounts and commissions received by
such Initial Purchaser, as set forth on the cover page of the Offering
Memorandum. This indemnity will be in addition to any liability which
either Initial Purchaser may otherwise have, including under this
Agreement.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party under such subsection, notify
each party against whom indemnification is to be sought in writing of
the commencement thereof (but the failure so to notify an indemnifying
party shall not relieve it from any liability which it may have under
this Section 6 except to the extent that it has been prejudiced in any
material respect by such failure or from any liability which it may
otherwise have). In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified
21
<PAGE> 23
party. Notwithstanding the foregoing, the indemnified party or parties
shall have the right to employ its or their own counsel in any such
case (and where the Initial Purchasers are the indemnified parties,
Bear, Stearns & Co. Inc. shall have the right to select such counsel
for the Initial Purchasers), but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless (i)
the employment of such counsel shall have been authorized in writing by
the indemnifying parties in connection with the defense of such action,
(ii) the indemnifying parties shall not have employed counsel to take
charge of the defense of such action within a reasonable time after
notice of commencement of the action, or (iii) such indemnified party
or parties shall have reasonably concluded that there may be defenses
available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying party or parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties),
in any of which events such fees and expenses of counsel shall be borne
by the indemnifying parties; provided, however, that the indemnifying
party under subsection (a) or (b) above, shall only be liable for the
legal expenses of one counsel (in addition to any local counsel) for
all indemnified parties in each jurisdiction in which any claim or
action is brought. Anything in this subsection to the contrary
notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its prior written
consent; provided, however, that such consent was not unreasonably
withheld.
7. Contribution. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 6 is for any
reason held to be unavailable from the Company or is insufficient to hold
harmless a party indemnified thereunder, the Company and the Initial Purchasers
shall contribute to the aggregate losses, claims, damages, liabilities and
expenses of the nature contemplated by such indemnification provision (including
any investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company, any contribution received by
the Company from persons, other than the Initial Purchasers, who may also be
liable for contribution, including persons who control the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act) to which
the Company and one or both of the Initial Purchasers may be subject, in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Initial Purchasers from the offering of the Units or, if such
allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 6, in such proportion as is appropriate to reflect not only
the relative benefits referred to above but also the relative fault of the
Company and the Initial Purchasers in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Initial Purchasers shall be deemed to
be in the same proportion as (x) the total proceeds from the offering of Units
(net of discounts but before deducting expenses) received by the Company and (y)
the discounts received by the Initial Purchasers, respectively, in each case as
set forth in the table on the cover page of the Offering Memorandum. The
relative fault of the Company and of the Initial Purchasers shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or 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 7 were determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 7, (i) in no case
22
<PAGE> 24
shall either of the Initial Purchasers be required to contribute any amount in
excess of the amount by which the discount applicable to the Units purchased by
such Initial Purchaser pursuant to this Agreement exceeds the amount of any
damages which such Initial Purchaser has otherwise been required to pay by
reason of any untrue or alleged untrue statement or omission or alleged omission
and (ii) no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of this
Section 7, (A) each person, if any, who controls either of the Initial
Purchasers within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and (B) the respective officers, directors, partners, employees,
representatives and agents of any of the Initial Purchasers or any controlling
person shall have the same rights to contribution as such Initial Purchaser, and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act shall have the same rights to
contribution as the Company, subject in each case to clauses (i) and (ii) of
this Section 7. Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such party
in respect of which a claim for contribution may be made against another party
or parties under this Section 7, notify such party or parties from whom
contribution may be sought, but the failure to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have under this Section 7 or otherwise. No party
shall be liable for contribution with respect to any action or claim settled
without its prior written consent; provided, however, that such written consent
was not unreasonably withheld.
8. Conditions of Initial Purchasers' Obligations. The
several obligations of the Initial Purchasers to purchase and pay for the Units,
if any, as provided herein, shall be subject to the satisfaction of the
following conditions:
(a) All of the representations and warranties of the
Company contained in this Agreement shall be true and correct on the
date hereof and on the Closing Date with the same force and effect as
if made on and as of the date hereof and the Closing Date,
respectively. The Company shall have performed or complied with all of
the agreements herein contained and required to be performed or
complied with by it at or prior to the Closing Date.
(b) The Offering Memorandum shall have been printed and
copies distributed to the Initial Purchasers not later than 10:00 a.m.,
New York City time, on the day following the date of this Agreement or
at such later date and time as to which the Initial Purchasers may
agree, and no stop order suspending the qualification or exemption from
qualification of the Units, the Notes or the Warrants in any
jurisdiction referred to in Section 4(e) shall have been issued and no
proceeding for that purpose shall have been commenced or shall be
pending or threatened.
(c) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which would, as of the Closing Date, prevent the
issuance of the Units, the Notes or the Warrants; no action, suit or
proceeding shall have been commenced and be pending against or
affecting or, to the best knowledge of the Company, threatened against,
the Company before any court or
23
<PAGE> 25
arbitrator or any governmental body, agency or official that (1) could
reasonably be expected to result in a Material Adverse Effect or (2)
has not been disclosed in the Offering Memorandum; and no stop order
shall have been issued preventing the use of the Offering Memorandum,
or any amendment or supplement thereto, or which could reasonably be
expected to have a Material Adverse Effect.
(d) Since the dates as of which information is given in
the Offering Memorandum, (i) there shall not have been any material
adverse change, or any development that is reasonably likely to result
in a material adverse change, in the capital stock or the long-term
debt, or material increase in the short-term debt, of the Company from
that set forth in the Offering Memorandum, (ii) no dividend or
distribution of any kind shall have been declared, paid or made by the
Company on any class of its capital stock, (iii) the Company shall not
have incurred any liabilities or obligations, direct or contingent,
that are material, individually or in the aggregate, to the Company,
taken as a whole, and that are required to be disclosed on a balance
sheet or notes thereto in accordance with generally accepted accounting
principles and are not disclosed on the latest balance sheet or notes
thereto included in the Offering Memorandum. Since the date hereof and
since the dates as of which information is given in the Offering
Memorandum, there shall not have occurred any Material Adverse Effect.
(e) The Initial Purchasers shall have received a
certificate, dated the Closing Date, signed on behalf of the Company by
(i) Nield Montgomery, President and Chief Executive Officer and (ii)
Linda M. Sunbury, Vice President-Administration, in form and substance
reasonably satisfactory to the Initial Purchasers, confirming, as of
the Closing Date, the matters set forth in paragraphs (a), (b), (c) and
(d) of this Section 8 and that, as of the Closing Date, the obligations
of the Company to be performed hereunder on or prior thereto have been
duly performed in all material respects.
(f) The Initial Purchasers shall have received on the
Closing Date an opinion, dated the Closing Date, in form and substance
satisfactory to the Initial Purchasers and counsel to the Initial
Purchasers, of Ellis, Funk, Goldberg, Labovitz & Dokson, P.C. counsel
for the Company, to the effect set forth in Exhibit A hereto.
(g) The Initial Purchasers shall have received on the
Closing Date an opinion, dated the Closing Date, in form and substance
satisfactory to the Initial Purchasers and counsel to the Initial
Purchasers, of Kelley Drye & Warren LLP, special regulatory counsel to
the Company, to the effect set forth in Exhibit B hereto.
(h) The Initial Purchasers shall have received an opinion,
dated the Closing Date, in form and substance reasonably satisfactory
to the Initial Purchasers, of Kronish, Lieb, Weiner & Hellman LLP,
counsel to the Initial Purchasers, covering such matters as are
customarily covered in such opinions.
(i) At the time this Agreement is executed and at the
Closing Date the Initial Purchasers shall have received from KPMG Peat
Marwick, LLP, independent public accountants for the Company, dated as
of the date of this Agreement and as of the Closing Date, customary
comfort letters addressed to the Initial Purchasers and in form and
substance satisfactory to the Initial Purchasers and counsel to the
Initial Purchasers with respect to the financial statements and certain
financial information of the Company contained in the Offering
Memorandum.
24
<PAGE> 26
(j) Kronish, Lieb, Weiner & Hellman LLP shall have been
furnished with such documents, in addition to those set forth above, as
they may reasonably require for the purpose of enabling them to review
or pass upon the matters referred to in this Section 8 and in order to
evidence the accuracy, completeness or satisfaction in all material
respects of any of the representations, warranties or conditions herein
contained.
(k) Prior to the Closing Date, the Company shall have
furnished to the Initial Purchasers such further information,
certificates and documents as the Initial Purchasers may reasonably
request.
(l) The Company and the Trustee shall have entered into
the Indenture and the Initial Purchasers shall have received
counterparts, conformed as executed, thereof.
(m) The Company and the Trustee shall have entered into
the Security Agreement and the Initial Purchasers shall have received
counterparts, conformed as executed, thereof.
(n) The Company and the Trustee shall have entered into
the Collateral Pledge Agreement and the Initial Purchasers shall have
received counterparts, conformed as executed, thereof.
(o) The Company shall have entered into the Registration
Rights Agreement and the Initial Purchasers shall have received
counterparts, conformed as executed, thereof.
(p) The Company shall have entered into the Warrant
Agreement and the Initial Purchasers shall have received counterparts,
conformed as executed, thereof.
(q) The Company shall have entered into the Warrant
Registration Rights Agreement and the Initial Purchasers shall have
received counterparts, conformed as executed, thereof.
(r) The Company shall have (i) consummated the Preferred
Stock Offering or (ii) received binding commitments from investors to
purchase common stock of the Company for $15 million if the Preferred
Stock Offering has not been consummated within 60 days of the Closing
Date and the funds necessary to consummate such commitment shall have
been deposited into escrow and the warrants to be issued as a
commitment fee to the parties depositing such funds into escrow shall
have been issued.
(s) The Company shall have filed Uniform Commercial Code
financing statements (UCC-1s) or other appropriate filings, recordings
or registrations and taken such other actions as are necessary to
perfect the Security Interest (as defined in the Security Agreement).
All opinions, certificates, letters and other documents
required by this Section 8 to be delivered by the Company will be in compliance
with the provisions hereof only if they are reasonably satisfactory in form and
substance to the Initial Purchasers. The Company will furnish
25
<PAGE> 27
the Initial Purchasers with such conformed copies of such opinions,
certificates, letters and other documents as it shall reasonably request.
9. Initial Purchasers' Information. The Company and the
Initial Purchasers severally acknowledge that the statements with respect to the
offering of the Units set forth in the last paragraph of the cover page and the
third paragraph and the fourth sentence of the fifth paragraph under the caption
"Plan of Distribution" in such Offering Memorandum constitute the only
information furnished in writing by the Initial Purchasers expressly for use in
the Offering Memorandum.
10. Survival of Representations and Agreements. All
representations and warranties, covenants and agreements of the Initial
Purchasers and the Company contained in this Agreement, including the agreements
contained in Sections 4(f) and 11(d), the indemnity agreements contained in
Section 6 and the contribution agreements contained in Section 7, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Initial Purchasers any controlling person thereof or by or
on behalf of the Company or any controlling person thereof, and shall survive
delivery of and payment for the Units to and by the Initial Purchasers. The
representations contained in Section 5 and the agreements contained in Sections
4(f), 6, 7 and 11(d) shall survive the termination of this Agreement, including
any termination pursuant to Section 11.
11. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective upon execution
and delivery of a counterpart hereof by each of the parties hereto.
(b) The Initial Purchasers shall have the right to
terminate this Agreement at any time prior to the Closing Date by
notice to the Company from the Initial Purchasers, without liability
(other than with respect to Sections 6 and 7) on the Initial
Purchasers' part to the Company if, on or prior to such date, (i) the
Company shall have failed, refused or been unable to perform in any
material respect any agreement on its part to be performed hereunder,
(ii) any other condition to the obligations of the Initial Purchasers
hereunder as provided in Section 8 is not fulfilled when and as
required in any material respect, (iii) in the reasonable judgment of
the Initial Purchasers any material adverse change shall have occurred
since the respective dates as of which information is given in the
Offering Memorandum in the condition (financial or otherwise),
business, properties, assets, liabilities, prospects, net worth,
results of operations or cash flows of the Company taken as a whole,
other than as set forth in the Offering Memorandum, or (iv)(A) any
domestic or international event or act or occurrence has materially
disrupted, or in the opinion of the Initial Purchasers will in the
immediate future materially disrupt, the market for the Company's
securities or for securities in general; or (B) trading in securities
generally on the New York or American Stock Exchanges shall have been
suspended or materially limited, or minimum or maximum prices for
trading shall have been established, or maximum ranges for prices for
securities shall have been required, on such exchange, or by such
exchange or other regulatory body or governmental authority having
jurisdiction; or (C) a banking moratorium shall have been declared by
Federal or state authorities, or a moratorium in foreign exchange
trading by major international banks or persons shall have been
declared; or (D) there is an outbreak or escalation of armed
hostilities involving the United States on or after the date hereof, or
if there has been a declaration by the United States of a national
emergency or war, the effect of which shall be, in the Initial
Purchasers' judgment, to make it inadvisable or impracticable to
proceed with the offering or delivery
26
<PAGE> 28
of the Units on the terms and in the manner contemplated in the
Offering Memorandum; or (E) there shall have been such a material
adverse change in general economic, political or financial conditions
or if the effect of international conditions on the financial markets
in the United States shall be such as, in the Initial Purchasers'
judgment, makes it inadvisable or impracticable to proceed with the
delivery of the Units as contemplated hereby.
(c) Any notice of termination pursuant to this Section 11
shall be by telephone, telex, telephonic facsimile, or telegraph,
confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any
of the provisions hereof, or if the sale of the Units provided for
herein is not consummated because any condition to the obligations of
the Initial Purchasers set forth herein is not satisfied or because of
any refusal, inability or failure on the part of the Company to perform
any agreement herein or comply with any provision hereof, the Company
will, subject to demand by the Initial Purchasers, reimburse the
Initial Purchasers for all out-of-pocket expenses (including the
reasonable fees and expenses of Initial Purchasers' counsel), incurred
by the Initial Purchasers in connection herewith.
12. Notice. All communications hereunder, except as may
be otherwise specifically provided herein, shall be in writing and, if sent to
the Initial Purchasers shall be mailed, delivered, or telexed, telegraphed or
telecopied and confirmed in writing to Bear, Stearns & Co. Inc. and Furman Selz
LLC, c/o Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167,
Attention: Corporate Finance Department, telecopy number: (212) 272-3092; and if
sent to the Company, shall be mailed, delivered or telexed, telegraphed or
telecopied and confirmed in writing to MGC Communications, Inc., 3165 Palms
Centre Drive, Las Vegas, Nevada 89103, Attention: General Counsel, telecopy
number: (702) 310-1111, with a copy to Ellis, Funk, Goldberg, Labovitz & Dokson,
P.C., One Securities Centre, Suite 400, 3400 Piedmont Road, Atlanta, Georgia
30305, telecopy number: (404) 233- 2188.
13. Parties. This Agreement shall inure solely to the
benefit of, and shall be binding upon, the Initial Purchasers and the Company
and the controlling persons and agents referred to in Sections 6 and 7, and
their respective successors and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained. The
term "successors and assigns" shall not include a purchaser, in its capacity as
such, of Units from the Initial Purchasers.
14. Construction. This Agreement shall be construed in
accordance with the internal laws of the State of New York. TIME IS OF THE
ESSENCE IN THIS AGREEMENT.
15. Captions. The captions included in this Agreement are
included solely for convenience of reference and are not to be considered a part
of this Agreement.
16. Counterparts. This Agreement may be executed in
various counterparts which together shall constitute one and the same
instrument.
[Signature page to follow]
27
<PAGE> 29
If the foregoing correctly sets forth the
understanding among the Initial Purchasers and the Company, please so indicate
in the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement between us.
Very truly yours,
MGC COMMUNICATIONS, INC.
By:
---------------------------------
Name:
Title:
Accepted and agreed to as of
the date first above written:
BEAR STEARNS & CO. INC.
By:
---------------------------------
Name:
Title:
FURMAN SELZ LLC
By:
---------------------------------
Name:
Title:
<PAGE> 30
Schedule I
<TABLE>
<CAPTION>
Number of
Units to
Initial Purchaser be Purchased
- ----------------- ------------
<S> <C>
Bear, Stearns & Co. Inc. 104,000
Furman Selz LLC 56,000
Total:
-------
160,000
</TABLE>
<PAGE> 31
EXHIBIT A
Form of Opinion of Ellis, Funk, Goldberg, Labovitz & Dokson, P.C.
1. The Company is duly organized and validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, and has all requisite corporate power
and authority to carry on its business as it is being conducted and as
described in the Offering Memorandum and to own, lease and operate its
properties, and is duly qualified and in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the
nature of its business or its ownership or leasing of property requires
such qualification. To the best knowledge of such counsel, the Company
does not own, directly or indirectly, any capital stock of or any
equity interest in, any other person.
2. All of the outstanding shares of capital
stock of the Company have been duly authorized, validly issued, and are
fully paid and nonassessable and were not issued in violation of any
preemptive or similar rights. The authorized, issued and outstanding
capital stock of the Company conforms in all respects to the
description thereof set forth in the Offering Memorandum.
3. There are not, to such counsel's knowledge,
currently, and will not be following the Offering, any outstanding
subscriptions, rights, warrants, calls, commitments of sale or options
to acquire, or instruments convertible into or exchangeable for, any
capital stock or other equity interest of the Company, except as
described in the Offering Memorandum.
4. When the Units are issued and delivered
pursuant to this Agreement, no Unit, Note or Warrant will be of the
same class (within the meaning of Rule 144A under the Act) as
securities of the Company that are listed on a national securities
exchange registered under Section 6 of the Exchange Act or that are
quoted in a United States automated inter-dealer quotation system.
5. All of the outstanding shares of the
Company's common stock, $.001 par value, were issued in reliance on the
exemption from registration pursuant to Section 4(2) of the Securities
Act and in compliance with the requirements thereof and any other
statute, judgment, decree, order, rule or regulation of any court,
regulatory body or administrative agency or other governmental body,
domestic or foreign, having jurisdiction over the Company or the
issuance of the common stock. The Reorganization was consummated in
compliance with all applicable statutes, judgments, decrees, orders,
rules and regulations of any court, regulatory body or administrative
agency or other governmental body, domestic or foreign, having
jurisdiction over the LLC, Company or the Reorganization. No person was
or is entitled to receive any shares of capital stock of the Company or
other consideration, other than shares of capital stock or other
consideration which have been distributed, as a result of the
Reorganization.
<PAGE> 32
6. The Company has all requisite corporate
power and authority to execute, deliver and perform its obligations
under this Agreement, the Indenture, the Security Agreement, the
Collateral Pledge Agreement, the Registration Rights Agreement, the
Warrant Agreement, the Warrant Registration Rights Agreement and the
other Operative Documents, as applicable, and to consummate the
transactions contemplated thereby, including, without limitation, the
corporate power and authority to issue, sell and deliver the
Securities.
7. This Agreement has been duly and validly
authorized, executed and delivered by the Company and is the legally
valid and binding agreement of the Company.
8. Each of the Indenture, the Security
Agreement, the Collateral Pledge Agreement, the Registration Rights
Agreement, the Warrant Agreement, the Warrant Registration Rights
Agreement and the Pledge Agreement has been duly and validly
authorized, executed and delivered by the Company and assuming due
execution by the other parties thereto, is the legal, valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, except that such counsel need express no
opinion as to the validity or enforceability of rights of indemnity or
contribution, or both and except as such enforceability may be limited
by bankruptcy, insolvency, fraudulent conveyance, reorganization or
similar laws affecting the rights of creditors generally and subject to
general principles of equity, and in the case of the Security
Agreement, except that certain remedial provisions of the Security
Agreement are or may be unenforceable in whole or in part under the
laws of the State of New York, but the inclusion of such provisions
does not affect the validity of the Security Agreement as a whole and
the Security Agreement contains adequate provisions for the realization
of the principal benefits afforded thereby.
9. The Notes have been duly and validly
authorized for issuance and sale to the Initial Purchasers by the
Company pursuant to this Agreement and, when issued and authenticated
in accordance with the terms of the Indenture and delivered against
payment therefor in accordance with the terms of this Agreement and the
Indenture, will be the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms
and entitled to the benefits of the Indenture, except that such counsel
need express no opinion as to the validity or enforceability of rights
of indemnity or contribution, or both, and except as such
enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity.
10. The Exchange Notes have been duly and
validly authorized for issuance by the Company and, when issued and
authenticated in accordance with the terms of the Indenture and
delivered against payment therefor in accordance with the terms of this
Agreement and the Indenture, will be the legal, valid and binding
obligations of the Company, enforceable against the Company in
accordance with their terms and entitled to the benefits of the
Indenture, except that such counsel need express no opinion as to the
validity or enforceability of rights of indemnity or contribution, or
both, and except as such enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization or similar laws
affecting the rights of creditors generally and subject to general
principles of equity.
<PAGE> 33
11. The Warrants have been duly and validly
authorized for issuance and sale to the Initial Purchasers by the
Company pursuant to this Agreement and, when issued and countersigned
in accordance with the terms of the Warrant Agreement and delivered
against payment therefor in accordance with the terms hereof and
thereof, will be the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with their terms
and entitled to the benefits of the Warrant Agreement, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity.
12. The Warrants are exercisable into Warrant
Shares in accordance with the terms of the Warrant Agreement. The
Warrant Shares have been duly authorized for issuance by the Company
and, when issued and paid for upon exercise of the Warrants in
accordance with the terms thereof, will be validly issued, fully paid
(assuming that at the time of such exercise the exercise price of the
Warrants exceeds the par value of the Warrant Shares) and
nonassessable, free of any preemptive or similar rights imposed by law
or granted by the Company. The Company has reserved sufficient shares
of Common Stock for issuance upon exercise of the Warrant (assuming the
exercise of the Warrants on the date hereof).
13. The Offering Memorandum contains a fair
summary of the terms of each of the Units, the Notes, the Indenture,
the Security Agreement, the Collateral Pledge Agreement, the Warrants,
the Warrant Agreement, the Registration Rights Agreement and the
Warrant Registration Rights Agreement required to be described in the
Offering Memorandum.
14. No registration under the Act of the Units
is required for the sale of the Units to the Initial Purchasers as
contemplated by this Agreement or for the Exempt Resales assuming (i)
that the Initial Purchasers are Qualified Institutional Buyers, as
defined in Rule 144A under the Act ("QIB"), (ii) that the purchasers
who buy the Units in the Exempt Resales are either QIBs or Regulation S
Investors, (iii) the accuracy of the Initial Purchasers'
representations regarding the absence of general solicitation in
connection with the sale of Units to the Initial Purchasers and the
Exempt Resales contained in this Agreement, (iv) the accuracy of the
Company's representations in Sections 5(a)(ii), (xxxv), (xxxvi) (other
than with respect to the first sentence) and (xxxviii) of this
Agreement and (v) with respect to Regulation S Investors, the accuracy
of the representations made by each Regulation S Investor, who in
purchasing Units will be deemed to have represented that it is
acquiring the Units in an offshore transaction within the meaning of
Regulation S under the Act.
15. The Offering Memorandum, as of its date
(except for the financial statements, including the notes thereto, and
supporting schedules and other financial, statistical and accounting
data, including the Projected Financial Information, included therein
or omitted therefrom, as to which no opinion need be expressed), and
each amendment or supplement thereto, as of its date, contains all the
information specified in, and meets the requirements of, Rule
144A(d)(4) under the Act.
<PAGE> 34
16. Prior to the effectiveness of the Exchange
Registration Statement or the Shelf Registration Statement, the
Indenture is not required to be qualified under the Trust Indenture
Act.
17. None of (A) the execution, delivery or
performance by the Company of this Agreement and the other Operative
Documents or (B) the issuance and sale of the Securities violates,
conflicts with or constitutes a breach of any of the terms or
provisions of, or a default under (or an event that with notice or the
lapse of time, or both, would constitute a default), or require consent
under, or result in the imposition of a lien or encumbrance on any
properties of the Company, or an acceleration of any indebtedness of
the Company pursuant to, (i) the charter or bylaws of the Company, (ii)
any bond, debenture, note, indenture, mortgage, deed of trust or other
agreement or instrument known to such counsel to which the Company is a
party or by which it or its property is or may be bound, (iii) any
local, state, federal or administrative statute, rule or regulation
applicable to the Company or any of its assets or properties, or (iv)
any judgment, order or decree of any court or governmental agency or
authority having jurisdiction over the Company or any of its assets or
properties known to such counsel, except in the case of clauses (ii),
(iii) and (iv) for such violations, conflicts, breaches, defaults,
consents, impositions of liens or accelerations that (x) would not,
singly or in the aggregate, have a Material Adverse Effect or (y) are
disclosed in the Offering Memorandum. Assuming compliance with
applicable state securities and Blue Sky laws, as to which such counsel
need express no opinion, and except for the filing of a registration
statement under the Act and qualification of the Indenture under the
Trust Indenture Act of 1939, as amended, in connection with the
Registration Rights Agreement, no consent, approval, authorization or
order of, or filing, registration, qualification, license or permit of
or with, any court or governmental agency, body or administrative
agency is required for the execution, delivery and performance by the
Company of this Agreement, the Operative Documents or the issuance and
sale of the Securities, except (i) such as have been obtained and made
or have been disclosed in the Offering Memorandum and (ii) where the
failure to obtain such consents or waivers would not, singly or in the
aggregate, have a Material Adverse Effect. To such counsel's knowledge,
after reasonable inquiry, no consents or waivers from any other person
are required for the execution, delivery and performance by the Company
of this Agreement, the Operative Documents or the issuance and sale of
the Securities, other than such consents and waivers as have been
obtained.
18. The Company is not (i) an "investment
company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, or (ii)
a "holding company" or a "subsidiary company" or an "affiliate" of a
holding company within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
19. Except as set forth in this Agreement, the
Registration Rights Agreement or the Warrant Registration Rights
Agreement, to the best of such counsel's knowledge, there are no
holders of securities of the Company who, by reason of the execution by
the Company of this Agreement or any other Operative Document to which
it is a party or the consummation by the Company of the transactions
contemplated thereby, have the right to request or demand that the
Company register under the Act securities held by them.
<PAGE> 35
20. None of the execution, delivery and
performance of this Agreement, the issuance and sale of the Units, the
application of the proceeds from the issuance and sale of the Units and
the consummation of the transactions contemplated thereby as set forth
in the Offering Memorandum, will violate Regulations G, T, U or X
promulgated by the Board of Governors of the Federal Reserve System.
21. To such counsel's knowledge, after
reasonable inquiry, there is (i) no action, suit, investigation or
proceeding (other than proceedings with respect to pending license
applications) before or by any court, arbitrator or governmental
agency, body or official, domestic or foreign, now pending, or
threatened or contemplated to which the Company is or may be a party or
to which the business or property of the Company is or may be subject
or (ii) no injunction, restraining order or order of any nature by a
federal or state court of competent jurisdiction to which the Company
is or may be subject or to which the business, assets or property of
the Company are or may be subject has been issued, except in the case
of clauses (i) and (ii), those which (a) would not singly or in the
aggregate have a Material Adverse Effect upon the Company or (b) which
are disclosed in the Offering Memorandum and except that such counsel
shall not be required to express any opinion as to the matters
addressed in the opinion of Kelley Drye & Warren LLP.
22. To such counsel's knowledge, there is no
statute, rule, regulation or order that has been enacted, adopted or
issued by any governmental agency or that has been proposed by any
governmental body to which the Company is or may be subject or to which
the business, assets or property of the Company are or may be subject,
except those which (a) would not singly or in the aggregate have a
Material Adverse Effect upon the Company or (b) which are disclosed in
the Offering Memorandum and except that such counsel shall not be
required to express any opinion as to the matters addressed in the
opinion of Kelley Drye & Warren LLP.
23. The statements contained in the Offering
Memorandum under the caption "Certain Federal Income Tax Consequences"
are a fair and accurate summary of the matters discussed herein.
24. The Security Interest granted by the Company
pursuant to the terms of the Security Agreement constitutes a perfected
Lien in all the Collateral now owned by the Company.
Such counsel has participated in conferences with
officers and other representatives of the Company, representatives of
the independent certified public accountants of the Company and the
Initial Purchasers and its representatives at which the contents of the
Preliminary Offering Memorandum and the Offering Memorandum and related
matters were discussed and, although such counsel has not undertaken to
investigate or verify independently, and need not assume any
responsibility for, the accuracy, completeness or fairness of the
statements contained in the Preliminary Offering Memorandum or the
Offering Memorandum (except as indicated above), on the basis of the
foregoing, no facts have come to such counsel's attention which led
such counsel to believe that the Preliminary Offering Memorandum or the
Offering
<PAGE> 36
Memorandum, as of its date or the Closing Date, contained an untrue
statement of a material fact or omitted to state any fact required to
be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading
(except as to financial statements and related notes, the financial
statement schedules and other financial and statistical data, including
the Projected Financial Information, included therein).
Such counsel are members of the Bar of the State of
Georgia, and such counsel does not herein express an opinion as to any
matters governed by any laws other than the laws of the State of
Georgia, the laws of the State of Nevada governing corporations and the
Federal laws of the United States of America. In rendering this
opinion, such counsel has relied on Kronish, Lieb, Weiner & Hellman LLP
as to the laws of the State of New York. In rendering such counsel's
opinion in paragraph 23 with respect to the perfection of the Security
Interest pursuant to the terms of the Security Agreement under the laws
of the States of California, Georgia and Illinois, such counsel has
relied exclusively on such counsel's review of Uniform Commercial Code
Sections ________, as adopted in such States, as reported by [name of
publisher of compilation].
<PAGE> 37
Exhibit B
Form of Opinion of Kelley Drye & Warren LLP
1. All of the licenses, permits and
authorizations required by the FCC for the provision of
telecommunications services by the Company, as such counsel understands
those services to be provided currently based upon the attached
certificate and the Offering Memorandum, have been issued to and are
validly held by the Company. All of the licenses, permits and
authorizations required by any "state commissions" as defined in
Section 3 of the Communications Act of 1934, as amended (the "State
Telecommunications Agencies") for the provision of telecommunications
services by the Company, as such counsel understands those services to
be provided currently based upon the attached certificate and the
Offering Memorandum, have been issued to and, to the best knowledge of
such counsel, are validly held by the Company, except where the failure
to obtain or hold such license, permit or authority would not have a
Material Adverse Effect. All such licenses, permits and authorizations
are in full force and effect.
2. The Company is not the subject of any
proceeding (including a rule making proceeding), pending complaint or
investigation, or, to the best of such counsel's knowledge, any
threatened complaint or investigation, before the FCC, or, to the best
of such counsel's knowledge after oral inquiry, of any proceeding
(including a rule making proceeding), pending complaint or
investigation, or any threatened complaint or investigation, before the
State Telecommunications Agencies based, in each case, on any alleged
violation of any statutes governing the FCC or the State
Telecommunications Agencies and the rules and regulations promulgated
thereunder (the "Telecommunications Laws") by the Company in connection
with its provision of or failure to provide telecommunications services
of a character required to be disclosed in the Offering Memorandum
which is not disclosed in the Offering Memorandum.
3. The statements in the Offering Memorandum
under the headings of "Summary of Offering Memorandum - The Company -
Recent Regulatory Developments," "Risk Factors - Regulatory Approval of
the Offering," "Risk Factors- Regulation," and "Business - Government
Regulation" regarding the Telecommunications Laws of the FCC or the
State Telecommunications Agencies fairly and accurately summarize the
matters therein described.
4. The Company has the consents, approvals,
authorizations, licenses, certificates, permits, or orders of the FCC
or the State Telecommunications Agencies, if any is required, for the
consummation of the transactions contemplated in the Offering
Memorandum, except where the failure to obtain the consents, approvals,
authorizations, licenses, certificates, permits or orders would not
have a Material Adverse Effect.
5. Neither the execution and delivery of the
Operative Documents nor the sale of the Securities contemplated thereby
will conflict with or result in a violation of any order or regulation
of the FCC or the State Telecommunications
<PAGE> 38
Agencies applicable to the Company, except where the conflict with or
the violation of which would not have a Material Adverse Effect.
<PAGE> 1
EXHIBIT 10.7
--------------------------------------
WARRANT AGREEMENT
Dated as of September 29, 1997
by and among
MGC COMMUNICATIONS, INC.
and
MARINE MIDLAND BANK
--------------------------------------
<PAGE> 2
WARRANT AGREEMENT
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. Certain Definitions...................................................................................1
SECTION 2. Appointment of Warrant Agent..........................................................................3
SECTION 3. Issuance of Warrants: Warrant Certificates............................................................3
SECTION 4. Execution of Warrant Certificates.....................................................................3
SECTION 5. Separation of Warrants................................................................................4
SECTION 6. Registration and Countersignature.....................................................................4
SECTION 7. Registration of Transfers and Exchanges...............................................................4
(a) Transfer and Exchange of Global Warrants........................................................4
(b) Exchange of a Beneficial Interest
in a Global Warrant for a Definitive Warrant....................................................4
(c) Transfer and Exchange of Definitive Warrants....................................................5
(d) Restrictions on Exchange or Transfer of a
Definitive Warrant for a Beneficial Interest in a Global Warrant................................6
(e) Restrictions on Transfer and Exchange of Global Warrants........................................7
(f) Countersigning of Definitive Warrants in Absence of Depositary..................................7
(g) Legends.........................................................................................8
(h) Cancellation of Global Warrant..................................................................9
(i) Obligations with respect to Transfers and Exchanges of Warrants.................................9
SECTION 8. Terms of Warrants: Exercise of Warrants..............................................................10
SECTION 9. Payment of Taxes.....................................................................................11
SECTION 10. Mutilated or Missing Warrant Certificates...........................................................11
SECTION 11. Reservation of Warrant Shares.......................................................................12
SECTION 12. Obtaining Stock Exchange Listings...................................................................12
SECTION 13. Adjustment of Exercise Price and Number of Warrant Shares Issuable..................................12
(a) Stock Splits, Combinations, etc................................................................13
</TABLE>
- -----------------
* This Table of Contents does not constitute a part of this
Agreement or have any bearing upon the interpretation of any
of its terms or provisions.
i
<PAGE> 3
<TABLE>
<S> <C> <C>
(b) Reclassification, Combinations, Mergers, etc...................................................13
(c) Issuance of Options or Convertible Securities..................................................13
(d) Dividends and Distributions....................................................................14
(e) Preferred Stock Offering and Common Stock Commitment...........................................15
(f) Current Market Price...........................................................................15
(g) Certain Distributions..........................................................................16
(h) Consideration Received.........................................................................16
(i) Deferral of Certain Adjustments................................................................16
(j) Changes in Options and Convertible Securities..................................................16
(k) Expiration of Options and Convertible Securities...............................................17
(l) Other Adjustments..............................................................................17
SECTION 14. Statement on Warrants...............................................................................17
SECTION 15. Fractional Interest.................................................................................17
SECTION 16. Notices to Warrant Holders..........................................................................17
SECTION 17. Merger, Consolidation or Change of Name of Warrant Agent............................................19
SECTION 18. Warrant Agent.......................................................................................19
SECTION 19. Resignation and Removal of Warrant Agent; Appointment of Successor..................................21
SECTION 20. Registration........................................................................................22
SECTION 21. Reports.............................................................................................22
SECTION 22. Rule 144A...........................................................................................22
SECTION 23. Notices to Company and Warrant Agent................................................................22
SECTION 24. Supplements and Amendments..........................................................................23
SECTION 25. Successors..........................................................................................23
SECTION 26. Termination.........................................................................................23
SECTION 27. Governing Law.......................................................................................23
SECTION 28. Benefits of This Agreement..........................................................................23
SECTION 29. Counterparts........................................................................................24
EXHIBIT A.......................................................................................................A-1
EXHIBIT B.......................................................................................................B-1
</TABLE>
ii
<PAGE> 4
WARRANT AGREEMENT dated as of September 29, 1997 (the "AGREEMENT")
between MGC Communications Inc., a Nevada corporation (the "COMPANY"), and
Marine Midland Bank, as warrant agent (the "WARRANT AGENT").
WHEREAS, the Company proposes to issue Common Stock Purchase Warrants,
as hereinafter described (the "WARRANTS"), to purchase up to an aggregate of
1,291,200 shares of Common Stock (as defined below), in connection with the
offering of an aggregate of $160,000,000.00 principal amount of the Company's
13% Senior Secured Notes due 2004 (the "NOTES") and 160,000 Warrants, each
Warrant entitling the holder thereof to purchase 8.07 shares of Common Stock.
The Notes and Warrants will be sold in Units (the "UNITS"), each Unit
consisting of $1,000 principal amount of Notes and one Warrant.
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance of Warrant Certificates (as defined below) and other matters as
provided herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, and for the purpose of defining the respective
rights and obligations of the Company, the Warrant Agent and the Holders (as
defined below), the parties hereto agree as follows:
SECTION 1. Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
"Affiliate" of any person means any person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such person. For purposes of this definition, "control" when used with respect
to any person means the power to direct the management and policies of such
person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Commission" means the Securities and Exchange Commission.
"Common Equity Securities" means Common Stock and securities
convertible into, or exercisable or exchangeable for, Common Stock or rights or
options to acquire Common Stock or such other securities, excluding the
Warrants.
"Common Stock" means the common stock, par value $.001 per share, of
the Company, and any other capital stock of the Company into which such common
stock may be converted or reclassified or that may be issued in respect of, in
exchange for, or in substitution for, such common stock by reason of any stock
splits, stock dividends, distributions, mergers, consolidations or other like
events.
"Common Stock Commitment" means the binding commitment of certain
investors to purchase shares of Common Stock of the Company at a price to be
agreed upon between the Company and such investors, which price shall be not
less than $3.50 per share nor more than $5.00 per share, for an aggregate
purchase price of $15.0 million if the Preferred Stock Offering has not been
consummated before the sixtieth day after the date hereof.
"Company" means MGC Communications, Inc., a Nevada corporation, and
its successors and assigns.
1
<PAGE> 5
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercisability Date" means any time on or after the earlier to occur
of (i) October 1, 1998 and (ii) in the event a Change of Control (as defined in
the Indenture) occurs, the date the Company mails notice thereof to holders of
Notes and to the Holders.
"Exercise Price" means the purchase price per share of Common Stock to
be paid upon the exercise of each Warrant in accordance with the terms hereof,
which price shall initially be $.01 per share, subject to adjustment from time
to time pursuant to Section 13 hereof.
"Expiration Date" means October 1, 2004.
"Holder" means a person who owns Registrable Securities (as defined in
Section 7).
"Indenture" means the indenture, dated the date hereof, between the
Company and Marine Midland Bank, as trustee.
"Initial Purchasers" means Bear, Stearns & Co. Inc. and Furman Selz
LLC.
"person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock Offering" means the offering of shares of a new
series of preferred stock of the Company to generate an aggregate gross
proceeds of at least $15.0 million, which offering shall be consummated no more
than 60 days after the date hereof.
"Registrable Securities" means the Warrant Shares and any other
securities issued or issuable with respect to the Warrants or the Warrant
Shares by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise until such date as such security (i) is effectively
registered under the Securities Act and disposed of in accordance with a
registration statement or (ii) is distributed to the public pursuant to Rule
144 under the Securities Act.
"Registration Rights Agreement" means the registration rights
agreement, dated as of the date hereof by and among the Company and the Initial
Purchasers relating to the Notes.
"Securities Act" means the Securities Act of 1933, as amended.
"Separation Date" means the earlier of (i) 90 days after the issuance
of the Units, (ii) such date as the Initial Purchasers may, in their
discretion, deem appropriate for the Notes and the Warrants that comprise each
Unit to be transferred or exchanged separately, (iii) in the event a Change of
Control (as defined in the Indenture) occurs, the date the Company mails notice
thereof to holders of Notes and (iv) the date on which the Exchange Offer (as
defined in the Registration Rights Agreement) is consummated.
"Trustee" means the trustee under the Indenture.
2
<PAGE> 6
"Warrant Agent" means Marine Midland Bank or the successor or
successors of such Warrant Agent appointed in accordance with the terms hereof.
"Warrant Registration Rights Agreement" means the registration rights
agreement, dated as of September 29, 1997, by and among the Company and the
Initial Purchasers relating to the Warrants and the Warrant Shares.
"Warrant Shares" means the shares of Common Stock issued or issuable
upon the exercise of the Warrants.
SECTION 2. Appointment of Warrant Agent. The Company hereby appoints
the Warrant Agent to act as agent for the Company in accordance with the
instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
SECTION 3. Issuance of Warrants: Warrant Certificates. The Warrants
will be issued in the form of one or more global certificates (the "GLOBAL
WARRANTS"), substantially in the form of Exhibit A (including footnotes 1 and 2
thereto). The Global Warrants shall be deposited on the Issue Date with, or on
behalf of, The Depositary Trust Company (the "Depositary") and registered in
the name of Cede & Co., as the Depositary's nominee. Each Global Warrant shall
represent such of the outstanding Warrants as shall be specified therein and
each shall provide that it shall represent the aggregate amount of outstanding
Warrants from time to time endorsed thereon and that the aggregate amount of
outstanding Warrants represented thereby may from time to time be reduced or
increased, as appropriate. Upon request, a Holder may receive from the
Depositary and the Warrant Agent Warrants in definitive form (the "DEFINITIVE
WARRANTS"), substantially in the form of Exhibit A (not including footnotes 1
and 2 thereto) as set forth in Section 7 below. Any certificates (the "WARRANT
CERTIFICATES") evidencing the Global Warrants or the Definitive Warrants to be
delivered pursuant to this Agreement shall be substantially in the form set
forth in Exhibit A attached hereto.
SECTION 4. Execution of Warrant Certificates. Warrant Certificates
shall be signed on behalf of the Company by its Chairman of the Board or its
President or a Vice President and by its Secretary or an Assistant Secretary
under its corporate seal. Each such signature upon the Warrant Certificates may
be in the form of a facsimile signature of the present or any future Chairman
of the Board, President, Vice President, Secretary or Assistant Secretary and
may be imprinted or otherwise reproduced on the Warrant Certificates and for
that purpose the Company may adopt and use the facsimile signature of any
person who shall have been Chairman of the Board, President, Vice President,
Secretary or Assistant Secretary, notwithstanding the fact that at the time the
Warrant Certificates shall be countersigned and delivered or disposed of such
person shall have ceased to hold such office. The seal of the Company may be in
the form of a facsimile thereof and may be impressed, affixed, imprinted or
otherwise reproduced on the Warrant Certificates.
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been countersigned by the Warrant Agent, or
disposed of by the Company, such Warrant Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not ceased
to be such officer of the Company; and any Warrant Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Warrant Certificate, shall be a proper officer of the Company to sign
3
<PAGE> 7
such Warrant Certificate, although at the date of the execution of this Warrant
Agreement any such person was not such officer.
Warrant Certificates shall be dated the date of
countersignature.
SECTION 5. Separation of Warrants. The Notes and Warrants
shall not be separately transferable prior to the Separation Date.
SECTION 6. Registration and Countersignature. The Warrant
Agent, on behalf of the Company, shall number and register the Warrant
Certificates in a register as they are issued by the Company.
Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
The Warrant Agent shall, upon written instructions of the Chairman of the
Board, the President, a Vice President, the Treasurer or the Controller of the
Company, initially countersign, issue and deliver Warrants entitling the
Holders thereof to purchase not more than the number of Warrant Shares referred
to above in the first recital hereof and shall countersign and deliver Warrants
as otherwise provided in this Agreement.
The Company and the Warrant Agent may deem and treat the
Holder(s) of the Warrant Certificates as the absolute owner(s) thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone), for all purposes, and neither the Company nor the Warrant Agent shall
be affected by any notice to the contrary. Prior to a Separation Date, the
registered holder of the Unit shall be deemed the registered Holder of such
Warrants for all purposes hereunder.
SECTION 7. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Global Warrants. The transfer
and exchange of Global Warrants or beneficial interests therein shall be
effected through the Depositary, in accordance with this Warrant Agreement and
the procedures of the Depositary therefor.
(b) Exchange of a Beneficial Interest in a Global Warrant for
a Definitive Warrant.
(i) Any person having a beneficial interest in a Global Warrant
may upon request exchange such beneficial interest for a
Definitive Warrant. Upon receipt by the Warrant Agent of
written instructions or such other form of instructions as is
customary for the Depositary from the Depositary or its
nominee on behalf of any person having a beneficial interest
in a Global Warrant and, in the case of a Registrable
Security, the following additional information and documents
(all of which may be submitted by facsimile):
(A) if such beneficial interest is being delivered to
the person designated by the Depositary as being the
beneficial owner, a certification to that effect (in
substantially the form of Exhibit B hereto);
(B) if such beneficial interest is being transferred (1)
to a "qualified institutional buyer" (as defined in
Rule 144A under the Securities Act) in accordance
with Rule 144A under the Securities Act or (2)
pursuant to an exemption from registration in
accordance with Rule 144 under the Securities Act
(and based on an opinion of
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<PAGE> 8
counsel if the Company so requests) or (3) pursuant
to an effective registration statement under the
Securities Act, a certification to that effect (in
substantially the form of Exhibit B hereto);
(C) if such beneficial interest is being transferred to
any institutional "accredited investor," within the
meaning of Rule 501(a)(1), (2), (3) and (7) under
the Securities Act pursuant to a private placement
exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel
if the Company so requests), a certification to that
effect (in substantially the form of Exhibit B
hereto) and a certification from the applicable
transferee;
(D) if such beneficial interest is being transferred
pursuant to an exemption from registration in
accordance with Rule 904 under the Securities Act
(and based on an opinion of counsel if the Company
so requests), a certification to that effect (in
substantially the form of Exhibit B); or
(E) If such beneficial interest is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act (and based on an
opinion of counsel if the Company so requests), a
certification to that effect (in substantially the
form of Exhibit B hereto);
then the Warrant Agent shall cause, in accordance with the
standing instructions and procedures existing between the
Depositary and Warrant Agent, the number of Warrants and
Warrant Shares represented by the Global Warrant to be
reduced by the number of Warrants and Warrant Shares to be
represented by the Definitive Warrants to be issued in
exchange for the interest in the Global Warrant and,
following such reduction, the Company shall execute and the
Warrant Agent shall countersign and deliver to the
transferee, as the case may be, a Definitive Warrant.
(ii) Definitive Warrants issued in exchange for a beneficial
interest in a Global Warrant pursuant to this Section 7(d)
shall be registered in such names as the Depositary, pursuant
to instructions from its direct or indirect participants or
otherwise, shall instruct the Warrant Agent. The Warrant
Agent shall deliver such Definitive Warrants to the persons
in whose names such Warrants are so registered.
(c) Transfer and Exchange of Definitive Warrants. When
Definitive Warrants are presented to the Warrant Agent with a request:
(i) to register the transfer of the Definitive Warrants; or
(ii) to exchange such Definitive Warrants for an equal number of
Definitive Warrants of other authorized denominations,
the Warrant Agent shall register the transfer or make the exchange as requested
if its requirements for such transactions are met; provided, however, that the
Definitive Warrants presented or surrendered for registration of transfer or
exchange:
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<PAGE> 9
(x) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Warrant
Agent, duly executed by the Holder thereof or by his
attorney, duly authorized in writing; and
(y) in the case of Registrable Securities (as defined below),
such request shall be accompanied by the following additional
information and documents, as applicable:
(A) if such Registrable Security is being delivered to
the Warrant Agent by a Holder for registration in
the name of such Holder, without transfer, a
certification from such Holder to that effect (in
substantially the form of Exhibit B hereto);
(B) if such Registrable Security is being transferred
(1) to a "qualified institutional buyer" (as defined
in Rule 144A under the Securities Act) in accordance
with Rule 144A under the Securities Act or (2)
pursuant to an exemption from registration in
accordance with Rule 144 under the Securities Act
(and based on an opinion of counsel if the Company
so requests) or (3) pursuant to an effective
registration statement under the Securities Act, a
certification to that effect (in substantially the
form of Exhibit B hereto);
(C) if such Registrable Security is being transferred to
an institutional "accredited investor," within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act pursuant to a private placement
exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel
if the Company so requests), a certification to that
effect (in substantially the form of Exhibit B
hereto) and a certification from the applicable
transferee;
(D) if such Registrable Security is being transferred
pursuant to an exemption from registration in
accordance with Rule 904 under the Securities Act
(and based on an opinion of counsel if the Company
so requests), a certification to that effect (in
substantially the form of Exhibit B hereto); or
(E) if such Registrable Security is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act (and based on an
opinion of counsel if the Company so requests), a
certification to that effect (in substantially the
form of Exhibit B hereto).
(d) Restrictions on Exchange or Transfer of a Definitive
Warrant for a Beneficial Interest in a Global Warrant. A Definitive Warrant may
not be exchanged for a beneficial interest in a Global Warrant except upon
satisfaction of the requirements set forth below. Upon receipt by the Warrant
Agent of a Definitive Warrant, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Warrant Agent, together
with:
(i) if such Definitive Warrant is a Registrable Security,
certification from the Holder thereof (in substantially the
form of Exhibit B hereto) to the effect that such Definitive
Warrant is being transferred by such Holder either (A) to a
"qualified institutional buyer" (as defined in Rule 144A
under the Securities Act) in accordance with Rule 144A under
the Securities
6
<PAGE> 10
Act (B) outside the United States to a foreign person in a
transaction meeting the requirements of Rule 904 under the
Securities Act (and based on an opinion of counsel if the
Company so requests) or (C) to an institutional "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or
(7) under the Securities Act pursuant to a private placement
exemption from the registration requirements of the
Securities Act who has provided a certification to that
effect (and based on an opinion of counsel if the Company so
requests) who wishes to take delivery thereof in the form of
a beneficial interest in a Global Warrant; and
(ii) whether or not such Definitive Warrant is a Registrable
Security, written instructions directing the Warrant Agent to
make, or to direct the Depositary to make, an endorsement on
the Global Warrant to reflect an increase in the number of
Warrants and Warrant Shares represented by the Global
Warrant,
then the Warrant Agent shall cancel such Definitive Warrant and cause, or
direct the Depositary to cause, in accordance with the standing instructions
and procedures existing between the Depositary and the Warrant Agent, the
number of Warrants and Warrant Shares represented by the Global Warrant to be
increased accordingly. If no Global Warrants are then outstanding, the Company
shall issue and the Warrant Agent shall countersign a new Global Warrant
representing the appropriate number of Warrants and Warrant Shares.
(e) Restrictions on Transfer and Exchange of Global Warrants.
Notwithstanding any other provisions of this Warrant Agreement (other than the
provisions set forth in subsection (f) of this Section 7), a Global Warrant may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Countersigning of Definitive Warrants in Absence of
Depositary. If at any time:
(i) the Depositary for the Global Warrants notifies the Company
that the Depositary is unwilling or unable to continue as
Depositary for the Global Warrants and a successor Depositary
for the Global Warrants is not appointed by the Company
within 90 days after delivery of such notice; or
(ii) The Company, in its sole discretion, notifies the Warrant
Agent in writing that it elects to cause the issuance of
Definitive Warrants under this Warrant Agreement,
then the Company shall execute, and the Warrant Agent, upon written
instructions signed by two officers of the Company, shall countersign and
deliver Definitive Warrants, in an aggregate number equal to the number of
Warrants represented by Global Warrants, in exchange for such Global Warrants.
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<PAGE> 11
(g) Legends.
(i) Except for any Registrable Security sold or transferred
(including any Registrable Security represented by a Global
Warrant) as discussed in clause (ii) below, each Warrant
Certificate evidencing the Global Warrants and the Definitive
Warrants (and all Warrants issued in exchange therefor or
substitution thereof) and each certificate representing the
Warrant Shares shall bear a legend in substantially the
following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY
WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS
OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE
144A THEREUNDER. THE HOLDER OF THE SECURITY
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
ISSUER THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED
OR OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON
WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A , (b) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A
PERSON THAT IS NOT A U.S. PERSON (AS DEFINED IN RULE
902 UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT, (d), TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR
(7) OF REGULATION D UNDER THE SECURITIES ACT) THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE AND
WARRANT AGENT A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE
WARRANTS (THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM THE WARRANT AGENT) OR (e) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT (IN THE CASE OF (b), (c), (d)
or (e), UPON AN OPINION OF COUNSEL IF THE ISSUER OR
WARRANT AGENT, REGISTRAR OR TRANSFER AGENT FOR THE
SECURITIES SO REQUESTS), (2) TO THE ISSUER OR (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND,
IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED
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<PAGE> 12
STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE
SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS
SET FORTH IN (A) ABOVE."
(ii) Upon any sale or transfer of a Registrable Security
(including any Registrable Security represented by a Global
Warrant) pursuant to an effective registration statement
under the Securities Act, pursuant to Rule 144 under the
Securities Act or pursuant to an opinion of counsel
reasonably satisfactory to the Company that no legend is
required:
(A) in the case of any Registrable Security that is a
Definitive Warrant, the Warrant Agent shall permit
the Holder thereof to exchange such Registrable
Security for a Definitive Warrant that does not bear
the legend set forth in clause (i) above and rescind
any restriction on the transfer of such Registrable
Security; and
(B) in the case of any Registrable Security represented
by a Global Warrant, such Registrable Security shall
not be required to bear the legend set forth in
clause (i) above but shall continue to be subject to
the provisions of Section 7(c) hereof; provided,
however, that with respect to any request for an
exchange of a Registrable Security that is
represented by a Global Warrant for a Definitive
Warrant that does not bear the legend set forth in
clause (i) above, which request is made in reliance
upon Rule 144 (and based upon an opinion of counsel
if the Company so requests), the Holder thereof
shall certify in writing to the Warrant Agent that
such request is being made pursuant to Rule 144
(such certification to be substantially in the form
of Exhibit B hereto).
(h) Cancellation of Global Warrant. At such time as all
beneficial interests in Global Warrants have either been exchanged for
Definitive Warrants, redeemed, repurchased or cancelled, all Global Warrants
shall be returned to or retained and cancelled by the Warrant Agent.
(i) Obligations with respect to Transfers and Exchanges of
Warrants.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Warrant Agent is hereby
authorized to countersign, in accordance with the provisions
of Section 6 and this Section 7, Definitive Warrants and
Global Warrants as required pursuant to the provisions of
this Section 7.
(ii) All Definitive Warrants and Global Warrants issued upon any
registration of transfer or exchange of Definitive Warrants
or Global Warrants shall be the valid obligations of the
Company, entitled to the same benefits under this Warrant
Agreement, as the Definitive Warrants or Global Warrants
surrendered upon such registration of transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any
Warrant, the Warrant Agent and the Company may deem and treat
the person in whose name any Warrant is registered as the
absolute owner of such Warrant and neither the Warrant Agent,
nor the Company shall be affected by notice to the contrary.
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<PAGE> 13
(iv) No service charge shall be made to a Holder for any
registration, transfer or exchange.
SECTION 8. Terms of Warrants: Exercise of Warrants. Subject
to the terms of this Agreement, each Warrant Holder shall have the right, which
may be exercised commencing at the opening of business on the Exercisability
Date and until 5:00 p.m., New York City time, on the Expiration Date to receive
from the Company the number of fully paid and nonassessable Warrant Shares
which the Holder may at the time be entitled to receive on exercise of such
Warrants and payment of the Exercise Price then in effect for such Warrant
Shares; provided, however, that no Warrant Holder shall be entitled to exercise
such Holder's Warrants at any time, unless, at the time of exercise, (i) a
registration statement under the Securities Act relating to the Warrant Shares
has been filed with, and declared effective by, the Commission, and no stop
order suspending the effectiveness of such registration statement has been
issued by the Commission or (ii) the issuance of the Warrant Shares is
permitted pursuant to an exemption from the registration requirements of the
Securities Act. Subject to the provisions of the following paragraph of this
Section 8, each Warrant not exercised prior to 5:00 p.m., New York City time,
on the Expiration Date shall become void and all rights thereunder and all
rights in respect thereof under this Agreement shall cease as of such time. No
adjustments as to dividends will be made upon exercise of the Warrants.
The Company shall give notice not less than 90, and not more
than 120, days prior to the Expiration Date to the Holders of all then
outstanding Warrants to the effect that the Warrants will terminate and become
void as of 5:00 p.m., New York City time, on the Expiration Date. If the
Company fails to give such notice, the Warrants will not expire until 90 days
after the Company gives such notice, provided, however, in no event will
Holders be entitled to any damages or other remedy for the Company's failure to
give such notice other than any such extension.
A Warrant may be exercised upon surrender to the Company at
the principal office of the Warrant Agent of the certificate or certificates
evidencing the Warrant to be exercised with the form of election to purchase on
the reverse thereof duly filled in and signed, which signature shall be
guaranteed by a bank or trust company having an office or correspondent in the
United States or a broker or dealer which is a member of a registered
securities exchange or the National Association of Securities Dealers, Inc.,
and upon payment to the Warrant Agent for the account of the Company of the
Exercise Price as adjusted as herein provided, for each of the Warrant Shares
in respect of which such Warrant is then exercised. Payment of the aggregate
Exercise Price shall be made in cash or by certified or official bank check,
payable to the order of the Company. In the alternative, each Holder may
exercise its right to receive Warrant Shares on a net basis, such that without
the exchange of any funds, the Holder receives that number of Warrant Shares
otherwise issuable upon exercise of its Warrants less that number of Warrant
Shares having a fair market value equal to the aggregate Exercise Price that
would otherwise have been paid by the Holder for the Warrant Shares being
issued. For purposes of the foregoing sentence, "fair market value" of the
Warrant Shares shall be the current market price of the Warrant Shares on the
date immediately preceding the date of payment of the Exercise Price as
determined by the procedures set forth in Section 13(f). The exercise of
Warrants by Holders of beneficial interest in Global Warrants shall be effected
in accordance with this Agreement and the procedures of the Depositary
therefor.
Subject to the provisions of Section 9 hereof, upon surrender
of Warrants and payment of the Exercise Price as provided above, the Warrant
Agent shall thereupon promptly notify the Company, and the Company shall
promptly transfer to the Holder of such Warrant Certificate a certificate or
certificates for the appropriate number of Warrant Shares or other securities
or property (including any money) to which the Holder is entitled, registered
or otherwise placed in, or payable to the order of, such name or names as
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<PAGE> 14
may be directed in writing by the Holder, and shall deliver such certificate or
certificates representing the Warrant Shares and any other securities or
property (including any money) to the person or persons entitled to receive the
same, together with an amount in cash in lieu of any fraction of a share as
provided in Section 15. Any such certificate or certificates representing the
Warrant Shares shall be deemed to have been issued and any person so designated
to be named therein shall be deemed to have become a Holder of record of such
Warrant Shares as of the date of the surrender of such Warrants and payment of
the Exercise Price.
The Warrants shall be exercisable commencing on the
Exercisability Date, at the election of the Holders thereof, either in full or
from time to time in part and, in the event that a certificate evidencing
Warrants is exercised in respect of fewer than all of the Warrant Shares
issuable on such exercise at any time prior to the date of expiration of the
Warrants, a new certificate evidencing the remaining Warrant or Warrants will
be issued, and the Warrant Agent is hereby irrevocably authorized to
countersign and to deliver the required new Warrant Certificate or Certificates
pursuant to the provisions of this Section and of Section 4 hereof, and the
Company, whenever required by the Warrant Agent, will supply the Warrant Agent
with Warrant Certificates duly executed on behalf of the Company for such
purpose.
All Warrant Certificates surrendered upon exercise of
Warrants shall be cancelled by the Warrant Agent. Such cancelled Warrant
Certificates shall then be disposed of by the Warrant Agent in a manner
satisfactory to the Company. The Warrant Agent shall account promptly to the
Company with respect to Warrants exercised and concurrently pay to the Company
all monies received by the Warrant Agent for the purchase of the Warrant Shares
through the exercise of such Warrants.
The Warrant Agent shall keep copies of this Agreement and any
notices given or received hereunder by or from the Company available for
inspection by the Holders during normal business hours at its office. The
Company shall supply the Warrant Agent from time to time with such numbers of
copies of this Agreement as the Warrant Agent may request.
SECTION 9. Payment of Taxes. The Company will pay all
documentary stamp taxes attributable to the initial issuance of Warrant Shares
upon the exercise of Warrants or to any separation of the Warrants from the
Notes; provided, however, that the Company shall not be required to pay any tax
or taxes which may be payable in respect of any transfer involved in the issue
of any Warrant Certificates or any certificates for Warrant Shares in a name
other than that of the Holder of a Warrant Certificate surrendered upon the
exercise of a Warrant, and the Company shall not be required to issue or
deliver such Warrant Certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
SECTION 10. Mutilated or Missing Warrant Certificates. In
case any of the Warrant Certificates shall be mutilated, lost, stolen or
destroyed, the Company may in its discretion issue and the Warrant Agent may
countersign, in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor
and representing an equivalent number of Warrants, but only upon receipt of
evidence reasonably satisfactory to the Company and the Warrant Agent of such
loss, theft or destruction of such Warrant Certificate and indemnity, if
requested, also reasonably satisfactory to them. Applicants for such substitute
Warrant Certificates shall also comply with such other reasonable regulations
and pay such other reasonable charges as the Company or the Warrant Agent may
prescribe.
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<PAGE> 15
SECTION 11. Reservation of Warrant Shares. The Company will
at all times reserve and keep available, free from preemptive rights, out of
the aggregate of its authorized but unissued Common Stock or its authorized and
issued Common Stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the
maximum number of shares of Common Stock which may then be deliverable upon the
exercise of all outstanding Warrants.
The transfer agent for the Common Stock (the "TRANSFER
AGENT") and every subsequent transfer agent for any shares of the Company's
capital stock issuable upon the exercise of any of the rights of purchase
aforesaid will be irrevocably authorized and directed at all times to reserve
such number of authorized shares as shall be required for such purpose. The
Company will keep a copy of this Agreement on file with the Transfer Agent and
with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Warrant Agent is hereby irrevocably authorized to requisition
from time to time from such Transfer Agent the stock certificates required to
honor outstanding Warrants upon exercise thereof in accordance with the terms
of this Agreement. The Company will supply such Transfer Agent with duly
executed certificates for such purposes and will provide or otherwise make
available any cash which may be payable as provided in Section 15. The Company
will furnish such Transfer Agent a copy of all notices of adjustments and
certificates related thereto, transmitted to each Holder of the Warrants
pursuant to Section 16 hereof. Prior to the initial public offering of the
Common Stock of the Company, the Company may act as Transfer Agent for the
Common Stock. The Warrant Agent hereby agrees that it will not issue any stock
certificates delivered hereunder other than upon the exercise of Warrants in
accordance with the terms of this Agreement and, promptly after the issuance of
any such stock certificates, to notify the Transfer Agent of such issuance.
Before taking any action which would cause an adjustment
pursuant to Section 13 hereof that would reduce the Exercise Price below the
then par value (if any) of the Warrant Shares, the Company will take any
corporate action which may, in the opinion of its counsel (which may be counsel
employed by the Company), be necessary in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares at the Exercise
Price as so adjusted.
The Company covenants that all Warrant Shares which may be
issued upon exercise of Warrants in accordance with the terms of this Agreement
(including the payment of the Exercise Price) will, upon issue, be duly and
validly issued, fully paid, nonassessable, free of preemptive rights and free
from all taxes, liens, charges and security interests with respect to the issue
thereof.
SECTION 12. 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 (including,
without limitation, the Nasdaq National Market) within the United States of
America, if any, on which other shares of Common Stock are then listed. Upon
the listing of such Warrant Shares, the Company shall notify the Warrant Agent
in writing. The Company will obtain and keep all required permits and records
in connection with such listing.
SECTION 13. Adjustment of Exercise Price and Number of
Warrant Shares Issuable. The number and kind of shares purchasable upon the
exercise of Warrants and the Exercise Price shall be subject to adjustment from
time to time as follows:
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<PAGE> 16
(a) Stock Splits, Combinations, etc. In case the Company
shall hereafter (A) pay a dividend or make a distribution on its Common Stock
in shares of its capital stock (whether shares of Common Stock or of capital
stock of any other class), (B) subdivide its outstanding shares of Common
Stock, (C) combine its outstanding shares of Common Stock into a smaller number
of shares, or (D) issue by reclassification of its shares of Common Stock any
shares of capital stock of the Company, the Exercise Price in effect and the
number of Warrant Shares issuable upon exercise of each Warrant immediately
prior to such action shall be adjusted so that the Holder of any Warrant
thereafter exercised shall be entitled to receive the number of shares of
capital stock of the Company which such Holder would have owned immediately
following such action had such Warrant been exercised immediately prior
thereto. An adjustment made pursuant to this paragraph shall become effective
immediately after the record date in the case of a dividend and shall become
effective immediately after the effective date in the case of a subdivision,
combination or reclassification. If, as a result of an adjustment made pursuant
to this paragraph, the Holder of any Warrant thereafter exercised shall become
entitled to receive shares of two or more classes of capital stock of the
Company, the Board of Directors of the Company (whose determination shall be
conclusive) shall determine the allocation of the adjusted Exercise Price
between or among shares of such classes of capital stock.
(b) Reclassification, Combinations, Mergers, etc. In case of
any reclassification or change of outstanding shares of Common Stock issuable
upon exercise of the Warrants (other than as set forth in paragraph (a) above
and other than a change in par value, or from par value to no par value, or
from no par value to par value or as a result of a subdivision or combination),
or in case of any consolidation or merger of the Company with or into another
corporation (other than a merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Warrants) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as
an entirety, then, as a condition of such reclassification, change,
consolidation, merger, sale or conveyance, the Company or such a successor or
purchasing corporation, as the case may be, shall forthwith make lawful and
adequate provision whereby the Holder of each Warrant then outstanding shall
have the right thereafter to receive on exercise of such Warrant the kind and
amount of shares of stock and other securities and property receivable upon
such reclassification, change, consolidation, merger, sale or conveyance by a
Holder of the number of shares of Common Stock issuable upon exercise of such
Warrant immediately prior to such reclassification, change, consolidation,
merger, sale or conveyance and enter into a supplemental warrant agreement so
providing. Such provisions shall include provision for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments provided for
in this Section 13. If the issuer of securities deliverable upon exercise of
Warrants under the supplemental warrant agreement is an affiliate of the
formed, surviving or transferee corporation, that issuer shall join in the
supplemental warrant agreement. The above provisions of this paragraph (b)
shall similarly apply to successive reclassifications and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances.
(c) Issuance of Options or Convertible Securities. In the
event the Company shall, at any time or from time to time after the date
hereof, issue, sell, distribute or otherwise grant in any manner (including by
assumption) to all holders of the Common Stock any rights to subscribe for or
to purchase, or any warrants or options for the purchase of, Common Stock or
any stock or securities convertible into or exchangeable for Common Stock (any
such rights, warrants or options being herein called "OPTIONS" and any such
convertible or exchangeable stock or securities being herein called
"CONVERTIBLE SECURITIES") or any Convertible Securities (other than upon
exercise of any Option), whether or not such Options or the rights to convert
or exchange such Convertible Securities are immediately exercisable, and
the price per share at which Common Stock is issuable upon the exercise of such
Options or upon the conversion or
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exchange of such Convertible Securities (determined by dividing (i) the
aggregate amount, if any, received or receivable by the Company as
consideration for the issuance, sale, distribution or granting of such Options
or any such Convertible Security, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise of
all such Options or upon conversion or exchange of all such Convertible
Securities, plus, in the case of Options to acquire Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable upon the
conversion or exchange of all such Convertible Securities, by (ii) the total
maximum number of shares of Common Stock issuable upon the exercise of all such
Options or upon the conversion or exchange of all such Convertible Securities
or upon the conversion or exchange of all Convertible Securities issuable upon
the exercise of all such Options) shall be less than the current market price
per share of Common Stock on the record date for the issuance, sale,
distribution or granting of such Options or Convertible Securities (any such
event being herein called a "Distribution"), then, effective upon such
Distribution, (I) the Exercise Price shall be reduced to the price (calculated
to the nearest 1/1,000 of one cent) determined by multiplying the Exercise
Price in effect immediately prior to such Distribution by a fraction, the
numerator of which shall be the sum of (i) the number of shares of Common Stock
outstanding (exclusive of any treasury shares) immediately prior to such
Distribution multiplied by the current market price per share of Common Stock
on the date of such Distribution plus (ii) the consideration, if any, received
by the Company upon such Distribution, and the denominator of which shall be
the product of (A) the total number of shares of Common Stock outstanding
(exclusive of any treasury shares) immediately after such Distribution
multiplied by (B) the current market price per share of Common Stock on the
record date for such Distribution and (II) the number of shares of Common Stock
purchasable upon the exercise of each Warrant shall be increased to a number
determined by multiplying the number of shares of Common Stock so purchasable
immediately prior to the record date for such Distribution by a fraction, the
numerator of which shall be the Exercise Price in effect immediately prior to
the adjustment required by clause (I) of this sentence and the denominator of
which shall be the Exercise Price in effect immediately after such adjustment.
For purposes of the foregoing, the total maximum number of shares of Common
Stock issuable upon exercise of all such Options or upon conversion or exchange
of all such Convertible Securities or upon the conversion or exchange of the
total maximum amount of the Convertible Securities issuable upon the exercise
of all such Options shall be deemed to have been issued as of the date of such
Distribution and thereafter shall be deemed to be outstanding and the Company
shall be deemed to have received as consideration therefor such price per
share, determined as provided above. Except as provided in paragraphs (j) and
(k) below, no additional adjustment of the Exercise Price shall be made upon
the actual exercise of such Options or upon conversion or exchange of the
Convertible Securities or upon the conversion or exchange of the Convertible
Securities issuable upon the exercise of such Options.
(d) Dividends and Distributions. In the event the Company
shall, at any time or from time to time after the date hereof, distribute to
all the holders of Common Stock any dividend or other distribution of cash,
evidences of its indebtedness, other securities or other properties or assets
(in each case other than (i) dividends payable in Common Stock, Options or
Convertible Securities and (ii) any cash dividend that, when added to all other
cash dividends paid in the one year prior to the declaration date of such
dividend (excluding any such other dividend included in a previous adjustment
of the Exercise Price pursuant to this paragraph (d) and excluding any cash
dividends or other cash distributions from current or retained earnings), does
not exceed 5% of the current market price per share of Common Stock on such
declaration date), or any options, warrants or other rights to subscribe for or
purchase any of the foregoing, then (A) the Exercise Price shall be decreased
to a price determined by multiplying the Exercise Price then in effect by a
fraction, the numerator of which shall be the current market price per
share of Common Stock on the record date for such distribution less the sum of
(X) the cash portion, if any, of such distribution per share of Common Stock
outstanding (exclusive of any treasury shares) on the record date for such
distribution plus
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(Y) the then fair market value (as determined in good faith by the Board of
Directors of the Company) per share of Common Stock outstanding (exclusive of
any treasury shares) on the record date for such distribution of that portion,
if any, of such distribution consisting of evidences of indebtedness, other
securities, properties, assets, options, warrants or subscription or purchase
rights, and the denominator of which shall be such current market price per
share of Common Stock and (B) the number of shares of Common Stock purchasable
upon the exercise of each Warrant shall be increased to a number determined by
multiplying the number of shares of Common Stock so purchasable immediately
prior to the record date for such distribution by a fraction, the numerator of
which shall be the Exercise Price in effect immediately prior to the adjustment
required by clause (A) of this sentence and the denominator of which shall be
the Exercise Price in effect immediately after such adjustment. The adjustments
required by this paragraph (d) shall be made whenever any such distribution
occurs retroactive to the record date for the determination of stockholders
entitled to receive such distribution.
(e) Preferred Stock Offering and Common Stock Commitment. If
(i) upon consummation of the Preferred Stock Offering the Company shall issue
Convertible Securities and the price per share at which the Common Stock is
issuable upon conversion of such Convertible Securities (as determined by the
procedures set forth in Section 13(c)) is less than $5.00 per share of Common
Stock; (ii) upon consummation of the Common Stock Commitment the Company shall
issue Common Stock at a price per share less than $5.00 per share or (iii) the
Company shall otherwise issue shares of Common Stock (other than upon the
exercise of Options outstanding upon the date of this Agreement) prior to
December 31, 1997, at less than $5.00 per share, then, effective upon the
consummation of the Preferred Stock Offering, the Common Stock Commitment or
such other issuance, as the case may be, the number of shares issuable upon
exercise of the Warrants shall be adjusted so that, after giving effect to the
consummation of the Preferred Stock Offering, the Common Stock Commitment or
such other issuance, as the case may be, the aggregate number of shares of
Common Stock issuable upon exercise of all of the Warrants issued hereunder is
equal to 6.4% of the outstanding Common Stock of the Company. For purposes of
the foregoing, the total maximum number of shares of Common Stock issuable upon
exercise of all outstanding Options or upon conversion or exchange of all
outstanding Convertible Securities less the aggregate number of shares which
could be purchased by the Company, at $5.00 per share, with the amount of
additional consideration, if any, payable to the Company upon exercise of such
Options or conversion of such Convertible Securities, shall be deemed to have
been issued as of the date of the consummation of such transaction and
thereafter shall be deemed to be outstanding. Except as provided in paragraphs
(j) and (k) below, no adjustment of the Exercise Price shall be made upon the
actual conversion or exchange of the Convertible Securities.
(f) Current Market Price. For the purpose of any computation
of current market price under this Section 13 and Section 15, the current
market price per share of Common Stock at any date shall be (x) for purposes of
Section 15, the closing price on the business day immediately prior to the
exercise of the applicable Warrant pursuant to Section 8 and (y) in all other
cases, the average of the daily closing prices for the shorter of (i) the 20
consecutive trading days ending on the last full trading day on the exchange or
market specified in the second succeeding sentence prior to the Time of
Determination (as defined below) and (ii) the period commencing on the date
next succeeding the first public announcement of the issuance, sale,
distribution or granting in question through such last full trading day prior
to the Time of Determination. The term "Time of Determination" as used herein
shall be the time and date of the earlier to occur of (A) the date as of which
the current market price is to be computed and (B) the last full trading day on
such exchange or market before the commencement of "ex-dividend" trading in the
Common Stock relating to the event giving rise to the adjustment required by
paragraph (a), (b), (c) or (d). The closing price for any day shall be the last
reported sale price regular way or, in case no such reported sale takes place
on
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<PAGE> 19
such day, the average of the closing bid and asked prices regular way for such
day, in each case (1) on the principal national securities exchange on which
the shares of Common Stock are listed or to which such shares are admitted to
trading or (2) if the Common Stock is not listed or admitted to trading on a
national securities exchange, in the over-the-counter market as reported by
Nasdaq National Market or any comparable system or (3) if the Common Stock is
not listed on Nasdaq National Market or a comparable system, as furnished by
two members of the NASD selected from time to time in good faith by the Board
of Directors of the Company for that purpose. In the absence of all of the
foregoing, or if for any other reason the current market price per share cannot
be determined pursuant to the foregoing provisions of this paragraph (e), the
current market price per share shall be the fair market value thereof as
determined in good faith by the Board of Directors of the Company.
(g) Certain Distributions. If the Company shall pay a
dividend or make any other distribution payable in Options or Convertible
Securities, then, for purposes of paragraph (c) above, such Options or
Convertible Securities shall be deemed to have been issued or sold without
consideration.
(h) Consideration Received. If any shares of Common Stock,
Options or Convertible Securities shall be issued, sold or distributed for a
consideration other than cash, the amount of the consideration other than cash
received by the Company in respect thereof shall be deemed to be the then fair
market value of such consideration (as determined in good faith by the Board of
Directors of the Company). If any Options shall be issued in connection with
the issuance and sale of other securities of the Company, together comprising
one integral transaction in which no specific consideration is allocated to
such Options by the parties thereto, such Options shall be deemed to have been
issued without consideration; provided, however, that if such Options have an
exercise price equal to or greater than the current market price of the Common
Stock on the date of issuance of such Options, then such Options shall be
deemed to have been issued for consideration equal to such exercise price.
(i) Deferral of Certain Adjustments. No adjustment to the
Exercise Price (including the related adjustment to the number of shares of
Common Stock purchasable upon the exercise of each Warrant) shall be required
hereunder unless such adjustment, together with other adjustments carried
forward as provided below, would result in an increase or decrease of at least
one percent of the Exercise Price; provided that any adjustments which by
reason of this paragraph (h) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. No adjustment need
be made for a change in the par value of the Common Stock. All calculations
under this Section shall be made to the nearest 1/1,000 of one cent or to the
nearest 1/1000 of a share, as the case may be.
(j) Changes in Options and Convertible Securities. If the
exercise price provided for in any Options referred to in paragraph (c) above,
the additional consideration, if any, payable upon the conversion or exchange
of any Convertible Securities referred to in paragraph (c) or (e) above, or the
rate at which any Convertible Securities referred to in paragraph (c) or (e)
above are convertible into or exchangeable for Common Stock shall change at any
time (other than under or by reason of provisions designed to protect against
dilution upon an event which results in a related adjustment pursuant to this
Section 13), the Exercise Price then in effect and the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall forthwith be
readjusted (effective only with respect to any exercise of any Warrant after
such readjustment) to the Exercise Price and number of shares of Common Stock
so purchasable that would then be in effect had the adjustment made upon the
issuance, sale, distribution or granting of such Options or Convertible
Securities been made based upon such changed purchase price, additional
consideration or
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<PAGE> 20
conversion rate, as the case may be, but only with respect to such Options and
Convertible Securities as then remain outstanding.
(k) Expiration of Options and Convertible Securities. If, at
any time after any adjustment to the number of shares of Common Stock
purchasable upon the exercise of each Warrant shall have been made pursuant to
paragraph (c), (e) or (j) above or this paragraph (k), any Options or
Convertible Securities shall have expired unexercised, the number of such
shares so purchasable shall, upon such expiration, be readjusted and shall
thereafter be such as they would have been had they been originally adjusted
(or had the original adjustment not been required, as the case may be) as if
(i) the only shares of Common Stock deemed to have been issued in connection
with such Options or Convertible Securities were the shares of Common Stock, if
any, actually issued or sold upon the exercise of such Options or Convertible
Securities and (ii) such shares of Common Stock, if any, were issued or sold
for the consideration actually received by the Company upon such exercise plus
the aggregate consideration, if any, actually received by the Company for the
issuance, sale, distribution or granting of all such Options or Convertible
Securities, whether or not exercised; provided that no such readjustment shall
have the effect of decreasing the number of such shares so purchasable by an
amount (calculated by adjusting such decrease to account for all other
adjustments made pursuant to this Section 13 following the date of the original
adjustment referred to above) in excess of the amount of the adjustment
initially made in respect of the issuance, sale, distribution or granting of
such Options or Convertible Securities.
(l) Other Adjustments. In the event that at any time, as a
result of an adjustment made pursuant to this Section 13, the Holders shall
become entitled to receive any securities of the Company other than shares of
Common Stock, thereafter the number of such other securities so receivable upon
exercise of the Warrants and the Exercise Price applicable to such exercise
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the shares
of Common Stock contained in this Section 13.
SECTION 14. Statement on Warrants. Irrespective of any
adjustment in the number or kind of shares issuable upon the exercise of the
Warrants or the Exercise Price, Warrants theretofore or thereafter issued may
continue to express the same number and kind of shares as are stated in the
Warrants initially issuable pursuant to this Agreement.
SECTION 15. Fractional Interest. The Company shall not be
required to issue fractional shares of Common Stock on the exercise of
Warrants. If more than one Warrant shall be presented for exercise in full at
the same time by the same Holder, the number of full shares of Common Stock
which shall be issuable upon such exercise shall be computed on the basis of
the aggregate number of shares of Common Stock acquirable on exercise of the
Warrants so presented. If any fraction of a share of Common Stock would, except
for the provisions of this Section, be issuable on the exercise of any Warrant
(or specified portion thereof), the Company shall direct the Transfer Agent to
pay an amount in cash calculated by it to equal the then current market price
per share multiplied by such fraction computed to the nearest whole cent. The
Holders, by their acceptance of the Warrant Certificates, expressly waive any
and all rights to receive any fraction of a share of Common Stock or a stock
certificate representing a fraction of a share of Common Stock.
SECTION 16. Notices to Warrant Holders. Upon any adjustment
of the Exercise Price pursuant to Section 13, the Company shall promptly
thereafter (i) cause to be filed with the Warrant Agent a certificate of a firm
of independent public accountants of recognized standing selected by the Board
of
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Directors of the Company (who may be the regular auditors of the Company)
setting forth the Exercise Price after such adjustment and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculations are based and setting forth the number of Warrant Shares (or
portion thereof) issuable after such adjustment in the Exercise Price, upon
exercise of a Warrant and payment of the adjusted Exercise Price, which
certificate shall be conclusive evidence of the correctness of the matters set
forth therein, and (ii) cause to be given to each of the registered Holders of
the Warrant Certificates at his address appearing on the Warrant register
written notice of such adjustments by first-class mail, postage prepaid. The
Warrant Agent shall be entitled to rely on the above-referenced accountant's
certificate and shall be under no duty or responsibility with respect to any
such certificate, except to exhibit the same from time to time to any Holder
desiring an inspection thereof during reasonable business hours. The Warrant
Agent shall not at any time be under any duty or responsibility to any Holder
to determine whether any facts exist that may require any adjustment of the
number of shares of Common Stock or other stock or property issuable on
exercise of the Warrants or the Exercise Price, or with respect to the nature
or extent of any such adjustment when made, or with respect to the method
employed in making such adjustment or the validity or value (or the kind or
amount) of any shares of Common Stock or other stock or property which may be
issuable on exercise of the Warrants. The Warrant Agent shall not be
responsible for any failure of the Company to make any cash payment or to
issue, transfer or deliver any shares of Common Stock or stock certificates or
other common stock or property upon the exercise of any Warrant.
In case:
(a) the Company shall authorize the issuance to all holders
of shares of Common Stock of rights, options or warrants to subscribe
for or purchase shares of Common Stock or of any other subscription
rights or warrants; or
(b) the Company shall authorize the distribution to all
holders of shares of Common Stock of evidences of its indebtedness or
assets (other than cash dividends or cash distributions payable out of
consolidated earnings or earned surplus or dividends payable in shares
of Common Stock or distributions referred to in Section 13 hereof); or
(c) of any consolidation or merger to which the Company is a
party and for which approval of any shareholders of the Company is
required, or of the conveyance or transfer of the properties and
assets of the Company substantially as an entirety, or of any
reclassification or change of Common Stock issuable upon exercise of
the Warrants (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a
subdivision or combination), or a tender offer or exchange offer for
shares of Common Stock; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(e) a Change of Control (as defined in the Indenture) occurs;
or
(f) the Company proposes to take any other action that would
require an adjustment of the Exercise Price or the number of Warrant
Shares pursuant to Section 13;
then the Company shall cause to be filed with the Warrant Agent and shall cause
to be given to each of the registered Holders of the Warrant Certificates at
such Holder's address appearing on the Warrant register,
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<PAGE> 22
at least 20 days (or 10 days in any case specified in clauses (a) or (b) above)
prior to the applicable record date hereinafter specified, or promptly in the
case of events for which there is no record date, by first class mail, postage
prepaid, a written notice stating (i) the date as of which the holders of
record of shares of Common Stock to be entitled to receive any such rights,
options, warrants or distribution are to be determined, or (ii) the initial
expiration date set forth in any tender offer or exchange offer for shares of
Common Stock, or (iii) the date on which any such consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up or Change of
Control is expected to become effective or consummated, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange such shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up or Change of Control. The
failure to give the notice required by this Section 16 or any defect therein
shall not affect the legality or validity of any distribution, right, option,
warrant, consolidation, merger, conveyance, transfer, dissolution, liquidation
or winding up, or Change of Control or the vote upon any action. Nothing
contained in this Agreement or in any of the Warrant Certificates shall be
construed as conferring upon the Holders thereof the right to vote or to
consent or to receive notice as shareholders in respect of the meetings of
shareholders or the election of Directors of the Company or any other matter,
or any rights whatsoever as shareholders of the Company.
SECTION 17. Merger, Consolidation or Change of Name of
Warrant Agent. Any corporation into which the Warrant Agent may be merged or
with which it may be consolidated, or any corporation resulting from any merger
or consolidation to which the Warrant Agent shall be a party, or any
corporation succeeding to the business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, provided
that such corporation would be eligible for appointment as a successor warrant
agent under the provisions of Section 19. Any such successor Warrant Agent
shall promptly cause notice of its succession as Warrant Agent to be mailed (by
first class mail, postage prepaid) to each Holder at such Holder's last address
as shown on the register maintained by the Warrant Agent pursuant to this
Agreement. In case at the time such successor to the Warrant Agent shall
succeed to the agency created by this Agreement, and in case at that time any
of the Warrant Certificates shall have been countersigned but not delivered,
any such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent; and in case at that time any of the Warrant
Certificates shall not have been countersigned, any successor to the Warrant
Agent may countersign such Warrant Certificates either in the name of the
predecessor Warrant Agent or in the name of the successor to the Warrant Agent;
and in all such cases such Warrant Certificates shall have the full force and
effect provided in the Warrant Certificates and in this Agreement.
In case at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrant Certificates shall have been
countersigned but not delivered, the Warrant Agent whose name has been changed
may adopt the countersignature under its prior name, and in case at that time
any of the Warrant Certificates shall not have been countersigned, the Warrant
Agent may countersign such Warrant Certificates either in its prior name or in
its changed name, and in all such cases such Warrant Certificates shall have
the full force and effect provided in the Warrant Certificates and in this
Agreement.
SECTION 18. Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the Holders of Warrants, by their
acceptance thereof, shall be bound:
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(a) The statements contained herein and in the Warrant
Certificates shall be taken as statements of the Company and the
Warrant Agent assumes no responsibility for the correctness of any of
the same except such as describe the Warrant Agent or action taken or
to be taken by it. The Warrant Agent assumes no responsibility with
respect to the distribution of the Warrant Certificates except as
herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any
failure of the Company to comply with any of the covenants contained
in this Agreement or in the Warrant Certificates to be complied with
by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the
Warrant Agent shall incur no liability or responsibility to the
Company or to any Holder of any Warrant Certificate in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
accordance with the opinion or the advice of such counsel.
(d) The Warrant Agent shall incur no liability or
responsibility to the Company or to any Holder of any Warrant
Certificate for any action taken in reliance on any Warrant
Certificate, certificate of shares, notice, resolution, waiver,
consent, order, certificate, or other paper, document or instrument
believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the
execution of this Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind
and nature reasonably incurred by the Warrant Agent in the execution
of this Agreement and to indemnify the Warrant Agent and save it
harmless against any and all liabilities, including judgments,
reasonable costs and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of this Agreement except as a result of
its negligence or bad faith.
(f) The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other
action likely to involve expense unless the Company or one or more
Holders of Warrant Certificates shall furnish the Warrant Agent with
reasonable security and indemnity for any costs and expenses which may
be incurred, but this provision shall not affect the power of the
Warrant Agent to take such action as it may consider proper, whether
with or without any such security or indemnity. All rights of action
under this Agreement or under any of the Warrants may be enforced by
the Warrant Agent without the possession of any of the Warrant
Certificates or the production thereof at any trial or other
proceeding relative thereto, and any such action, suit or proceeding
instituted by the Warrant Agent shall be brought in its name as
Warrant Agent and any recovery of judgment shall be for the ratable
benefit of the Holders of the Warrants, as their respective rights or
interests may appear.
(g) The Warrant Agent, and any stockholder, director, officer
or employee of it, may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract
with or lend money to the Company or otherwise act as fully and freely
as though it were not Warrant Agent
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under this Agreement. Nothing herein shall preclude the Warrant Agent
from acting in any other capacity for the Company or for any other
legal entity.
(h) The Warrant Agent shall act hereunder solely as agent for
the Company, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything
which it may do or refrain from doing in connection with this
Agreement except for its own negligence or bad faith.
(i) The Warrant Agent shall not at any time be under any duty
or responsibility to any Holder of any Warrant Certificate to make or
cause to be made any adjustment of the Exercise Price or number of the
Warrant Shares or other securities or property deliverable as provided
in this Agreement, or to determine whether any facts exist which may
require any of such adjustments, or with respect to the nature or
extent of any such adjustments, when made, or with respect to the
method employed in making the same. The Warrant Agent shall not be
accountable with respect to the validity or value or the kind or
amount of any Warrant Shares or of any securities or property which
may at any time be issued or delivered upon the exercise of any
Warrant or with respect to whether any such Warrant Shares or other
securities will when issued be validly issued and fully paid and
nonassessable, and makes no representation with respect thereto.
SECTION 19. Resignation and Removal of Warrant Agent;
Appointment of Successor. No resignation or removal of the Warrant Agent and no
appointment of a successor warrant agent shall become effective until the
acceptance of appointment by the successor warrant agent as provided herein.
The Warrant Agent may resign its duties and be discharged from all further
duties and liability hereunder (except liability arising as a result of the
Warrant Agent's own negligence or willful misconduct) after giving written
notice to the Company. The Company may remove the Warrant Agent upon written
notice, and the Warrant Agent shall thereupon in like manner be discharged from
all further duties and liabilities hereunder, except as aforesaid. The Warrant
Agent shall, at the Company's expense, cause to be mailed (by first class mail,
postage prepaid) to each Holder of a Warrant at his last address as shown on
the register of the Company maintained by the Warrant Agent a copy of said
notice of resignation or notice of removal, as the case may be. Upon such
resignation or removal, the Company shall appoint in writing a new warrant
agent. If the Company shall fail to make such appointment within a period of 30
days after it has been notified in writing of such resignation by the resigning
Warrant Agent or after such removal, then the resigning Warrant Agent or the
Holder of any Warrant may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a corporation doing business under the
laws of the United States or any state thereof, in good standing and having a
combined capital and surplus of not less than $50,000,000. The combined capital
and surplus of any such new warrant agent shall be deemed to be the combined
capital and surplus as set forth in the most recent annual report of its
condition published by such warrant agent prior to its appointment, provided
that such reports are published at least annually pursuant to law or to the
requirements of a federal or state supervising or examining authority. After
acceptance in writing of such appointment by the new warrant agent, it shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason it shall be necessary
or expedient to execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning or removed Warrant Agent.
Not later than the effective date of any such appointment, the Company shall
give notice thereof to the resigning or removed Warrant Agent. Failure to give
any notice provided for in this Section, however, or any defect therein, shall
not affect the legality or
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validity of the resignation of the Warrant Agent or the appointment of a new
warrant agent, as the case may be.
SECTION 20. Registration. The Company and the Warrant Agent
acknowledge that Holders shall have the registration rights set forth in the
Warrant Registration Rights Agreement.
SECTION 21. Reports.
(a) So long as any of the Warrants remain outstanding, the
Company shall cause copies of all quarterly and annual financial reports and of
the information, documents, and other reports (or copies of such portions of
any of the foregoing as the Commission may by rules and regulations prescribe)
which the Company is required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act ("SEC REPORTS") to be filed with the Warrant
Agent and mailed to the Holders of the Warrants at their addresses appearing in
the register of Warrant Holders maintained by the Warrant Agent, in each case,
within 15 days of filing with the Commission. If the Company is not subject to
the requirements of Section 13 or 15(d) of the Exchange Act, the Company shall
nevertheless continue to cause SEC Reports, comparable to those which it would
be required to file pursuant to Section 13 or 15(d) of the Exchange Act if it
were subject to the requirements of either such Section, to be so filed with
the Commission (but only if the Commission permits such filings) and with the
Warrant Agent and mailed to the Holders of the Warrants, in each case, within
the same time periods as would have applied (including under the preceding
sentence) had the Company been subject to the requirements of Section 13 or
15(d) of the Exchange Act.
(b) The Company shall provide the Warrant Agent with a
sufficient number of copies of all SEC Reports that the Warrant Agent may be
required to deliver to the Holders of the Warrants under this Section 21.
SECTION 22. Rule 144A. The Company hereby agrees with each
Holder, for so long as any Registrable Securities remain outstanding, to make
available, upon request of any Holder of Registrable Securities, to any Holder
or beneficial owner of Registrable Securities in connection with any sale
thereof and any prospective purchaser of such Registrable Securities designated
by such Holder or beneficial owner, the information required by Rule 144A(d)(4)
under the Securities Act in order to permit resales of such Registrable
Securities pursuant to Rule 144A.
SECTION 23. Notices to Company and Warrant Agent. Any notice
or demand authorized by this Agreement to be given or made by the Warrant Agent
or by the Holder of any Warrant Certificate to or on the Company shall be
sufficiently given or made when and if deposited in the mail, first class or
registered, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent), as follows:
MGC Communications, Inc.
3165 Palms Centre Drive
Las Vegas, Nevada 89103
Telecopy: (702) 310-1000
Telephone: (702) 310-1111
Attention: General Counsel
22
<PAGE> 26
In case the Company shall fail to maintain such office or
agency or shall fail to give such notice of the location or of any change in
the location thereof, presentations may be made and notices and demands may be
served at the principal office of the Warrant Agent.
Any notice pursuant to this Agreement to be given by the
Company or by the Holder(s) of any Warrant Certificate to the Warrant Agent
shall be sufficiently given when and if deposited in the mail, first-class or
registered, postage prepaid, addressed (until another address is filed in
writing by the Warrant Agent with the Company) to the Warrant Agent as follows:
Marine Midland Bank
140 Broadway, 12th Floor
New York, New York 10555
Telephone: (212) 658-6433
Attention: Corporate Trust Department
SECTION 24. Supplements and Amendments. The Company and the
Warrant Agent may from time to time supplement or amend this Agreement without
the approval of any Holders of Warrant Certificates in order to cure any
ambiguity or to correct or supplement any provision contained herein which may
be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Warrant Agent may deem necessary or desirable and which shall
not in any way adversely affect the interests of the Holders of Warrant
Certificates. Any amendment or supplement to this Agreement that has a material
adverse effect on the interests of Holders shall require the written consent of
Holders representing a majority of the then outstanding Warrants. The consent
of each Holder of a Warrant affected shall be required for any amendment
pursuant to which the Exercise Price would be increased or the number of
Warrant Shares purchasable upon exercise of Warrants would be decreased (other
than pursuant to adjustments provided for in Section 13 hereof). The Warrant
Agent shall be entitled to receive and, subject to Section 18, shall be fully
protected in relying upon, an officers' certificate and opinion of counsel as
conclusive evidence that any such amendment or supplement is authorized or
permitted hereunder, that it is not inconsistent herewith, and that it will be
valid and binding upon the Company in accordance with its terms.
SECTION 25. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Warrant Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
SECTION 26. Termination. This Agreement (other than any
party's obligations with respect to Warrants previously exercised and with
respect to indemnification under Section 18) shall terminate at 5:00 p.m., New
York City time on the Expiration Date.
SECTION 27. Governing Law. THIS AGREEMENT AND EACH WARRANT
CERTIFICATE ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE
LAWS OF THE STATE OF NEW YORK AND FOR ALL PURPOSES SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF SAID STATE.
23
<PAGE> 27
SECTION 28. Benefits of This Agreement.
(a) Nothing in this Agreement shall be construed to give to
any Person other than the Company, the Warrant Agent and the Holders of the
Warrant Certificates any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of
the Company, the Warrant Agent and the Holders of the Warrant Certificates.
(b) Prior to the exercise of the Warrants, no Holder of a
Warrant Certificate, as such, shall be entitled to any rights of a stockholder
of the Company, including, without limitation, the right to receive dividends
or subscription rights, the right to vote, to consent, to exercise any
preemptive right, to receive any notice of meetings of stockholders for the
election of directors of the Company or any other matter or to receive any
notice of any proceedings of the Company, except as may be specifically
provided for herein. The Holders of the Warrants are not entitled to share in
the assets of the Company in the event of the liquidation, dissolution or
winding up of the Company's affairs.
(c) All rights of action in respect of this Agreement are
vested in the Holders of the Warrants, and any Holder of any Warrant, without
the consent of the Warrant Agent or the Holder of any other Warrant, may, on
such Holder's own behalf and for such Holder's own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company
suitable to enforce, or otherwise in respect of, such Holder's rights
hereunder, including the right to exercise, exchange or surrender for purchase
such Holder's Warrants in the manner provided in this Agreement.
SECTION 29. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
[Signature Page Follows]
24
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
MGC COMMUNICATIONS, INC.
By:
---------------------------------
Name:
Title:
[Seal]
Attest:
-------------------------------
Secretary
MARINE MIDLAND BANK
By:
---------------------------------
Name:
Title:
[Seal]
Attest:
--------------------------------
Secretary
<PAGE> 29
EXHIBIT A
[Form of Warrant Certificate]
[Face]
EXERCISABLE ON OR AFTER THE EXERCISABILITY DATE (AS DEFINED HEREIN). THE
WARRANTS EVIDENCED BY THIS CERTIFICATE ARE NOT TRANSFERABLE SEPARATELY FROM THE
NOTES ORIGINALLY SOLD AS A UNIT WITH SUCH WARRANTS UNTIL THE EARLIER TO OCCUR
OF (i) 90 DAYS AFTER THE ISSUANCE OF THE UNITS, (ii) SUCH DATE AS BEAR, STEARNS
& CO. INC. AND FURMAN SELZ LLC MAY, IN THEIR DISCRETION, DEEM APPROPRIATE,
(iii) IN THE EVENT A CHANGE OF CONTROL (AS DEFINED IN THE INDENTURE RELATING TO
THE NOTES) OCCURS, THE DATE THE COMPANY MAILS NOTICE THEREOF TO HOLDERS OF
NOTES AND WARRANTS AND (iv) THE DATE ON WHICH THE EXCHANGE OFFER (AS DEFINED IN
THE INDENTURE RELATING TO THE NOTES) IS CONSUMMATED.
No. Warrants
------ -----
Warrant Certificate
MGC COMMUNICATIONS, INC.
This Warrant Certificate certifies that , or its registered
assigns, is the registered holder of Warrants expiring October 1, 2004 (the
"WARRANTS") to purchase Common Stock, par value $.001 (the "COMMON STOCK"), of
MGC Communications, Inc., a Nevada corporation (the "COMPANY"). Each Warrant
entitles the registered holder upon exercise at any time from 9:00 a.m. on or
after the earlier to occur of (i) October 1, 1998 and (ii) in the event a
Change of Control (as defined in the Indenture) occurs, the date the Company
mails the notice thereof to holders of Notes and holders of Warrants (the
"EXERCISABILITY DATE") until 5:00 p.m. New York City Time on October 1, 2004,
to receive from the Company 8.07 fully paid and nonassessable shares of Common
Stock (the "WARRANT SHARES") at the initial exercise price (the "EXERCISE
PRICE") of $0.01 per share payable in lawful money of the United States of
America upon surrender of this Warrant Certificate and payment of the Exercise
Price at the office or agency of the Warrant Agent, but only subject to the
conditions set forth herein and in the Warrant Agreement referred to on the
reverse hereof. The Exercise Price and number of Warrant Shares issuable upon
exercise of the Warrants are subject to adjustment upon the occurrence of
certain events set forth in the Warrant Agreement.
No Warrant may be exercised before the Exercisability Date.
No Warrant may be exercised after 5:00 p.m., New York City Time on October 1,
2004, and to the extent not exercised by such time such Warrants shall become
void.
Reference is hereby made to the further provisions of this
Warrant Certificate set forth on the reverse hereof and such further 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
countersigned by the Warrant Agent, as such term is used in the Warrant
Agreement.
A-1
<PAGE> 30
This Warrant Certificate shall be governed by and construed
in accordance with the internal laws of the State of New York.
IN WITNESS WHEREOF, MGC Communications, Inc. has caused this Warrant
Certificate to be signed by its President and by its Secretary, each by a
signature or a facsimile thereof, and has caused a facsimile of its corporate
seal to be affixed hereunto or imprinted hereon.
Dated:
---------------
MGC COMMUNICATIONS, INC.
By:
-------------------------------
Name:
Title: President
By:
-------------------------------
Name:
Title: Secretary
Countersigned:
MARINE MIDLAND BANK,
as Warrant Agent
By:
-----------------------
Authorized Signature
<PAGE> 31
[Form of Warrant Certificate]
[Reverse]
[Unless and until it is exchanged in whole or in part for
Warrants in definitive form, this Warrant may not be transferred except
as a whole by the depositary to a nominee of the depositary or by a
nominee of the depositary to the depositary or another nominee of the
depositary or by the depositary or any such nominee to a successor
depositary or a nominee of such successor depositary. The Depository
Trust Company ("DTC"), (55 Water Street, New York, New York) shall act as
the depositary until a successor shall be appointed by the Company and
the Warrant Agent. Unless this certificate is presented by an authorized
representative of DTC to the issuer or its agent for registration of
transfer, exchange or payment, and any certificate issued is registered
in the name of Cede & Co. or such other name as requested by an
authorized representative of DTC (and any payment is made to Cede & Co.
or 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.](1)
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED
HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
ISSUER THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (1)(a) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A PERSON
THAT IS NOT A U.S. PERSON (AS DEFINED IN RULE 902 UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 904 UNDER THE SECURITIES ACT, (d) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3)
OR (7) OF REGULATION D UNDER THE SECURITIES ACT) THAT, PRIOR
TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE AND WARRANT AGENT
A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE UNITS, NOTES AND WARRANTS (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE OR
WARRANT AGENT) OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION
FROM THE
- ---------------------------
(1) This paragraph is to be included only if the Warrant is in global form.
A-3
<PAGE> 32
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (IN THE CASE
OF (b), (c), (d) OR (e), UPON AN OPINION OF COUNSEL IF THE
ISSUER OR TRUSTEE, REGISTRAR OR TRANSFER AGENT FOR THE
SECURITIES SO REQUESTS), (2) TO THE ISSUER OR (3) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND
(B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED
TO NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED
HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
The Warrants evidenced by this Warrant
Certificate are part of a duly authorized issue of Warrants
expiring October 1, 2004 entitling the holder on exercise to
receive shares of Common Stock, par value $.001, of the
Company (the "COMMON STOCK"), and are issued or to be issued
pursuant to a Warrant Agreement dated as of September 29,
1997 (the "WARRANT AGREEMENT"), duly executed and delivered
by the Company to Marine Midland Bank, as warrant agent (the
"WARRANT AGENT"), which Warrant Agreement is hereby
incorporated by reference herein 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. A
copy of the Warrant Agreement may be obtained by the holder
hereof upon written request to the Company. Capitalized terms
used herein without definition shall have the meanings
ascribed to them in the Warrant Agreement.
Warrants may be exercised at any time from
9:00 a.m. on or after the Exercisability Date and until 5:00
p.m., New York City Time on October 1, 2004. The holder of
Warrants evidenced by this Warrant Certificate may exercise
them by surrendering this Warrant Certificate, with the form
of election to purchase set forth hereon properly completed
and executed, together with payment of the Exercise Price in
lawful money of the United States of America at the office of
the Warrant Agent. In the alternative, each Holder may
exercise its right to receive Warrant Shares on a net basis,
such that without the exchange of any funds, the Holder
receives that number of Warrant Shares otherwise issuable
upon exercise of its Warrants less that number of Warrant
Shares having a fair market value equal to the aggregate
Exercise Price that would otherwise have been paid by the
Holder for the Warrant Shares being issued. In the event that
upon any exercise of Warrants evidenced hereby the number of
Warrants exercised shall be less than the total number of
Warrants evidenced hereby, there shall be issued to the
holder hereof or his assignee a new Warrant Certificate
evidencing the number of Warrants not exercised. No
adjustment shall be made for any dividends on any Common
Stock issuable upon exercise of this Warrant.
The Warrant Agreement provides that upon
the occurrence of certain events the Exercise Price set forth
on the face hereof and/or the number of shares of Common
Stock issuable upon the exercise of each Warrant shall,
subject to certain conditions, be adjusted. No fractions of a
share of Common Stock will be issued upon the exercise of any
A-4
<PAGE> 33
Warrant, but the Company will pay the cash value thereof
determined as provided in the Warrant Agreement.
The Warrant Agreement provides that the
Company shall be bound by certain registration obligations
with respect to the Common Stock issuable upon exercise of
the Warrants as set forth in the Warrant Registration Rights
Agreement (as defined in the Warrant Agreement).
Warrant Certificates, when surrendered at
the office of the Warrant Agent by the registered holder
thereof in person or by legal representative or attorney duly
authorized in writing, may be exchanged, in the manner and
subject to the limitations provided in the Warrant Agreement,
but without payment of any service charge, for another
Warrant Certificate or Warrant Certificate's of like tenor
evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of
transfer of this Warrant Certificate at the office of the
Warrant Agent a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a
like number of Warrants shall be issued to the transferee(s)
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(s) thereof as the absolute
owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any
distribution to the holder(s) hereof, and for all other
purposes, and neither the Company nor the Warrant Agent shall
be affected by any notice to the contrary. Neither the
Warrants nor this Warrant Certificate entitles any holder
hereof to any rights of a stockholder of the Company.
A-5
<PAGE> 34
[Form of Election to Purchase]
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to receive________
shares of Common Stock and herewith makes payment therefor. The
undersigned requests that a certificate for such shares be registered
in the name of____________ , whose address is __________________ and
that such shares be delivered to , whose address is________________ .
If said number of shares is less than all of the shares of Common
Stock purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the remaining balance of such shares
be registered in the name of_________________ , whose address
is_________________, and that such Warrant Certificate be delivered
to ____________________, whose address is__________________.
___________________.
----------------------------------
Signature
Date:
----------------------------------
Signature Guaranteed
A-6
<PAGE> 35
SCHEDULE OF EXCHANGES OF DEFINITIVE WARRANTS(2)
The following exchanges of a part of this Global Warrant have been made:
- -----------------------
(2) This is to be included only if the Warrant is in global form.
A-7
<PAGE> 36
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER
OF WARRANTS
Re:__________Warrants to Purchase Common Stock (the "WARRANTS") of MGC
COMMUNICATIONS, INC.
This Certificate relates to_______ Warrants held in(1) _______
book-entry or__________ definitive form by_________ (the "TRANSFEROR").
The Transferor:
[ ] has requested the Warrant Agent by written order to
deliver in exchange for its beneficial interest in the Global Warrants
held by the depositary a Warrant or Warrants in definitive, registered
form equal to its beneficial interest in such Global Warrant (or the
portion thereof indicated above); or
[ ] has requested the Warrant Agent by written order to
exchange or register the transfer of a Warrant or Warrants.
In connection with such request and in respect of
each such Warrant, the Transferor does hereby certify that the
Transferor is familiar with the Warrant Agreement relating to the
above captioned Warrants and that the transfer of this Warrant does
not require registration under the Securities Act of 1933, as amended
(the "SECURITIES ACT") because:
[ ] Such Warrant is being acquired for the Transferor's
own account without transfer.
[ ] Such Warrant is being transferred (i) to a qualified
institutional buyer (as defined in Rule 144A under the Securities
Act), in reliance on Rule 144A or (ii) pursuant to an exemption from
registration in accordance with Rule 904 under the Securities Act
(and, in the case of clause (ii), based on an opinion of counsel if
the Company so requests).
[ ] Such Warrant is being transferred (i) in accordance
with Rule 144 under the Securities Act (and based on an opinion of
counsel if the Company so requests) or (ii) pursuant to an effective
registration statement under the Securities Act.
[ ] Such Warrant is being transferred to an institutional
accredited investor within the meaning of Rule 501(a)(1), (2), (3) or
(7) under the Securities Act pursuant to a private placement exemption
from the registration requirements of the Securities Act (and based on
an opinion of counsel if the Company so requests).
- -----------------------
(1) Check applicable box.
B-1
<PAGE> 37
[ ] Such Warrant is being transferred in reliance on
and in compliance with another exemption from the registration
requirements of the Securities Act (and based on an opinion of counsel
if the Company so requests).
[INSERT NAME OF TRANSFEROR]
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Date:
B-2
<PAGE> 1
EXHIBIT 10.8
================================================================================
WARRANT REGISTRATION RIGHTS AGREEMENT
DATED AS OF SEPTEMBER 29, 1997
BY AND AMONG
MGC COMMUNICATIONS, INC.,
BEAR, STEARNS & CO. INC.
AND
FURMAN SELZ LLC
================================================================================
<PAGE> 2
THIS WARRANT REGISTRATION RIGHTS AGREEMENT (THE "AGREEMENT")
IS MADE AND ENTERED INTO AS OF SEPTEMBER 29, 1997, AMONG MGC COMMUNICATIONS,
INC., A NEVADA CORPORATION (THE "COMPANY") AND BEAR, STEARNS & CO. INC. AND
FURMAN SELZ LLC (EACH AN "INITIAL PURCHASER" AND TOGETHER, THE "INITIAL
PURCHASERS").
THIS AGREEMENT IS MADE PURSUANT TO THE PURCHASE AGREEMENT,
DATED SEPTEMBER 24, 1997 (THE "PURCHASE AGREEMENT"), BY AND AMONG THE COMPANY
AND THE INITIAL PURCHASERS. IN ORDER TO INDUCE THE INITIAL PURCHASERS TO
PURCHASE THE UNITS, CONSISTING OF AN AGGREGATE OF $160,000,000 PRINCIPAL AMOUNT
13% SENIOR SECURED NOTES DUE 2004 (THE "NOTES") AND WARRANTS (THE "WARRANTS") TO
PURCHASE 1,291,200 SHARES OF COMMON STOCK, PAR VALUE $.001 PER SHARE, OF THE
COMPANY (THE "COMMON STOCK"), THE COMPANY HAS AGREED TO PROVIDE 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 SET FORTH IN SECTION
8 OF THE PURCHASE AGREEMENT.
IN CONSIDERATION OF THE FOREGOING, THE PARTIES HERETO AGREE AS
FOLLOWS:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms
shall have the following meanings:
"Act" means the Securities Act of 1933, as amended.
"Business Day" means any day except a Saturday, Sunday or
other day in the City of New York on which banks are authorized to close.
"CHANGE OF CONTROL" HAS THE MEANING ASCRIBED TO THAT TERM IN
THE INDENTURE.
"EXCHANGE ACT" MEANS THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED FROM TIME TO TIME.
"HOLDER" MEANS THE INITIAL PURCHASERS, FOR SO LONG AS THE
INITIAL PURCHASERS OWN ANY WARRANTS OR ANY REGISTRABLE SECURITIES, AND THEIR
SUCCESSORS, ASSIGNS AND DIRECT AND INDIRECT TRANSFEREES WHO BECOME REGISTERED
OWNERS OF WARRANTS OR REGISTRABLE SECURITIES.
"INDENTURE" MEANS THE INDENTURE DATED AS OF THE DATE HEREOF
AMONG THE COMPANY AND MARINE MIDLAND BANK, AS TRUSTEE, AS THE SAME MAY BE
AMENDED OR SUPPLEMENTED FROM TIME TO TIME IN ACCORDANCE WITH THE TERMS THEREOF.
"EQUITY OFFERING" HAS THE MEANING ASCRIBED TO THAT TERM IN THE
INDENTURE.
"NASD" MEANS THE NATIONAL ASSOCIATION OF SECURITIES DEALERS,
INC.
"PERSON" MEANS AN INDIVIDUAL, PARTNERSHIP, CORPORATION, TRUST
OR UNINCORPORATED ORGANIZATION, OR A GOVERNMENT OR AGENCY OR POLITICAL
SUBDIVISION THEREOF.
1
<PAGE> 3
"PROSPECTUS" MEANS THE PROSPECTUS INCLUDED IN A REGISTRATION
STATEMENT AT THE TIME SUCH REGISTRATION STATEMENT IS DECLARED EFFECTIVE, AS
AMENDED OR SUPPLEMENTED BY ANY PROSPECTUS SUPPLEMENT AND BY ALL OTHER AMENDMENTS
THERETO, INCLUDING POST-EFFECTIVE AMENDMENTS, AND ALL MATERIAL INCORPORATED BY
REFERENCE INTO SUCH PROSPECTUS.
"REGISTRABLE SECURITIES" SHALL MEAN ANY OF (a) THE WARRANT
SHARES AND (b) ANY OTHER SECURITIES ISSUED OR ISSUABLE WITH RESPECT TO THE
WARRANT SHARES BY WAY OF A STOCK DIVIDEND OR STOCK SPLIT OR IN CONNECTION WITH A
COMBINATION OF SHARES, RECAPITALIZATION, MERGER, CONSOLIDATION OR OTHER
REORGANIZATION OR OTHERWISE UNTIL SUCH DATE AS SUCH SECURITY (i) IS EFFECTIVELY
REGISTERED UNDER THE SECURITIES ACT AND DISPOSED OF IN ACCORDANCE WITH A
REGISTRATION STATEMENT OR (ii) IS DISTRIBUTED TO THE PUBLIC PURSUANT TO RULE 144
UNDER THE SECURITIES ACT.
"REGISTRATION STATEMENT" SHALL MEAN ANY REGISTRATION STATEMENT
OF THE COMPANY WHICH COVERS ANY OF THE REGISTRABLE SECURITIES PURSUANT TO THE
PROVISIONS OF THIS AGREEMENT AND ALL AMENDMENTS AND SUPPLEMENTS TO ANY SUCH
REGISTRATION STATEMENT, INCLUDING POST-EFFECTIVE AMENDMENTS, IN EACH CASE
INCLUDING THE PROSPECTUS CONTAINED THEREIN, ALL EXHIBITS THERETO AND ALL
MATERIAL INCORPORATED BY REFERENCE THEREIN.
"RULE 144" SHALL MEAN RULE 144 UNDER THE 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 ACT.
"RULE 144A" SHALL MEAN RULE 144A UNDER THE ACT, AS SUCH RULE
MAY BE AMENDED FROM TIME TO TIME.
"SEC" SHALL MEAN THE SECURITIES AND EXCHANGE COMMISSION.
"TRIGGERING EVENT" SHALL MEAN THE OCCURRENCE OF ANY OF THE
FOLLOWING: (i) THE DAY IMMEDIATELY PRIOR TO A CHANGE OF CONTROL, (ii) THE 90TH
DAY (OR SUCH EARLIER DATE AS DETERMINED BY THE COMPANY IN ITS SOLE DISCRETION)
FOLLOWING AN INITIAL EQUITY OFFERING OF THE COMPANY OR (iii) OTHER THAN AS A
RESULT OF AN INITIAL EQUITY OFFERING OF THE COMPANY, A CLASS OF COMMON EQUITY
SECURITIES OF THE COMPANY IS LISTED ON A NATIONAL SECURITIES EXCHANGE OR
AUTHORIZED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET SYSTEM OR IS OTHERWISE
SUBJECT TO REGISTRATION UNDER THE EXCHANGE ACT.
"WARRANT AGREEMENT" MEANS THE WARRANT AGREEMENT DATED AS OF
THE DATE HEREOF AMONG THE COMPANY AND MARINE MIDLAND BANK, AS WARRANT AGENT, AS
THE SAME MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME IN ACCORDANCE WITH THE
TERMS THEREOF.
"WARRANT SHARES" MEANS THE SHARES OF COMMON STOCK OR OTHER
SECURITIES ISSUED OR ISSUABLE UPON THE EXERCISE OF THE WARRANTS.
SECTION 2. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION.
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(i) REQUEST FOR REGISTRATION. AT ANY TIME ON OR AFTER THE
EARLIER TO OCCUR OF OCTOBER 1, 2002 OR THE OCCURRENCE OF A TRIGGERING EVENT,
HOLDERS OF WARRANTS AND/OR WARRANT SHARES REPRESENTING NOT LESS THAN 25% OF THE
WARRANT SHARES ISSUABLE UPON EXERCISE OF THE WARRANTS MAY MAKE ONE WRITTEN
REQUEST FOR REGISTRATION UNDER THE ACT OF THEIR REGISTRABLE SECURITIES (A
"DEMAND REGISTRATION"). ANY SUCH REQUEST WILL SPECIFY THE NUMBER OF REGISTRABLE
SECURITIES PROPOSED TO BE SOLD AND WILL ALSO SPECIFY THE INTENDED METHOD OF
DISPOSITION THEREOF. SUBJECT TO THE OTHER PROVISIONS OF THIS SECTION 2(a), THE
COMPANY SHALL GIVE WRITTEN NOTICE OF SUCH REGISTRATION REQUEST WITHIN 10 DAYS
AFTER THE RECEIPT THEREOF TO ALL OTHER HOLDERS. WITHIN 30 DAYS AFTER RECEIPT OF
SUCH NOTICE BY ANY HOLDER, SUCH HOLDER MAY REQUEST IN WRITING THAT ITS
REGISTRABLE SECURITIES BE INCLUDED IN SUCH REGISTRATION AND THE COMPANY SHALL
INCLUDE IN THE DEMAND REGISTRATION THE REGISTRABLE SECURITIES OF ANY SUCH
SELLING HOLDER REQUESTED TO BE SO INCLUDED. EACH SUCH REQUEST BY SUCH OTHER
SELLING HOLDERS SHALL SPECIFY THE NUMBER OF REGISTRABLE SECURITIES PROPOSED TO
BE SOLD AND THE INTENDED METHOD OF DISPOSITION THEREOF. UPON A DEMAND, THE
COMPANY WILL (x) PREPARE, FILE AND USE ITS BEST EFFORTS TO CAUSE TO BECOME
EFFECTIVE WITHIN 120 DAYS OF SUCH DEMAND A REGISTRATION STATEMENT IN RESPECT OF
ALL THE REGISTRABLE SECURITIES WHICH HOLDERS REQUEST FOR INCLUSION THEREIN;
PROVIDED THAT IF SUCH DEMAND OCCURS DURING THE BLACK OUT PERIOD (AS DEFINED
BELOW) OR OTHER PERIOD (NOT TO EXCEED 180 DAYS) DURING WHICH THE COMPANY IS
PROHIBITED OR RESTRICTED FROM ISSUING OR SELLING COMMON STOCK PURSUANT TO ANY
UNDERWRITING OR PURCHASE AGREEMENT RELATING TO AN UNDERWRITTEN RULE 144A
OFFERING OR REGISTERED PUBLIC OFFERING OF COMMON STOCK OR SECURITIES CONVERTIBLE
INTO OR EXCHANGEABLE FOR COMMON STOCK UNDER RULE 144A OR REGISTERED UNDER THE
ACT (A "LOCK UP PERIOD"), THE COMPANY SHALL NOT BE REQUIRED TO NOTIFY THE
HOLDERS OF SUCH DEMAND OR FILE SUCH REGISTRATION STATEMENT PRIOR TO THE END OF
THE BLACK OUT PERIOD OR LOCK UP PERIOD, AS THE CASE MAY BE, IN WHICH EVENT, THE
COMPANY WILL USE ITS BEST EFFORTS TO CAUSE SUCH REGISTRATION STATEMENT TO BECOME
EFFECTIVE NO LATER THAN 30 DAYS AFTER THE END OF THE BLACK OUT PERIOD OR LOCK UP
PERIOD, AS THE CASE MAY BE, AND (y) KEEP SUCH REGISTRATION STATEMENT
CONTINUOUSLY EFFECTIVE FOR THE SHORTER OF (A) 180 DAYS (THE "EFFECTIVENESS
PERIOD") AND (B) SUCH PERIOD OF TIME AS ALL OF THE REGISTRABLE SECURITIES
INCLUDED IN SUCH REGISTRATION STATEMENT HAVE BEEN SOLD THEREUNDER; PROVIDED,
HOWEVER, THAT THE COMPANY MAY POSTPONE THE FILING OF ANY REGISTRATION STATEMENT,
SUSPEND THE EFFECTIVENESS OF ANY REGISTRATION, 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) IN
THE EVENT THAT, AND FOR A PERIOD, IN THE CASE OF THE DEMAND REGISTRATION, NOT TO
EXCEED AN AGGREGATE OF 45 DAYS ("BLACK OUT PERIOD") IF (1) 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 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 (2)(A) THE
COMPANY DETERMINES IN ITS GOOD FAITH JUDGMENT THAT THE DISCLOSURE OF SUCH EVENT
AT SUCH TIME WOULD HAVE A MATERIAL ADVERSE EFFECT ON THE BUSINESS, OPERATIONS OR
PROSPECTS OF THE COMPANY OR (B) THE DISCLOSURE OTHERWISE RELATES TO A MATERIAL
BUSINESS TRANSACTION WHICH HAS NOT YET BEEN PUBLICLY DISCLOSED; PROVIDED,
FURTHER THAT THE EFFECTIVENESS PERIOD SHALL BE EXTENDED BY THE NUMBER OF DAYS IN
ANY BLACK OUT PERIOD OCCURRING DURING THE EFFECTIVENESS PERIOD. SUBJECT TO
SECTION 2(a)(ii), THE COMPANY SHALL ONLY BE REQUIRED TO REGISTER REGISTRABLE
SECURITIES PURSUANT TO THIS SECTION 2(a) ONCE.
IN THE EVENT OF THE OCCURRENCE OF ANY BLACK OUT PERIOD OR LOCK
UP PERIOD DURING AN EFFECTIVENESS PERIOD, THE COMPANY WILL PROMPTLY NOTIFY THE
HOLDERS OF REGISTRABLE SECURITIES THEREOF IN WRITING.
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(ii) EFFECTIVE REGISTRATION. EXCEPT AS SPECIFICALLY PROVIDED
HEREIN, THE COMPANY IS ONLY REQUIRED TO EFFECT ONE REGISTRATION AS A DEMAND
REGISTRATION UNDER THIS AGREEMENT (WHETHER OR NOT ALL OF THE HOLDERS OF
REGISTRABLE SECURITIES ELECT TO PARTICIPATE IN SUCH DEMAND REGISTRATION ON THE
BASIS SET FORTH HEREIN). A REGISTRATION WILL NOT BE DEEMED TO HAVE BEEN EFFECTED
AS A DEMAND REGISTRATION, AND THEREBY SATISFY THE OBLIGATION HEREUNDER, UNLESS
IT HAS BEEN DECLARED EFFECTIVE BY THE SEC AND THE COMPANY HAS COMPLIED IN ALL
MATERIAL RESPECTS WITH ITS OBLIGATIONS UNDER THIS AGREEMENT WITH RESPECT
THERETO; PROVIDED THAT IF, AFTER IT HAS BECOME EFFECTIVE, THE OFFERING OF
REGISTRABLE SECURITIES PURSUANT TO SUCH REGISTRATION IS OR BECOMES THE SUBJECT
OF ANY STOP ORDER, INJUNCTION OR OTHER ORDER OR REQUIREMENT OF THE SEC OR ANY
OTHER GOVERNMENTAL OR ADMINISTRATIVE AGENCY, OR IF ANY COURT PREVENTS OR
OTHERWISE LIMITS THE SALE OF REGISTRABLE SECURITIES PURSUANT TO THE REGISTRATION
(FOR ANY REASON OTHER THAN THE ACT OR OMISSIONS OF THE HOLDERS) FOR THE PERIOD
OF TIME CONTEMPLATED HEREBY, SUCH REGISTRATION WILL BE DEEMED NOT TO HAVE BEEN
EFFECTED. IF (x) A REGISTRATION REQUESTED PURSUANT TO THIS SECTION 2(a) IS
DEEMED NOT TO HAVE BEEN EFFECTED OR (y) THE REGISTRATION REQUESTED PURSUANT TO
THIS SECTION 2(a) DOES NOT REMAIN EFFECTIVE FOR THE EFFECTIVENESS PERIOD, THEN
THE COMPANY SHALL CONTINUE TO BE OBLIGATED TO EFFECT AN ADDITIONAL REGISTRATION
PURSUANT TO THIS SECTION 2(A). THE HOLDERS OF REGISTRABLE SECURITIES SHALL BE
PERMITTED TO WITHDRAW ALL OR ANY PART OF THE REGISTRABLE SECURITIES FROM A
DEMAND REGISTRATION AT ANY TIME PRIOR TO THE EFFECTIVE DATE OF SUCH DEMAND
REGISTRATION. IF AT ANY TIME A REGISTRATION STATEMENT IS FILED PURSUANT TO A
DEMAND REGISTRATION, AND SUBSEQUENTLY A SUFFICIENT NUMBER OF THE REGISTRABLE
SECURITIES ARE WITHDRAWN FROM THE DEMAND REGISTRATION SO THAT SUCH REGISTRATION
STATEMENT DOES NOT COVER THAT NUMBER OF REGISTRABLE SECURITIES AT LEAST EQUAL TO
ONE-QUARTER OF THE REGISTRABLE SECURITIES, THE HOLDERS WHO HAVE NOT WITHDRAWN
THEIR REGISTRABLE SECURITIES SHALL HAVE THE OPPORTUNITY TO INCLUDE AN ADDITIONAL
NUMBER OF REGISTRABLE SECURITIES IN THE DEMAND REGISTRATION SO THAT SUCH
REGISTRATION STATEMENT COVERS THAT NUMBER OF REGISTRABLE SECURITIES AT LEAST
EQUAL TO ONE-QUARTER OF THE REGISTRABLE SECURITIES. IF AN ADDITIONAL NUMBER OF
REGISTRABLE SECURITIES IS NOT SO INCLUDED, THE COMPANY MAY WITHDRAW THE
REGISTRATION STATEMENT. SUCH WITHDRAWN REGISTRATION STATEMENT WILL NOT COUNT AS
A DEMAND REGISTRATION AND THE COMPANY SHALL CONTINUE TO BE OBLIGATED TO EFFECT A
REGISTRATION PURSUANT TO THIS SECTION 2(a).
(iii) PRIORITY IN DEMAND REGISTRATIONS PURSUANT TO SECTION
2(a). IF A DEMAND REGISTRATION PURSUANT TO THIS SECTION 2(a) INVOLVES AN
UNDERWRITTEN OFFERING AND THE LEAD MANAGING UNDERWRITER ADVISES THE COMPANY IN
WRITING THAT, IN ITS VIEW, THE NUMBER OF REGISTRABLE SECURITIES REQUESTED BY THE
HOLDERS TO BE INCLUDED IN SUCH REGISTRATION, TOGETHER WITH ANY OTHER SECURITIES
PERMITTED TO BE INCLUDED IN SUCH REGISTRATION, EXCEEDS THE NUMBER WHICH, IN THE
VIEW OF SUCH LEAD MANAGING UNDERWRITER, CAN BE SOLD: FIRST, THE SECURITIES OTHER
THAN THE REGISTRABLE SECURITIES OF THE HOLDERS INCLUDED IN SUCH REGISTRATION
SHALL BE REDUCED IN THEIR ENTIRETY BEFORE ANY REDUCTION OF REGISTRABLE
SECURITIES; AND SECOND, TO THE EXTENT THE REDUCTION SET FORTH IN THE IMMEDIATELY
PRECEDING CLAUSE IS INSUFFICIENT TO REDUCE THE NUMBER OF SECURITIES REQUESTED
FOR INCLUSION IN SUCH REGISTRATION TO A NUMBER, WHICH, IN THE VIEW OF SUCH LEAD
MANAGING UNDERWRITER, CAN BE SOLD, THE NUMBER OF SUCH REGISTRABLE SECURITIES TO
BE INCLUDED IN SUCH REGISTRATION SHALL BE ALLOCATED PRO RATA AMONG ALL
REQUESTING HOLDERS ON THE BASIS OF THE RELATIVE NUMBER OF REGISTRABLE SECURITIES
THEN HELD BY EACH SUCH HOLDER (PROVIDED THAT ANY REGISTRABLE SECURITIES THEREBY
ALLOCATED TO ANY SUCH HOLDER THAT EXCEED SUCH HOLDER'S REQUEST SHALL BE
REALLOCATED AMONG THE REMAINING REQUESTING HOLDERS IN LIKE MANNER). IN THE EVENT
THAT THE NUMBER OF REGISTRABLE SECURITIES REQUESTED TO BE INCLUDED IN SUCH
REGISTRATION IS LESS THAN THE NUMBER WHICH, IN THE VIEW OF THE LEAD MANAGING
UNDERWRITER, CAN BE SOLD, THE COMPANY MAY INCLUDE IN SUCH REGISTRATION
SECURITIES THAT THE COMPANY OR ANY OTHER PERSON PROPOSES TO SELL UP TO THE
NUMBER OF SECURITIES THAT, IN THE VIEW OF THE LEAD MANAGING UNDERWRITER, CAN BE
SOLD.
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(iv) SELECTION OF UNDERWRITER. IF THE HOLDERS SO ELECT, THE
OFFERING OF SUCH REGISTRABLE SECURITIES PURSUANT TO SUCH DEMAND REGISTRATION
SHALL BE IN THE FORM OF AN UNDERWRITTEN OFFERING. THE INVESTMENT BANKER OR
INVESTMENT BANKERS AND MANAGER OR MANAGERS THAT WILL ADMINISTER SUCH
UNDERWRITTEN OFFERING WILL BE SELECTED BY THE HOLDERS OF A MAJORITY IN AGGREGATE
PRINCIPAL AMOUNT OF THE REGISTRABLE SECURITIES INCLUDED IN SUCH OFFERING;
PROVIDED, THAT SUCH INVESTMENT BANKERS AND MANAGERS MUST BE REASONABLY
SATISFACTORY TO THE COMPANY.
(b) PIGGY-BACK REGISTRATION.
(i) NOTICE OF REGISTRATION. IF AT ANY TIME THE COMPANY
PROPOSES TO FILE A REGISTRATION STATEMENT UNDER THE ACT WITH RESPECT TO AN
OFFERING BY THE COMPANY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANY OF ITS
RESPECTIVE SECURITYHOLDERS OF ANY CLASS OF COMMON STOCK (OTHER THAN (x) A
REGISTRATION STATEMENT ON FORM S-4 OR S-8 (OR ANY SUBSTITUTE FORM THAT MAY BE
ADOPTED BY THE SEC), (y) A REGISTRATION STATEMENT FILED IN CONNECTION WITH AN
OFFER OR OFFERING OF SECURITIES SOLELY TO THE COMPANY'S EXISTING SECURITYHOLDERS
OR (z) 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 LESS THAN 20 BUSINESS DAYS BEFORE THE ANTICIPATED
FILING DATE), AND SUCH NOTICE SHALL OFFER SUCH HOLDERS THE OPPORTUNITY TO
REGISTER SUCH NUMBER OF REGISTRABLE SECURITIES AS EACH SUCH HOLDER MAY REQUEST
(WHICH REQUEST SHALL SPECIFY THE REGISTRABLE SECURITIES INTENDED TO BE DISPOSED
OF BY SUCH HOLDER AND THE INTENDED METHOD OF DISTRIBUTION THEREOF) (A
"PIGGY-BACK REGISTRATION"), EXCEPT THAT THE PIGGY-BACK REGISTRATION RIGHTS OF
THE HOLDERS SHALL NOT APPLY TO ANY EQUITY OFFERING THAT IS THE INITIAL EQUITY
OFFERING OF THE COMPANY UNLESS SECURITIES OF SELLING SECURITYHOLDERS OTHER THAN
THE HOLDERS ARE TO BE INCLUDED THEREIN. THE COMPANY SHALL USE ITS BEST EFFORTS
TO CAUSE THE MANAGING UNDERWRITER OR UNDERWRITERS OF SUCH PROPOSED UNDERWRITTEN
OFFERING TO PERMIT THE REGISTRABLE SECURITIES REQUESTED TO BE INCLUDED IN A
PIGGYBACK 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 HOLDER SHALL
HAVE THE RIGHT TO WITHDRAW ITS REQUEST FOR INCLUSION OF ITS REGISTRABLE
SECURITIES IN ANY REGISTRATION STATEMENT PURSUANT TO THIS SECTION 2(b) BY GIVING
WRITTEN NOTICE TO THE COMPANY OF ITS REQUEST TO WITHDRAW PRIOR TO THE
EFFECTIVENESS OF THE REGISTRATION STATEMENT. THE COMPANY MAY WITHDRAW A
PIGGY-BACK REGISTRATION AT ANY TIME PRIOR TO THE TIME IT BECOMES EFFECTIVE;
PROVIDED THAT THE COMPANY SHALL GIVE PROMPT NOTICE THEREOF TO PARTICIPATING
HOLDERS.
NO REGISTRATION EFFECTED UNDER THIS SECTION 2(b) SHALL RELIEVE
THE COMPANY OF ITS OBLIGATION TO EFFECT A REGISTRATION UPON THE REQUEST OF
HOLDERS PURSUANT TO SECTION 2(a).
(ii) REDUCTION OF OFFERING. IF THE LEAD MANAGING UNDERWRITER
OF ANY UNDERWRITTEN OFFERING DESCRIBED IN SECTION 2(b)(i) HAS INFORMED, IN
WRITING, THE HOLDERS OF THE REGISTRABLE SECURITIES REQUESTING INCLUSION IN SUCH
OFFERING THAT IT IS ITS VIEW THAT THE TOTAL NUMBER OF SECURITIES WHICH THE
COMPANY, THE 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 NUMBER OF REGISTRABLE SECURITIES TO BE OFFERED
FOR THE ACCOUNT OF SUCH HOLDERS AND THE NUMBER OF SUCH SECURITIES TO BE OFFERED
FOR THE ACCOUNT OF ALL SUCH OTHER PERSONS (OTHER THAN THE COMPANY) PARTICIPATING
IN SUCH REGISTRATION SHALL BE REDUCED OR LIMITED PRO RATA IN PROPORTION TO THE
RESPECTIVE NUMBER OF SECURITIES REQUESTED TO BE REGISTERED TO THE EXTENT
NECESSARY TO REDUCE THE TOTAL NUMBER OF SECURITIES REQUESTED TO BE INCLUDED IN
SUCH OFFERING TO THE NUMBER OF
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SECURITIES, IF ANY, RECOMMENDED BY SUCH LEAD MANAGING UNDERWRITER, UNLESS SUCH
OFFERING IS BEING MADE PURSUANT TO EXERCISE OF A DEMAND REGISTRATION RIGHT
GRANTED BY THE COMPANY TO OTHER PERSONS, IN WHICH CASE THE NUMBER OF SECURITIES
TO BE OFFERED FOR THE ACCOUNT OF ALL PERSONS NOT EXERCISING DEMAND REGISTRATION
RIGHTS (INCLUDING THE HOLDERS) SHALL BE ELIMINATED OR REDUCED PRO RATA IN
PROPORTION TO THE RESPECTIVE NUMBER OF SECURITIES REQUESTED TO BE REGISTERED BY
SUCH PERSONS TO REDUCE THE TOTAL NUMBER OF SECURITIES REQUESTED TO BE INCLUDED
IN SUCH OFFERING TO THE NUMBER OF SECURITIES, IF ANY, RECOMMENDED BY SUCH LEAD
MANAGING UNDERWRITER BEFORE ANY REDUCTION IS MADE IN SECURITIES REQUESTED TO BE
REGISTERED BY PERSONS EXERCISING A DEMAND REGISTRATION RIGHT. IF THE LEAD
MANAGING UNDERWRITER OF ANY UNDERWRITTEN OFFERING DESCRIBED IN SECTION 2(b)
NOTIFIES THE HOLDERS REQUESTING INCLUSION OF REGISTRABLE SECURITIES IN SUCH
OFFERING, THAT THE KIND OF SECURITIES THAT SUCH 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, (x)
THE REGISTRABLE SECURITIES TO BE INCLUDED IN SUCH OFFERING SHALL BE REDUCED AS
DESCRIBED IN THE PRECEDING SENTENCE OR (y) IF A REDUCTION IN THE REGISTRABLE
SECURITIES PURSUANT TO THE PRECEDING SENTENCE WOULD, IN THE JUDGMENT OF THE LEAD
MANAGING UNDERWRITER, BE INSUFFICIENT TO SUBSTANTIALLY ELIMINATE THE ADVERSE
EFFECT THAT INCLUSION OF THE REGISTRABLE SECURITIES REQUESTED TO BE INCLUDED
WOULD HAVE ON SUCH OFFERING, SUCH REGISTRABLE SECURITIES WILL BE EXCLUDED FROM
SUCH OFFERING.
(iii) WITHDRAWAL ELECTION. IF, AS A RESULT OF THE PRORATION
PROVISIONS OF THIS SECTION 2(b), ANY HOLDER SHALL NOT BE ENTITLED TO INCLUDE ALL
REGISTRABLE SECURITIES IN A PIGGY-BACK REGISTRATION THAT SUCH HOLDER HAS
REQUESTED TO BE INCLUDED, SUCH HOLDER MAY ELECT TO WITHDRAW HIS REQUEST TO
INCLUDE REGISTRABLE SECURITIES IN SUCH REGISTRATION (A "WITHDRAWAL ELECTION");
PROVIDED THAT A WITHDRAWAL ELECTION SHALL BE MADE PRIOR TO THE EFFECTIVENESS OF
THE REGISTRATION STATEMENT AND SHALL BE IRREVOCABLE AND, AFTER MAKING A
WITHDRAWAL ELECTION, A HOLDER SHALL NO LONGER HAVE ANY RIGHT TO INCLUDE
REGISTRABLE SECURITIES IN THE REGISTRATION AS TO WHICH SUCH WITHDRAWAL ELECTION
WAS MADE.
(c) LOCK UP OF HOLDERS. IF THE COMPANY HAS COMPLIED WITH ALL
OF ITS OBLIGATIONS WITH RESPECT TO A DEMAND REGISTRATION OR A PIGGY-BACK
REGISTRATION THAT IS A FIRM COMMITMENT UNDERWRITTEN PUBLIC OFFERING, ALL HOLDERS
OF WARRANTS AND REGISTRABLE SECURITIES, UPON REQUEST OF THE LEAD MANAGING
UNDERWRITER WITH RESPECT TO SUCH UNDERWRITTEN PUBLIC OFFERING, AGREE NOT TO SELL
OR OTHERWISE DISPOSE OF ANY WARRANTS OR ANY REGISTRABLE SECURITIES OWNED BY THEM
FOR A PERIOD NOT TO EXCEED 180 DAYS FROM THE CONSUMMATION OF SUCH UNDERWRITTEN
PUBLIC OFFERING; PROVIDED THAT REGISTRABLE SECURITIES WHICH HAD BEEN REQUESTED
FOR INCLUSION IN A DEMAND REGISTRATION OR A PIGGY-BACK REGISTRATION BUT WHICH
WERE NOT SO INCLUDED PURSUANT TO SECTION 2(a)(iii) OR SECTION 2(b)(ii) SHALL
ONLY BE SUBJECT TO THE RESTRICTION ON SALE AND DISPOSITION IN THIS SECTION 2(c)
FOR A PERIOD NOT TO EXCEED 90 DAYS FROM THE CONSUMMATION OF SUCH UNDERWRITTEN
PUBLIC OFFERING.
SECTION 3. REGISTRATION PROCEDURES.
IN CONNECTION WITH THE OBLIGATIONS OF THE COMPANY WITH RESPECT
TO ANY REGISTRATION STATEMENT TO BE FILED PURSUANT TO SECTIONS 2(a) OR 2(b)
HEREOF, THE COMPANY SHALL:
(i) 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 OF THE REGISTRABLE SECURITIES INCLUDED IN SUCH
REGISTRATION STATEMENT, AND THE MANAGING UNDERWRITERS, IF ANY, COPIES OF ALL
SUCH DOCUMENTS SUBSTANTIALLY IN THE FORM PROPOSED TO BE
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FILED, WHICH DOCUMENTS (OTHER THAN THOSE INCORPORATED OR DEEMED TO BE
INCORPORATED BY REFERENCE) WILL BE SUBJECT TO THE REVIEW OF SUCH HOLDERS, AND
SUCH UNDERWRITERS, IF ANY, AND USE BEST EFFORTS TO 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 RESPECTIVE COUNSEL TO SUCH HOLDERS AND
SUCH UNDERWRITERS, TO CONDUCT A REASONABLE INVESTIGATION WITHIN THE MEANING OF
THE ACT. THE COMPANY SHALL NOT FILE ANY SUCH REGISTRATION STATEMENT OR RELATED
PROSPECTUS OR ANY AMENDMENTS OR SUPPLEMENTS THERETO TO WHICH THE UNDERWRITERS,
IF ANY, OR THE HOLDERS OF A MAJORITY OF THE REGISTRABLE SECURITIES INCLUDED IN
SUCH REGISTRATION STATEMENT SHALL REASONABLY OBJECT ON A TIMELY BASIS;
(ii) 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 UNDER THE ACT; AND COMPLY WITH THE PROVISIONS OF THE 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;
(iii) 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, (1)(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, (2) 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, (3)
OF THE ISSUANCE BY THE SEC, ANY STATE SECURITIES COMMISSION, ANY OTHER
GOVERNMENTAL AGENCY OR ANY COURT OF ANY STOP ORDER, 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,
(4) 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 (5) OF THE HAPPENING OF ANY
EVENT OR INFORMATION BECOMING KNOWN THAT MAKES ANY STATEMENT MADE IN A
REGISTRATION STATEMENT OR RELATED PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR
THAT REQUIRES THE MAKING OF ANY CHANGES IN SUCH REGISTRATION STATEMENT OR
PROSPECTUS SO THAT, IN THE CASE OF A REGISTRATION STATEMENT, IT WILL NOT CONTAIN
ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO STATE ANY MATERIAL FACT
REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN, IN
LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING, AND THAT
IN THE CASE OF A 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;
(iv) USE ITS BEST EFFORTS TO AVOID THE ISSUANCE OF OR, IF
ISSUED, OBTAIN THE WITHDRAWAL OF ANY ORDER ENJOINING OR SUSPENDING THE USE OF A
PROSPECTUS OR THE EFFECTIVENESS OF A REGISTRATION STATEMENT OR THE LIFTING OF
ANY SUSPENSION OF THE QUALIFICATION (OR EXEMPTION FROM QUALIFICATION) OF ANY OF
THE REGISTRABLE SECURITIES FOR SALE IN ANY JURISDICTION DESCRIBED IN SECTION
3(viii), AT THE EARLIEST PRACTICABLE MOMENT;
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(v) IF REQUESTED BY THE SELLING HOLDERS OR THE MANAGING
UNDERWRITERS, IF ANY, (x) PROMPTLY INCORPORATE IN A PROSPECTUS SUPPLEMENT OR
POST-EFFECTIVE AMENDMENT SUCH INFORMATION AS THE SELLING HOLDERS OR THE MANAGING
UNDERWRITERS, IF ANY, REASONABLY BELIEVE IS REQUIRED TO BE INCLUDED THEREIN, AND
(y) MAKE ALL REQUIRED FILINGS OF SUCH PROSPECTUS SUPPLEMENT OR SUCH
POST-EFFECTIVE AMENDMENT UNDER THE 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;
(vi) FURNISH TO EACH HOLDER OF REGISTRABLE SECURITIES TO BE
SOLD PURSUANT TO A REGISTRATION STATEMENT AND EACH MANAGING UNDERWRITER, IF ANY,
WITHOUT CHARGE, AT LEAST ONE CONFORMED COPY OF SUCH 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;
(vii) DELIVER TO EACH HOLDER OF REGISTRABLE SECURITIES TO BE
SOLD PURSUANT TO A REGISTRATION STATEMENT, AND THE UNDERWRITERS, IF ANY, WITHOUT
CHARGE, AS MANY COPIES OF THE PROSPECTUS (INCLUDING EACH FORM OF PROSPECTUS) AND
EACH AMENDMENT OR SUPPLEMENT THERETO AS SUCH PERSONS REASONABLY REQUEST; AND THE
COMPANY HEREBY CONSENTS TO THE USE OF SUCH PROSPECTUS AND EACH AMENDMENT OR
SUPPLEMENT THERETO BY EACH OF THE SELLING HOLDERS OF REGISTRABLE SECURITIES AND
THE UNDERWRITERS, IF ANY, IN CONNECTION WITH THE OFFERING AND SALE OF THE
REGISTRABLE SECURITIES COVERED BY SUCH PROSPECTUS AND ANY AMENDMENT OR
SUPPLEMENT THERETO;
(viii) PRIOR TO ANY PUBLIC OFFERING OF REGISTRABLE SECURITIES,
USE ITS BEST EFFORTS TO REGISTER OR QUALIFY OR COOPERATE WITH THE HOLDERS OF
REGISTRABLE SECURITIES TO BE SOLD, THE 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 (x) QUALIFY GENERALLY TO DO BUSINESS IN ANY
JURISDICTION WHERE IT IS NOT THEN SO QUALIFIED OR (y) TAKE ANY ACTION WHICH
WOULD SUBJECT IT TO GENERAL SERVICE OF PROCESS OR TO TAXATION IN ANY
JURISDICTION WHERE THEY ARE NOT SO SUBJECT;
(ix) 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 THEREOF 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 AND SHALL BE IN A FORM ELIGIBLE FOR DEPOSIT WITH
THE DEPOSITORY TRUST COMPANY AND TO ENABLE SUCH REGISTRABLE SECURITIES TO BE IN
SUCH DENOMINATIONS AND REGISTERED IN SUCH NAMES AS THE MANAGING UNDERWRITERS, IF
ANY, OR SUCH HOLDERS MAY REQUEST AT LEAST TWO BUSINESS DAYS PRIOR TO ANY SALE OF
REGISTRABLE SECURITIES;
(x) UPON THE OCCURRENCE OF ANY EVENT CONTEMPLATED BY
SECTION 3(iii)(5), 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 PROSPECTUS OR ANY
DOCUMENT INCORPORATED OR DEEMED TO BE INCORPORATED THEREIN BY REFERENCE, AND
FILE ANY OTHER REQUIRED DOCUMENT SO THAT, AS
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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;
(xi) ENTER INTO SUCH AGREEMENTS (INCLUDING AN UNDERWRITING
AGREEMENT IN 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) 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, (1) MAKE SUCH REPRESENTATIONS
AND WARRANTIES TO THE UNDERWRITERS, IF ANY, AND SELLING HOLDERS WITH RESPECT TO
THE BUSINESS OF THE COMPANY AND ITS SUBSIDIARIES (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; (2) 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 OF THE UNDERWRITERS, IF ANY, AND SELLING
HOLDERS), COVERING THE MATTERS CUSTOMARILY COVERED IN OPINIONS REQUESTED IN
UNDERWRITTEN OFFERINGS AND SUCH OTHER MATTERS AS MAY BE REASONABLY REQUESTED BY
SUCH UNDERWRITERS OR SELLING HOLDERS; (3) USE THEIR BEST EFFORTS TO 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 IS, OR IS REQUIRED TO BE, INCLUDED IN THE REGISTRATION
STATEMENT), ADDRESSED (WHERE REASONABLY POSSIBLE) TO EACH OF THE UNDERWRITERS,
IF ANY, AND SELLING HOLDERS, SUCH LETTERS TO BE IN CUSTOMARY FORM AND COVERING
MATTERS OF THE TYPE CUSTOMARILY COVERED IN "COLD COMFORT" LETTERS IN CONNECTION
WITH UNDERWRITTEN OFFERINGS; (4) IF AN UNDERWRITING AGREEMENT IS ENTERED INTO,
THE SAME SHALL CONTAIN INDEMNIFICATION PROVISIONS AND PROCEDURES NO LESS
FAVORABLE TO THE UNDERWRITERS, IF ANY, THAN THOSE SET FORTH IN SECTION 5 HEREOF
(OR SUCH OTHER PROVISIONS AND PROCEDURES ACCEPTABLE TO THE MANAGING
UNDERWRITERS, IF ANY); AND (5) DELIVER SUCH DOCUMENTS AND CERTIFICATES AS MAY BE
REASONABLY REQUESTED BY THE MANAGING UNDERWRITERS, IF ANY, TO EVIDENCE THE
CONTINUED VALIDITY OF THE REPRESENTATIONS AND WARRANTIES MADE PURSUANT TO CLAUSE
(1) ABOVE AND TO EVIDENCE COMPLIANCE WITH ANY CUSTOMARY CONDITIONS CONTAINED IN
THE UNDERWRITING AGREEMENT OR OTHER AGREEMENT ENTERED INTO BY THE COMPANY;
(xii) MAKE AVAILABLE FOR INSPECTION BY A REPRESENTATIVE OF
ANY UNDERWRITER PARTICIPATING IN ANY SUCH DISPOSITION OF REGISTRABLE
SECURITIES, AND ANY ATTORNEY, CONSULTANT OR ACCOUNTANT RETAINED BY SUCH SELLING
HOLDERS OR UNDERWRITER, AT THE OFFICES WHERE NORMALLY KEPT, DURING REASONABLE
BUSINESS HOURS, ALL PERTINENT FINANCIAL AND OTHER RECORDS, CORPORATE DOCUMENTS
AND PROPERTIES OF THE COMPANY AND ITS SUBSIDIARIES (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 (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 REPRESENTATIVE, UNDERWRITER, ATTORNEY,
CONSULTANT OR ACCOUNTANT IN CONNECTION WITH SUCH REGISTRATION STATEMENT;
(xiii) COMPLY WITH ALL APPLICABLE RULES AND REGULATIONS OF THE
SEC AND MAKE GENERALLY AVAILABLE TO THEIR SECURITYHOLDERS EARNINGS STATEMENTS
SATISFYING THE PROVISIONS OF SECTION 11(a) OF THE ACT
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AND RULE 158 UNDER THE ACT, NO LATER THAN 45 DAYS AFTER THE END OF ANY 12-MONTH
PERIOD (OR 90 DAYS AFTER THE END OF ANY 12-MONTH PERIOD IF SUCH PERIOD IS A
FISCAL YEAR) (x) COMMENCING AT THE END OF ANY FISCAL QUARTER IN WHICH
REGISTRABLE SECURITIES ARE SOLD TO UNDERWRITERS IN A FIRM COMMITMENT OR
REASONABLE EFFORTS UNDERWRITTEN OFFERING AND (y) IF NOT SOLD TO UNDERWRITERS IN
SUCH AN OFFERING, COMMENCING ON THE FIRST DAY OF THE FIRST FISCAL QUARTER AFTER
THE EFFECTIVE DATE OF A REGISTRATION STATEMENT, WHICH STATEMENT SHALL COVER SAID
PERIOD, CONSISTENT WITH THE REQUIREMENTS OF RULE 158 UNDER THE ACT;
(xiv) CAUSE ALL REGISTRABLE SECURITIES COVERED BY THE
REGISTRATION STATEMENT TO BE LISTED ON EACH SECURITIES EXCHANGE ON WHICH SIMILAR
SECURITIES ISSUED BY THE COMPANY ARE THEN LISTED IF REQUESTED BY THE HOLDERS OF
A MAJORITY OF THE REGISTRABLE SECURITIES COVERED BY THE REGISTRATION STATEMENT
OR THE MANAGING UNDERWRITERS, IF ANY; AND
(xv) COOPERATE WITH EACH SELLER OF REGISTRABLE SECURITIES
COVERED BY ANY REGISTRATION STATEMENT AND EACH UNDERWRITER, IF ANY,
PARTICIPATING IN THE DISPOSITION OF SUCH REGISTRABLE SECURITIES AND THEIR
RESPECTIVE COUNSEL IN CONNECTION WITH ANY FILINGS REQUIRED TO BE MADE WITH THE
NASD.
THE COMPANY MAY REQUIRE A HOLDER OF REGISTRABLE SECURITIES TO
BE INCLUDED IN A REGISTRATION STATEMENT TO FURNISH TO THE COMPANY SUCH
INFORMATION REGARDING (x) THE INTENDED METHOD OF DISTRIBUTION OF SUCH
REGISTRABLE SECURITIES (y) SUCH HOLDER AND (z) 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. THE COMPANY SHALL NOT BE
REQUIRED TO PROVIDE INDEMNIFICATION TO ANY UNDERWRITER OR ANY OTHER PERSON
RELATING TO INFORMATION REFERRED TO IN CLAUSES (x), (y) AND (z) PROVIDED TO THE
COMPANY IN WRITING SPECIFICALLY FOR INCLUSION IN SUCH REGISTRATION STATEMENT.
EACH HOLDER OF REGISTRABLE SECURITIES AGREES BY ACQUISITION OF
SUCH REGISTRABLE SECURITIES THAT, UPON RECEIPT OF ANY NOTICE FROM THE COMPANY OF
THE HAPPENING OF ANY EVENT OF THE KIND DESCRIBED IN SECTION 3(iii)(2),
3(iii)(3), 3(iii)(4) OR 3(iii)(5) HEREOF, SUCH HOLDER WILL FORTHWITH DISCONTINUE
DISPOSITION OF SUCH REGISTRABLE SECURITIES COVERED BY SUCH REGISTRATION
STATEMENT OR PROSPECTUS UNTIL SUCH HOLDER'S RECEIPT OF THE COPIES OF THE
SUPPLEMENTED OR AMENDED PROSPECTUS CONTEMPLATED BY SECTION 3(x) 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 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 PERIOD FROM AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND
INCLUDING THE DATE WHEN EACH HOLDER OF REGISTRABLE SECURITIES COVERED BY SUCH
REGISTRATION STATEMENT SHALL HAVE RECEIVED (x) THE COPIES OF THE SUPPLEMENTED OR
AMENDED PROSPECTUS CONTEMPLATED BY SECTION 3(x) 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.
SECTION 4. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of
or compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses (including
filings made with the NASD (including, if applicable, the fees and expenses of
any "qualified independent
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<PAGE> 12
underwriter" and its counsel, as may be required by the rules and regulations of
the NASD)); (ii) all fees and expenses of compliance with federal securities and
state Blue Sky or securities laws; (iii) all expenses of printing (including
printing certificates for the Warrant Shares and printing of Prospectuses),
messenger and delivery services and telephone; (iv) all fees and disbursements
of counsel for the Company and, in accordance with Section 4(b) below, the
Holders of Registrable Securities; (v) all application and filing fees in
connection with listing the Warrant Shares on a national exchange or automated
quotation system if required hereunder; and (vi) all fees and disbursements of
independent certified public accountants of the Company (including the expenses
of any special audit and comfort letters required by or incident to such
performance).
The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company.
EACH HOLDER 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.
(b) In connection with any Registration Statement required by
this Agreement, the Company will reimburse the Holders of Registrable Securities
being registered pursuant to a Demand Registration or Piggy-Back Registration,
as applicable, for the reasonable fees and disbursements of not more than one
counsel chosen by the Holders of a majority of the Registrable Securities for
whose benefit such Registration Statement is being prepared.
SECTION 5. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless each
Initial Purchaser, each Holder, each underwriter who participates in an offering
of Registrable Securities, each person, if any, who controls a Holder within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and the
respective officers, directors, partners, employees, representatives and agents
of any such party or any controlling person to the fullest extent lawful, from
and against any and all losses, liabilities, claims, damages and expenses
whatsoever (including but not limited to attorneys' fees and any and all
expenses whatsoever incurred in investigating, preparing or defending against
any investigation or litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus, or in
any supplement thereto or amendment thereof, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Company will not be liable in any such case to the extent, but only to
the extent, that (i) any such loss, liability, claim, damage or expense arises
out of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such party
expressly for use therein and (ii) the foregoing indemnity with respect to any
untrue statement contained in or omitted from a Registration Statement or
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<PAGE> 13
the Prospectus shall not inure to the benefit of any party (or any person
controlling such party), from whom the person asserting any such loss,
liability, claim, damage or expense purchased any of the Warrant Shares which
are the subject thereof if it is finally judicially determined that such loss,
liability, claim, damage or expense resulted solely from the fact that such
party sold Warrant Shares to a person to whom there was not sent or given, at or
prior to the written confirmation of such sale, a copy of the Registration
Statement or the Prospectus, as amended or supplemented, and (x) the Company
shall have previously and timely furnished sufficient copies of the Registration
Statement or Prospectus, as so amended or supplemented, to such party in
accordance with this Agreement and (y) the Registration Statement or Prospectus,
as so amended or supplemented, would have corrected such untrue statement or
omission of a material fact. This indemnity agreement will be in addition to any
liability which the Company may otherwise have, including, under this Agreement.
(b) Each Holder, severally and not jointly, agrees to
indemnify and hold harmless the Company, each Initial Purchaser, each
underwriter who participates in an offering of Registrable Securities and the
other selling Holders and each person, if any, who controls any such party
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against any losses, liabilities, claims, damages and expenses whatsoever
(including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
investigation or litigation, commenced or threatened, or any claim whatsoever
and any and all amounts paid in settlement of any claim or litigation), joint or
several, to which they or any of them may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages
or expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, in each case to the extent, but only
to the extent, that any such loss, liability, claim, damage or expense arises
out of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such Holder
expressly for use therein. This indemnity will be in addition to any liability
which a Holder may otherwise have, including under this Agreement. In no event,
however, shall the liability of any selling Holder hereunder be greater in
amount than the dollar amount of the proceeds received by such Holder upon its
sale of the Warrant Shares giving rise to such indemnification obligation.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 5 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may otherwise have). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
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such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action, (ii) the indemnifying parties
shall not have employed counsel to take charge of the defense of such action
within a reasonable time after notice of commencement of the action, or (iii)
such indemnified party or parties shall have reasonably concluded that there may
be defenses available to it or them which are different from or additional to
those available to one or all of the indemnifying parties (in which case the
indemnifying party or parties shall not have the right to direct the defense of
such action on behalf of the indemnified party or parties), in any of which
events such fees and expenses of counsel shall be borne by the indemnifying
parties; provided, however, that the indemnifying party under subsection (a) or
(b) above, shall only be liable for the legal expenses of one counsel (in
addition to any local counsel) for all indemnified parties in each jurisdiction
in which any claim or action is brought. Anything in this subsection to the
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its prior written consent,
provided, however, that such consent was not unreasonably withheld.
(d) In order to provide for contribution in circumstances in
which the indemnification provided for in this Section 5 is for any reason held
to be unavailable from the Company or is insufficient to hold harmless a party
indemnified thereunder, the Company and each Holder shall contribute to the
aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provision (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting in the case of losses, claims, damages, liabilities and expenses
suffered by the Company, any contribution received by the Company from persons,
other than the Holders, who may also be liable for contribution, including
persons who control the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act) to which the Company and any Holder may be
subject, in such proportion as is appropriate to reflect the relative benefits
received by the Company from the offering of the Notes, the Warrants and the
Warrant Shares and any such Holder from its sale of Warrant Shares or, if such
allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in this Section 5, in such proportion as is appropriate to reflect not
only the relative benefits referred to above but also the relative fault of the
Company and the Holders in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and any Holder shall be deemed to be in the same proportion as (x)
the total proceeds from the offering of the Notes, the Warrants and the Warrant
Shares (net of discounts but before deducting expenses) received by the Company
and (y) the total proceeds received by such Holder upon its sale of Warrant
Shares which would otherwise give rise to the indemnification obligation,
respectively. The relative fault of the Company and of the Holders shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Holders
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
each Holder agree that it would not be just and equitable if contribution
pursuant to this Section 5 were determined by pro rata allocation or by any
other method of allocation which does not take into account the equitable
considerations referred to above. Notwithstanding the provisions of this Section
5, (i) no Holder shall be required to contribute, in the aggregate, any amount
in excess of the amount by which the total received by such Holder with respect
to the sale of its Warrant Shares exceeds the sum of (A) the amount paid by such
Holder for such Warrant Shares plus (B) the amount of any damages which such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission and (ii) no person guilty
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<PAGE> 15
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 5, (A) each person,
if any, who controls a Holder within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and (B) the respective officers, directors,
partners, employees, representatives and agents of a Holder or any controlling
person shall have the same rights to contribution as such Holder, and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act shall have the same rights to
contribution as the Company, subject in each case to clauses (i) and (ii) of
this Section 5(d). Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties under this Section 5, notify such party or parties from whom
contribution may be sought, but the failure to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have under this Section 5 or otherwise. No party
shall be liable for contribution with respect to any action or claim settled
without its prior written consent; provided, however, that such written consent
was not unreasonably withheld.
SECTION 6. RULE 144A
The Company hereby agrees with each Holder, for so long as any
Registrable Securities remain outstanding, to make available, upon request of
any Holder of Registrable Securities, to any Holder or beneficial owner of
Registrable Securities in connection with any sale thereof and any prospective
purchaser of such Registrable Securities designated by such Holder or beneficial
owner, the information required by Rule 144A(d)(4) under the Act in order to
permit resales of such Registrable Securities pursuant to Rule 144A.
SECTION 7. MISCELLANEOUS
(a) Remedies. Each Holder, in addition to being entitled to
exercise all rights provided herein, in the Warrant Agreement, in the Purchase
Agreement or granted by law, including recovery of liquidated or other 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 the provisions of this Agreement
and hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or
after the date of this Agreement enter into any agreement with respect to its
securities that conflicts with the rights granted to the Holders 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 securities
under any agreement in effect on the date hereof, except where a waiver with
respect thereto has been obtained prior to the date of effectiveness of any
registration statement required under this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless the Company has
obtained the written consent of Holders of a majority of the outstanding
Registrable Securities, and the consent of the Holders of a majority of the
outstanding Registrable Securities shall be binding on every Holder of
Registrable Securities.
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<PAGE> 16
(d) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, first-class
mail (registered or certified, return receipt requested), telex, telecopier, or
air courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Warrant Agent under the Warrant Agreement, with a copy
to the Warrant Agent under the Warrant Agreement; and
(ii) if to the Company:
MGC COMMUNICATIONS, INC.
3165 PALMS CENTRE DRIVE
LAS VEGAS, NEVADA 89103
TELECOPIER NO.: (702) 310-1111
ATTENTION: GENERAL COUNSEL
WITH A COPY TO:
ELLIS, FUNK, GOLDBERG, LABOVITZ & DOKSON, P.C.
3490 PIEDMONT ROAD, SUITE 400
ATLANTA, GEORGIA 30305
TELECOPIER NO.: (404) 233-2188
ATTENTION: ROBERT B. GOLDBERG
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 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 WARRANT
AGENT AT THE ADDRESS SPECIFIED IN THE WARRANT AGREEMENT.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Registrable Securities; provided, however,
that this Agreement shall not inure to the benefit of or be binding upon a
successor or assign of a Holder unless and to the extent such successor or
assign acquired Registrable Securities directly from such Holder.
(f) 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.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
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(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE CONFLICT OF LAW RULES THEREOF.
(i) 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.
(j) Entire Agreement. This Agreement together with the other
Operative Documents (as defined in the Purchase Agreement) is intended by the
parties as a final expression of their agreement and 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. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the Registrable Securities. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
[SIGNATURE PAGE FOLLOWS]
16
<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
MGC COMMUNICATIONS, INC.
BY:
-----------------------------------------
NAME:
TITLE:
BEAR, STEARNS & CO. INC.
BY:
----------------------------
NAME:
TITLE:
FURMAN SELZ LLC
BY:
----------------------------
NAME:
TITLE:
<PAGE> 1
EXHIBIT 10.9
PRIVATE PLACEMENT
BANK ESCROW AGREEMENT
This Bank Escrow Agreement is made and entered into as of this ___ day
of September, 1997, by and among MGC COMMUNICATIONS, INC., a Nevada corporation
(the "Company"), MARINE MIDLAND BANK, as Escrow Agent (the "Escrow Agent"), and
those persons indentified on Exhibit "A" attached hereto (the "Investors").
W I T N E S S E T H :
WHEREAS, the Company proposes to issue units (consisting of Senior
Secured Notes and Warrants to purchase Common Stock) to raise gross proceeds of
at least $150 million (the "Debt Offering"); and
WHEREAS, the Debt Offering contemplates that the Company will complete,
within 60 days after the closing of the Debt Offering, the sale of its
convertible preferred stock (the "Preferred Stock Offering") resulting in gross
proceeds to the Company of at least $15 million or alternatively, that the
Company will complete within 60 days after the closing of the Debt Offering, the
sale of Common Stock (the "Common Stock Offering") resulting in gross proceeds
to the Company of at least $15 million; and
WHEREAS, the Company has arranged for the Investors to contribute $15
million into escrow under this Agreement to provide assurance to those
participating in the Debt Offering that either the Preferred Stock Offering or
Common Stock Offering will be completed within 60 days after the closing of the
Debt Offering; and
WHEREAS, the Escrow Agent agrees to serve as Escrow Agent in accordance
with the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, it is hereby agreed
as follows:
1. Establishment of Escrow Account. Each of the Investors hereby
agrees to contribute to the Escrow Agent for the purposes set forth herein the
amount set forth opposite his name on Exhibit "A" hereto. The parties shall
establish a non-interest bearing escrow account with the Escrow Agent for the
funds received from the Investors, which escrow account shall be entitled "MGC
Communications, Inc. Escrow Account" (the "Escrow Account"). Amounts on
deposit in the Escrow Account shall be invested by the Escrow Agent only in
"Government Securities" that mature on or before the earlier of sixty (60) days
after the closing date of the Debt Offering or December 15, 1997, which
Government Securities shall be designated by the Company and relayed to the
Escrow Agent from time to time. For purposes of this Agreement, "Goverment
Securities" means direct obligations of, or obligations guaranteed by, the
United States of America for the payment of which guarantee or obligations the
full faith and credit of the United States is pledged. The Escrow Agent shall
not be liable to the Investors or to the
<PAGE> 2
Company for any losses or expenses incurred in connection with the investment of
amounts on deposit in the Escrow Account as directed by the Investors.
2. Escrow Period. The escrow period for the Escrow Account shall begin
upon deposit of funds from the Investors and shall terminate (subject to the
disbursement provisions in paragraph 3) upon the earliest to occur of the
following dates (the "Offering Termination Date"):
A. The date which is five (5) days after the date the Escrow Agent
receives written notice from the Company that the Preferred Stock Offering has
been closed; or
B. The date which is sixty (60) days after the closing of the Debt
Offering; or
C. December 15, 1997.
During the escrow period, the Company is aware and understands it is not
entitled to any portion of the Escrow Account and no amounts deposited in the
Escrow Account shall become the property of the Company or any other entity, or
be subject to the debts of the Company or any other entity, until disbursed to
the Company in accordance with this Agreement.
3. Disbursement from the Escrow Account. Amounts in the Escrow Account
shall be disbursed as follows:
A. In the event the Escrow Agent (i) receives written notice from
the Company prior to the Offering Termination Date that the Debt Offering has
been written closed or that the Company has otherwise issued debt obligations
resulting in gross proceeds to the Company of at least $100 million and (ii)
receives written notice from the Company that the Preferred Stock Offering has
not been closed prior to the Offering Termination Date, then upon receipt of
such notification by Escrow Agent from the Company, the Escrow Agent shall
disburse the amounts contributed by the Investors to the Escrow Account to the
Company, in which event, the Investors shall be entitled to receive between
3,000,000 and 4,285,712 shares of Common Stock in the Company (reflecting a per
share price of $3.50 to $5.00) as determined by separate agreement of the
Company and the Investors. The Escrow Agent shall notify the Company and the
Investors of its distribution of funds under this Paragraph A.
B. In the event the Escrow Agent receives written notice from the
Company that the Preferred Stock Offering has been closed on or prior to the
Offering Termination Date, the Escrow Agent shall provide immediate written
notice thereof to Bear, Stearns & Co. Inc. ("Bear"). If Bear does not deliver to
the Escrow Agent its written objection to the disbursement of the Escrow Account
within five (5) days after such notice to Bear or if Bear otherwise consents in
writing to the disbursement of the Escrow Account prior to the expiration of
such five-day period, then the Escrow Agent shall promptly notify the Investors
that the amounts in the Escrow Account are available for disbursement. Upon
receipt by the Escrow Agent of appropriate written instructions from any
Investor, the Escrow Agent shall disburse the amount contributed by such
2
<PAGE> 3
Investor to the Escrow Account, or such portions thereof, either (i) to the
Company, with respect to which such Investor shall be entitled to shares of
Convertible Preferred Stock of the Company upon the same terms as the Preferred
Stock Offering, or (ii) to such Investor, as directed by such Investor. If any
Investor fails to direct the disbursement under this Paragraph B within ten (10)
days after notice from the Escrow Agent, such disbursement with respect to such
Investor shall be made by check to such Investor and sent to him at the address
indicated on Exhibit "A".
C. Upon the disbursement of the amounts contributed to the Escrow
Account as provided in Paragraph A or B above, all investment earnings in the
Escrow Account shall be disbursed to the Investors in proportion to the amounts
contributed to the Escrow Account.
D. In the event the Escrow Agent receives written notice from the
Company at any time after October 15, 1997, that the Debt Offering has not been
closed, the Escrow Agent shall provide prompt written notice thereof to Bear. If
Bear does not deliver to the Escrow Agent its written objection to the
disbursement of the Escrow Account within five (5) days after such notice to
Bear or if Bear otherwise consents in writing to the disbursement of the Escrow
Account prior to the expiration of such five-day period, then the Escrow Agent
shall promptly notify the Investors that the amounts in the Escrow Account are
available for disbursement. Upon receipt by the Escrow Agent of appropriate
written instructions from each Investor, the Escrow Agent shall disburse all
funds contributed by such Investor to the Escrow Account to such Investor.
4. Payment to Escrow Agent. The Company agrees to pay the Escrow Agent a
fee for its services under this Agreement as has been agreed by the Company and
the Escrow Agent, and to reimburse the Escrow Agent upon demand for all
expenses, including legal fees, reasonably incurred by the Escrow Agent in the
performance of its duties hereunder.
5. Liability of Escrow Agent. Upon payment by Escrow Agent of all the
funds in the Escrow Account as provided herein, the Escrow Agent shall be
relieved of all liabilities in connection with this Agreement.
6. Duties of Escrow Agent. It is understood and agreed further that the
Escrow Agent shall:
A. be protected in acting upon any notice, request, certificate,
approval, consent or other paper believed by it to be genuine, signed by the
proper party or parties and in accordance with the terms of this Agreement.
B. be deemed conclusively to have given and delivered any notice
required to be given or delivered hereunder if the same is in writing, signed by
any of its authorized officers and mailed, by registered or certified mail,
addressed to the Company at 3165 Palms Centre Drive, Las Vegas, Nevada 89103, to
the Investors at their addresses as set forth in Exhibit "A" and to Bear at 245
Park Avenue, New York, New York 10167, Attention: Corporate Finance Department.
3
<PAGE> 4
C. provide the Company with a detailed statement which summarizes
all activity in the Escrow Account.
D. be under no duty or obligation other than those herein
specifically provided. The Escrow Agent shall have no liability under, or duty
to inquire into, the terms and provisions of any other agreement. The duties of
the Escrow Agent are purely ministerial in nature, and the Escrow Agent shall
incur no liability whatsoever except for willful misconduct or gross negligence.
The Escrow Agent may consult with counsel of its choice, including in-house
counsel, and shall not be liable for any action taken, suffered or omitted by it
in accordance with the advice of such counsel. The Escrow Agent shall not be
bound by any modification, amendment, termination, cancellation, rescission or
supersession of this Agreement unless the same shall be in writing and unless it
shall have given prior written consent thereto. In the event the Escrow Agent
shall be uncertain as to its duties or rights hereunder or shall receive
instruction, claims or demands from the parties hereto which, in its opinion,
are in conflict with any of the provisions of this Agreement, it shall be
entitled to refrain from taking any action other than to keep safely all funds
held in the Escrow Account until it shall be directed otherwise in writing by
all of the parties hereto or by a final judgment of a court of competent
jurisdiction and time for appeal has expired and no appeal has been perfected.
7. Escrow Agent Resignation. The Escrow Agent may at any time resign
hereunder by giving written notice of its resignation to the parties hereto at
their addresses set forth below, at least 10 days prior to the date specified
for such resignation to take effect, and upon the effective date of such
resignation, all property then held by the Escrow Agent hereunder shall be
delivered by it to such person as may be designated in writing by the Company
and the Investors, whereupon all the Escrow Agent's obligations hereunder shall
cease and terminate. If no such person shall have been designated by such date,
all obligations of the Escrow Agent (except as stated in the following sentence)
hereunder shall, nevertheless, cease and terminate. The Escrow Agent's sole
responsibility thereafter shall be to keep safely the funds held in the Escrow
Account and to deliver the same to a person designated by all parties hereto or
in accordance with the directions of a final order or judgment of a court of
competent jurisdiction.
8. Indemnity. The Company agrees to indemnify, defend and hold the Escrow
Agent harmless from and against any and all loss, damage, tax, liability and
expense, including attorneys fees, that may be incurred by the Escrow Agent
arising out of or in connection with its acceptance of appointment as Escrow
Agent hereunder, except as caused by its gross negligence or willful misconduct,
including the legal costs and expenses of defending itself against any claim or
liability in connection with its performance hereunder, and the legal costs and
expenses of any action instituted by it to resolve any dispute as to the funds
held in the Escrow Account. The provisions of this Section 8 shall survive the
resignation or removal of the Escrow Agent and the termination of this
Agreement.
9. Modification. This Agreement may be modified only by an instrument in
writing signed by all of the parties hereto; provided, however, that neither
Section 2 nor Section 3 hereof
4
<PAGE> 5
may be amended without the consent of Bear, Stearns & Co. Inc., as one of the
managers of the Debt Offering.
10. 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.
11. Governing Law. Nothing in this Agreement is intended to or shall
confer upon anyone other than the parties hereto any legal or equitable right,
remedy or claim. This Agreement shall be construed in accordance with the laws
of the State of New York and may be modified only in writing.
IN WITNESS WHEREOF, the parties have executed this Private Placement Bank
Escrow Agreement on the date first above written.
MGC COMMUNICATIONS, INC.
By:
-----------------------------------
Nield J. Montgomery, President
MARINE MIDLAND BANK, Escrow Agent
By:
-----------------------------------
INVESTORS:
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
5
<PAGE> 6
EXHIBIT "A"
Investors
<TABLE>
<CAPTION>
Name and Address Amount Contributed
- ---------------- ------------------
<S> <C>
The Gallagher Trust dated $3,750,000
October 20, 1992
6900 Westcliff Drive
Suite 505
Las Vegas, NV 89128
Timothy P. Flynn $3,750,000
6900 Westcliff Drive
Suite 505
Las Vegas, NV 89128
Robert L. Priddy* $3,750,000
9410 Laguna Niguel Drive
Las Vegas, NV 89134
Bonderman Family Limited Partnership $3,750,000
201 Main Street
Suite 2420
Fort Worth, TX 76102
Attn: James J. O'Brien
</TABLE>
*Copies of all notices to be sent to 3435 Kingsboro Road, #1601, Atlanta,
Georgia 30326.
<PAGE> 1
EXHIBIT 10.10
<TABLE>
<CAPTION>
<S> <C> <C>
Article 1 LEASE OF PREMISES 2
Article 2 DEFINITIONS 2
Article 3 EXHIBITS AND ADDENDA 3
Article 4 DELIVERY OF POSSESSION 3
Article 5 RENT 3
Article 6 INTEREST AND LATE CHARGES 5
Article 7 SECURITY DEPOSIT 6
Article 8 TENANT'S USE OF THE PREMISES 6
Article 9 SERVICES AND UTILITIES 6
Article 10 CONDITION OF THE PREMISES 7
Article 11 CONSTRUCTION, REPAIRS AND MAINTENANCE 7
Article 12 ALTERATIONS AND ADDITIONS 8
Article 13 LEASEHOLD IMPROVEMENTS; TENANTS PROPERTY 8
Article 14 RULES AND REGULATIONS 8
Article 15 CERTAIN RIGHTS RESERVED BY LANDLORD 9
Article 16 ASSIGNMENT AND SUBLETTING 9
Article 17 HOLDING OVER 10
Article 18 SURRENDER OF PREMISES 10
Article 19 DESTRUCTION OR DAMAGE 10
Article 20 EMINENT DOMAIN 11
Article 21 INDEMNIFICATION 11
Article 22 TENANT'S INSURANCE 11
Article 23 WAIVER OF SUBROGATION 12
Article 24 SUBORDINATION AND ATTORNMENT 12
Article 25 TENANT ESTOPPEL CERTIFICATES 12
Article 26 TRANSFER OF LANDLORD'S INTEREST 13
Article 27 DEFAULT 13
Article 28 BROKERAGE FEES 14
Article 29 NOTICES 14
Article 30 GOVERNMENT ENERGY OR UTILITY CONTROLS 15
Article 31 RELOCATION OF PREMISES 15
Article 32 QUIET ENJOYMENT 15
Article 33 OBSERVANCE OF LAW 15
Article 34 FORCE MAJEURE 15
Article 35 CURING TENANT'S DEFAULTS 15
Article 36 SIGN CONTROL 15
Article 37 MISCELLANEOUS 16
</TABLE>
<PAGE> 2
STANDARD OFFICE LEASE AGREEMENT
This Lease between CHEYENNE INVESTMENTS L.L.C., a Nevada Limited Liability
Company, ("Landlord"), and MGC COMMUNICATIONS, INC., a Nevada Corporation,
("Tenant"), is dated July 01, 1997.
1. LEASE OF PREMISES.
In consideration of the Rent (as defined at Section 5.4) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown by diagonal lines on the floor plan attached hereto as Exhibit
"A", and further described at Section 2i. The Premises are located within the
Building and Project described in Section 2m. Tenant shall have the nonexclusive
right (unless otherwise provided herein) in common with Landlord, other tenants,
subtenants and invitees, to use of the Common Areas (as defined at Section 2e).
2. DEFINITIONS.
As used in this Lease, the following terms shall have the following meanings:
a. Base Rent (initial): $477,675.00 per year.
------------------------------------------
b. Base Year: The calendar year of Not Applicable (See 2f)
--------------------------------------
c. Broker(s)
-------------------------------------------------------------
Landlord's:
-----------------------------------------------------------
Tenant's:
-------------------------------------------------------------
d. Commencement Date: January 1, 1998
e. Common Areas: the building lobbies, common corridors and hallways,
restrooms, garage and parking areas, stairways, elevators and other
generally understood public or common areas. Landlord shall have the
right to regulate or restrict the use of the Common Areas.
f. Expense Stop: $ 2.50 Per Square Foot Per Year
----------------------------------------------------
g. Expiration Date: January 31, 2003 unless otherwise sooner terminated in
accordance with the provisions of this Lease.
h. Index (Section 5.2): United States Department of Labor, Bureau of Labor
Statistics Consumer Price Index for All Urban Consumers, U.S. City
Average, "All Items" (1967=100).
i. Landlord's Mailing Address:
6900 Westcliff Dr., Ste. 505
Las Vegas, NV 89128
cc:
Tenant's Mailing Address:
3301 Buffalo Drive
Las Vegas, NV 89129
j. Monthly Installments of Base Rent (initial): $39,806.25 per month.
---------------
k. Parking: Tenant shall be permitted, to park ________ employee and
visitors cars on a non exclusive basis in the area(s) designated by
Landlord for parking. Tenant shall abide by any and all parking
regulations and rules established from time to time by Landlord or
Landlord's parking operator.
l. Premises: approximately 24,125 square feet of Rentable Area, shown by
diagonal lines on Exhibit "A"," located in Building ________ and known as Suite
________.
m. Project: the building of which the Premises are a part (the "Building")
and any other buildings or improvements on the real property (the "Property")
located at 3301 Buffalo Drive , and further described at Exhibit "B." The
Project is commonly known as MGC CORPORATE CENTRE.
n. Rentable Area: as to both the Premises and the Project, the respective
measurements of floor area as may from time to time be subject to lease by
Tenant and all tenants of the Project, respectively, as determined by Landlord
and applied on a consistent basis throughout the Project. The basis of
measurement used by Landlord is
2
<PAGE> 3
the AMERICAN NATIONAL STANDARD INSTITUTE - Z65.1-1980 Method for Measuring Floor
Space in Office Buildings, BOMA International (Building Owners and Manger
Association International).
o. Deposits (Article 7): Security Deposit $ 39,806.25
Last Month's Rental $ 0
p. State: the State of Nevada
q. Tenant's First Adjustment Date (Section 5.2): the first day of the
calendar month following the Commencement Date plus twelve (12) months.
r. Tenant's Proportionate Share of Phase I shall be: 74% , ( 24,125
Rentable Square Feet) Such share is a fraction, the numerator of which is the
Rentable Area of the Premises, and the denominator of which is the Rentable Area
of Phase I, as determined by Landlord from time to time.
s. Tenant's Use Clause (Article 8): General Office Use
t. Term: the period commencing on the Commencement Date and expiring at
midnight on the Expiration Date.
3. EXHIBITS AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are incorporated by
reference in this Lease:
a. Exhibit "A" - Floor Plan showing the Premises
b. Exhibit "B" - Site Plan of the Project
c. Exhibit "C" - Building Standard Work Letter and/or
Construction Drawings if applicable
d. Exhibit "D" - Rules and Regulations
e. Exhibit "E" - Guaranty
f. Addenda: - Addendum I
4. DELIVERY OF POSSESSION.
If for any reason Landlord does not deliver possession of the Premises to Tenant
on the Commencement Date, Landlord shall not be subject to any liability for
such failure, the Expiration Date shall not change and the validity of this
Lease shall not be impaired, but Rent shall be abated until delivery of
possession. Notwithstanding the aforementioned statement, rent on such premises
shall not be abated should delay in Tenant's occupancy of the premises occur due
to Tenant's own causes as referenced in Exhibit "C" attached or any other
provision requiring timely performance by Tenant. "Delivery of possession" shall
be deemed to occur on the date Landlord completes Landlord's Work as defined in
Exhibit "C." If Landlord permits Tenant to enter into possession of the Premises
before the Commencement Date, such possession shall be subject to the provisions
of this Lease, including without limitation, the payment of Rent.
5. RENT.
5.1 Payment Of Base Rent. Tenant agrees to pay the Base Rent for
the Premises without deduction or off-set. Monthly Installments of Base Rent
shall be payable in advance on the first day of each calendar month of the Term.
If the Term begins (or ends) on other than the first (or last) day of a calendar
month, the Base Rent for the partial month shall be prorated on a per diem
basis. Tenant shall pay Landlord the first Monthly Installment of Base Rent when
Tenant takes possession of the demised premises.
5.2 Adjusted Base Rent.
a. The Base Rent (and the corresponding Monthly Installments of
Base Rent) set forth at Section 2.A shall be adjusted annually (the "Adjustment
Date"), commencing on Tenant's First Adjustment Date. Adjustments, if any, shall
be based upon increases (if any) in the "Price Index". "Price Index" means the
CPI (Consumer Price Index) published and calculated by the Bureau of Labor
Statistics of the United States Department of Labor, U.S. City Average
(1967-100). The Index in publication three (3) months before the Commencement
Date shall be the "Base Index." The Index in publication three (3) months before
each Adjustment Date shall be the "Comparison Index." As of each Adjustment
Date, the Base Rent payable during the ensuing twelve-month period shall be
determined by increasing the initial Base Rent by a percentage equal to the
percentage increase, if any, in the Comparison Index over the Base Index. If the
Comparison Index for any Adjustment Date is equal to or less than the Comparison
Index for the preceding Adjustment Date (or the Base Index, in the case of First
Adjustment Date), the Base Rent for the ensuing twelve month period shall remain
the amount of Base Rent payable during the preceding twelve-month period. When
the Base Rent payable as of each Adjustment Date is determined, Landlord shall
promptly give Tenant written notice of such adjusted Base Rent and the manner in
which it was computed. The Base Rent as so adjusted from time to time shall be
the "Base Rent" for all purposes under this Lease. In no event shall the annual
adjustment be less than 2.5% or more than 5%.
b. If at any Adjustment Date the Index no longer exists in the
form described in this Lease, Landlord may substitute any substantially
equivalent official index published by the Bureau of Labor Statistics or
3
<PAGE> 4
its successor. Landlord shall use any appropriate conversion factors to
accomplish such substitution. The substitute index shall then become the "Index"
hereunder.
5.3 Project Operating Costs.
a. In order that the Rent payable during the Term reflect any
increase in Project Operating Costs, Tenant agrees to pay to Landlord as Rent,
Tenant's Proportionate Share of all increases in costs, expenses and obligations
attributable to the Project and its operation, all as provided below.
b. If, during any calendar year during the Term, Project
Operating Costs exceed the Project Operating Costs for the Base Year, Tenant
shall pay to Landlord, in addition to the Base Rent and all other payments due
under this Lease, an amount equal to Tenant's Proportionate Share of such excess
Project Operating Costs in accordance with the provisions of this Section
5.3(b).
(1) The term "Project Operating Costs" shall include all those items
described in the following subparagraphs (a) and (b).
(a) All taxes, assessments, water and sewer charges and other
similar governmental charges levied on or attributable to the Building or
Project or their operation, including without limitation, (i)real property taxes
or assessments levied or assessed against the Building or Project, (ii)
assessments or charges levied or assessed against the Building or Project by any
redevelopment agency, (iii) any tax measured by gross rentals received from the
leasing of the Premises, Building or Project, excluding any net income,
franchise, capital stock, estate or inheritance taxes impose by the State or
federal government or their agencies, branches or departments; provided that if
at any time during the Term any governmental entity levies, assesses or imposes
on Landlord any (1) general or special, ad valorem or specific, excise, capital
levy or other tax, assessment, levy or charge directly on the Rent received
under this Lease or on the rent received under any other leases of space in the
Building or Project, or (2) any license fee, excise or franchise tax,
assessment, levy or charge measured by or based, in whole or in part, upon such
rent, or (3) any transfer, transaction, or similar tax, assessment, levy or
charge based directly or indirectly upon the transaction represented by this
Lease or such other leases, or (4) any occupancy, use, per capita or other tax,
assessment, levy or charge based directly or indirectly upon the use or
occupancy of the Premises or other premises within the Building or Project, then
any such taxes, assessments, levies and charges shall be deemed to be included
in the term Project Operating Costs. If at any time during the Term the assessed
valuation of, or taxes on, the Project are not based on a completed Project
having at least eighty-five percent (85%) of the Rentable Area occupied, then
the "taxes" component of Project Operating Costs shall be adjusted by Landlord
to reasonably approximate the taxes which would have been payable if the Project
were completed and at least eighty-five percent (85%) occupied.
(b) Operating costs incurred by Landlord in maintaining and operating the
Building and Project, including without limitation the following: costs of (1)
common area utilities; (2) supplies; (3) insurance (including public liability,
property damage, earthquake, and fire and extended coverage insurance for the
lull replacement cost of the Building and Project as required by Landlord or its
lenders for the Project); (4) services of independent contractors; (5)
compensation (including employment taxes and fringe benefits) of all persons who
perform duties connected with the operation, maintenance, repair or overhaul of
the Building or Project, and equipment, improvements and facilities located
within the Project, including without limitation engineers, painters, floor
waxers, window washers, security and parking personnel and gardeners (but
excluding persons performing services not uniformly available to or performed
for substantially all Building or Project tenants); (6) operation and
maintenance of a room for delivery and distribution of mail to tenants of the
Building or Project as required by the U.S. Postal Service (including, without
limitation, an amount equal to the fair market rental value of the mail room
premises); (7) management of the Building or Project, whether managed by
Landlord or an independent contractor (including, without limitation, an amount
equal to the fair market value of any on-site manager's office); (8) rental
expenses for (or a reasonable depreciation allowance on) personal property used
in the maintenance, operation or repair of the Building or Project; (9) costs,
expenditures or charges (whether capitalized or not) required by any
governmental or quasi-governmental authority; (10) amortization of capital
expenses (including financing costs) (I) required by a governmental entity for
energy conservation or life safety purposes, or (ii) made by Landlord to reduce
Project Operating Costs; and (II) any other costs or expenses incurred by
Landlord under this Lease and not otherwise reimbursed by tenants of the
Project. If at any time during the Term, less than eighty-five percent (85%) of
the Rentable Area of the Project is occupied, the "operating costs" component of
Project Operating Costs shall be adjusted by Landlord to reasonably approximate
the operating costs which would have been incurred if the Project had been at
least eighty-five percent (85%) occupied.
(2) Tenant's Proportionate Share of Project Operating Costs shall be
payable by Tenant to Landlord as follows:
(a) Beginning with the calendar year following the occupancy and
for each calendar year thereafter, Tenant shall pay Landlord an amount equal to
Tenant's Proportionate Share of the Project Operating Costs incurred by Landlord
in that Calendar Year which exceeds the total amount of Project Operating Costs
payable by Landlord per the Expense Stop.
(b) To provide for current payments of Excess Expenses, Tenant
shall, at Landlord's request, pay as additional rent during each Year, an amount
equal to Tenant's Proportionate Share of the Excess Expenses payable during such
Year, as estimated by Landlord from time to time. Such payments shall be made in
monthly installments, commencing on the first day of the month following the
month in which Landlord notifies Tenant of
4
<PAGE> 5
the amount it is to pay hereunder and continuing until the fifth day of the
month following the month in which Landlord gives Tenant a new notice of
estimated Excess Expenses. It is the intention hereunder to estimate from time
to time the amount of the Excess Expenses for each year and Tenant's
Proportionate Share thereof, and then to make an adjustment in the following
year based on the actual Excess Expenses incurred for that Year.
(c) On or before April 1 of each Year (or as soon thereafter as is
practical), Landlord shall deliver to Tenant a statement setting forth Tenant's
Proportionate Share of the Excess Expenses for the preceding calendar year. If
Tenant's Proportionate Share of the actual Excess Expenses for the previous Year
exceeds the total of the estimated monthly payments made by Tenant for such
year, Tenant shall pay Landlord the amount of the deficiency within thirty (30)
days of the receipt of the statement. If such total exceeds Tenant's
Proportionate Share of the actual Excess Expenses for such Year, then Landlord
shall credit against Tenant's next ensuing monthly installment(s) of additional
rent the amount equal to the difference until the credit is exhausted. If a
credit is due from Landlord on the Expiration Date, Landlord shall pay Tenant
the amount of the credit. The obligations of Tenant and Landlord to make
payments required under this Section 5.3 shall survive the Expiration Date.
(d) Tenant's Proportionate Share of Excess Expenses in any
Comparison Year having less than 365 days shall be appropriately prorated.
(e) If any dispute arises as to the amount of any additional rent
due hereunder, Tenant shall have the right after reasonable notice and at
reasonable times to inspect Landlord's accounting records at Landlord's
accounting office and, if after such inspection Tenant still disputes the amount
of additional rent owed, a certification as to the proper amount shall be made
by Landlord's certified public accountant, which certification shall be final
and conclusive. Tenant agrees to pay the cost of such certification unless it is
determined that Landlord's original statement overstated Project Operating Costs
by more than five percent (5%).
(f) If this Lease sets forth an Expense Stop at Section 2f, then
during the Term Tenant shall be liable for Tenant's Proportionate Share of any
actual Project Operating Costs which exceed the amount of the Expense Stop.
Tenant shall make current payments of such excess costs during the Term in the
same manner as is provided for payment of Excess Expenses under the applicable
provisions of Section 5.3(2)(b) and (c) above.
5.4 Definition of Rent. All costs and expenses which Tenant
assumes or agrees to pay to Landlord under this Lease shall be deemed additional
rent (which, together with the Base Rent is referred to as the "Rent"). The Rent
shall be paid to the Building manager (or other person) and at such place, as
Landlord may from time to time designate in writing, without any prior demand
therefor and without deduction or offset, in lawful money of the United States
of America.
5.5 Rent Control. If the amount of Rent or any other payment due
under this Lease violates the terms of any governmental restrictions on such
Rent or payment, then the Rent or payment due during the period of such
restrictions shall be the maximum amount allowable under those restrictions.
Upon termination of the restrictions, Landlord shall, to the extent it is
legally permitted, recover from Tenant the difference between the amounts
received during the period of the restrictions and the amounts Landlord would
have received had there been no restrictions.
5.6 Taxes Payable by Tenant. In addition to the Rent and any other
charges to be paid by Tenant hereunder, Tenant shall reimburse Landlord upon
demand for any and all taxes payable by Landlord (other than net income taxes)
which are not otherwise reimbursable under this Lease whether or not now
customary or within the contemplation of the parties, where such taxes are upon,
measured by or reasonable attributable to (a) the cost or value of Tenant's
equipment, furniture, fixtures and other personal property located in the
Premises, or the cost or value of any leasehold improvements made in or to the
Premises by or for Tenant, other than Building Standard Work made by Landlord
regardless of whether title to such improvements is held by Tenant or Landlord;
(b) the gross or net Rent payable under this Lease, including, without
limitation, any rental or gross receipts tax levied by any taxing authority with
respect to the receipt of the Rent hereunder; (c) the possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises or any portion thereof; or (d) this transaction or any
document to which Tenant is a party creating or transferring an interest or an
estate in the Premises. If it becomes unlawful for Tenant to reimburse Landlord
for any costs as required under this Lease, the Base Rent shall be revised to
net Landlord the same net Rent after imposition of any tax or other charge upon
Landlord as would have been payable to Landlord but for the reimbursement being
unlawful.
5.7 Definition of Square Footage: Landlord and Tenant acknowledge
and agree that the Rentable Area or Usable Area of the Premises and total
Building Area may actually be more or less than the figures stated herein;
Landlord and Tenant agree, however, that even though such figures may be
inaccurate, that for all purposes of the Lease, the figures stated herein shall
be conclusively deemed to be the Rentable Area, or Usable Area of the Premises
and total Building Area, as the case may be.
6. INTEREST AND LATE CHARGES.
If Tenant fails to pay when due any Rent or other amounts or charges which
Tenant is obligated to pay under the terms of this Lease, the unpaid amounts
shall bear interest at the maximum rate then allowed by law. Tenant acknowledges
that the late payment of any Monthly installment of Base Rent will cause
Landlord to lose the use of that money and incur costs and expenses not
contemplated under this Lease, including without limitation, administrative and
collection costs and processing and accounting expenses, the exact amount of
which is extremely difficult to ascertain. Therefore, in addition to interest,
if any such installment is not received by Landlord within five (5) days from
the date it is due, Tenant shall pay Landlord a late charge equal to five
percent (5%) of such installment. Landlord and Tenant agree that this late
charge represents a reasonable estimate of such
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costs and expenses and is fair compensation to Landlord for the loss suffered
from such nonpayment by Tenant. Acceptance of any interest or late charge shall
not constitute a waiver of Tenant's default with respect to such nonpayment by
Tenant nor prevent Landlord from exercising any other rights or remedies
available to Landlord under this Lease.
7. SECURITY DEPOSIT.
Tenant agrees to deposit with Landlord the Security Deposit set forth at Section
2.0 upon execution of this Lease, as security for Tenant's faithful performance
of its obligations under this Lease. Landlord and Tenant agree that the Security
Deposit may be commingled with funds of Landlord and Landlord shall have no
obligation or liability for payment of interest on such deposit. Tenant shall
not mortgage, assign, transfer or encumber the Security Deposit without the
prior written consent of Landlord and any attempt by Tenant to do so shall be
void, without force or effect and shall not be binding upon Landlord. If Tenant
fails to pay any Rent or other amount when due and payable under this Lease, or
fails to perform any of the terms hereof, Landlord may appropriate and apply or
use all or any portion of the Security Deposit for Rent payments or any other
amount then due and unpaid, for payment of any amount for which Landlord has
become obligated as a result of Tenant's default or breach, and for any loss of
damage sustained by Landlord as a result of Tenant's default or breach, and
Landlord may also apply or use this deposit without prejudice to any other
remedy Landlord may have by reason of Tenant's defau1t or breach. If Landlord so
uses any of the Security Deposit, Tenant shall, within ten (10) days after
written demand therefor, restore the Security Deposit to the full amount
originally deposited; Tenant's failure to do so shall constitute an act of
default hereunder and Landlord shall have the right to exercise any remedy
provided for at Article 27 hereof. Within fifteen (15) days after the Term (or
any extension thereof) has expired or Tenant has vacated the Premises, whichever
shall last occur, and provided Tenant is not then in default on any of its
obligations hereunder, Landlord shall return the Security Deposit to Tenant, or,
if Tenant has assigned its interest under this Lease, to the last assignee of
Tenant. If Landlord sells its interest in the Premises, Landlord may deliver
this deposit to the purchaser of Landlord's interest and thereupon be relieved
of any further liability or obligation with respect to the Security Deposit.
8. TENANT'S USE OF THE PREMISES.
Tenant shall use the Premises solely for the purposes set forth in Tenant's Use
Clause. Tenant shall not use or occupy the Premises in violation of law or any
covenant, condition or restriction affecting the Building or Project or the
certificate of occupancy issued for the Building or Project, and shall, upon
notice from Landlord, immediately discontinue any use of the Premises which is
declared by any governmental authority having jurisdiction to be a violation of
law or the certificate of occupancy. Tenant, at Tenant's own cost and expense,
shall comply with all laws, ordinances, regulations, rules and/or any directions
of any governmental agencies or authorities having jurisdiction which shall, by
reason of the nature of Tenant's use or occupancy of the Premises, impose any
duty upon Tenant or Landlord with respect to the Premises or its use or
occupation. A judgment of any court of competent jurisdiction or the admission
by Tenant in any action or proceeding against Tenant that Tenant has violated
any such laws, ordinances, regulations, rules and/or directions in the use of
the Premises shall be deemed to be a conclusive determination of that fact as
between Landlord and Tenant. Tenant shall not do or permit to be done anything
which will invalidate or increase the cost of any fire, extended coverage or
other insurance policy covering the Building or Project and/or property located
therein, and shall comply with all rules, orders, regulations, requirements and
recommendations of the Insurance Services Office or any other organization
performing a similar function. Tenant shall promptly upon demand reimburse
Landlord for any additional premium charged for such policy by reason of
Tenant's failure to comply with the provisions of this Article. Tenant shall not
do or permit anything to be done in or about the Premises which will in anyway
obstruct or interfere with the rights of other tenants or occupants of the
Building or Project, or injure or annoy them, or use or allow the Premises to be
used for any improper, immoral, unlawful or objectionable purpose, not shall
Tenant cause, maintain or permit any nuisance in, on or about the Premises.
Tenant shall not commit or suffer to be committed any waste in or upon the
Premises.
9. SERVICES AND UTILITIES.
Landlord shall maintain and keep lighted the common areas, common stairs and
common entries of the buildings. Landlord shall not be in default hereunder or
be liable for any damages directly or indirectly resulting from, nor shall the
Rent be abated by reason of (1) the installation, use or interruption of use of
any equipment in connection with the furnishing of any of the foregoing
services, (ii) failure to furnish or delay in furnishing any such services where
such failure or delay is caused by accident or any condition or event beyond the
reasonable control of the Landlord, or by the making of necessary repairs or
improvements to the Premises, Building or Project, or (iii) the limitation,
curtailment or rationing of, or restrictions on, use of water, electricity, gas
or any other form of energy serving the Premises, Building or Project. Landlord
shall not be liable under any circumstances for a loss of or injury to property
or business, however occurring, through or in connection with or incidental to
failure to furnish any such services.
Tenant shall be solely responsible for all utilities to the premises during the
lease term including the initial hook up and disconnect procedures. Tenant shall
also be solely responsible for all costs associated with same, including but not
limited to connection fees, deposits, monthly payments and disconnect fees.
Tenant shall be solely responsible for the payment and maintenance of its own
janitorial service.
Tenant shall not consume water or electric current in excess of that usually
furnished or supplied for the use of premises as general office space (as
determined by Landlord), without first procuring the written consent of
Landlord, which Landlord may refuse, and in the event of consent, Landlord may
have installed a water meter or electrical current meter in the Premises to
measure the amount of water or electric current consumed. The cost of
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any such meter and of its installation, maintenance and repair shall be paid for
by the Tenant and Tenant agrees to pay to Landlord promptly upon demand for all
such water and electric current consumed as shown by said meters, at the rates
charged for such services by the local public utility plus an additional expense
incurred in keeping account of the water and electric current so consumed. If a
separate meter is not installed, the excess cost for such water and electric
current shall be established by an estimate made by a utility company or
electrical engineer hired by Landlord at Tenant's expense.
Landlord shall furnish elevator service, lighting replacement for building
standard lights, common area restroom supplies and window washing in a manner
that such services are customarily furnished to comparable office buildings in
the area.
10. CONDITION OF THE PREMISES.
Tenant's taking possession of the Premises shall be deemed conclusive evidence
that as of the date of taking possession, the Premises are in good order and
satisfactory condition, except for such matters as to which Tenant gave Landlord
notice on or before the Commencement Date. No promise of Landlord to alter,
remodel, repair or improve the Premises, the Building or the Project and no
representation, express or implied, respecting any matter or thing relating to
the Premises, Building, Project or this Lease (including, without limitation,
the condition of the Premises, the Building or the Project) have been made to
Tenant by Landlord or its Broker or Sales Agent, other than as may be contained
herein or in a separate exhibit or addendum signed by Landlord and Tenant.
11. CONSTRUCTION, REPAIRS AND MAINTENANCE.
a. Landlord's Obligations. Landlord shall perform Landlord's Work
to the Premises as described in Exhibit "C." Landlord shall maintain in good
order, condition and repair the Building and all other portions of the Premises
not the obligation of Tenant or of any other tenant in the Building.
b. Tenant's Obligations.
(1) Tenant shall perform Tenant's Work to the Premises as
described in Exhibit "C.
(2) Tenant at Tenant's sole expense shall, except for services
furnished by Landlord pursuant to Article 9 hereof, maintain the Premises in
good order, condition and repair, including the interior surfaces of the
ceilings, walls and floors, all doors, all interior windows, all plumbing, pipes
and fixtures, electrical wiring, switches and fixtures, Building Standard
furnishings and special items and equipment installed by or at the expense of
Tenant.
(3) Tenant shall be responsible for all repairs and alterations in
and to the Premises, Building and Project and the facilities and systems
thereof, the need for which arises out of (I) Tenant's use or occupancy of the
Premises, (ii) the installation, removal, use or operation of Tenant's Property
(as defined in Article 13) in the Premises, (iii) the moving of Tenant's
Property into or out of the Building, or (iv) the act, omission, misuse or
negligence of Tenant, its agents, contractors, employees or invitees.
(4) If Tenant fails to maintain the Premises in good order,
condition and repair, Landlord shall give Tenant notice to do such acts as are
reasonably required to so maintain the Premises. If Tenant fails to promptly
commence such work and diligently prosecute it to completion, then Landlord
shall have the right to do such acts and expend such funds at the expense of
Tenant as are reasonably required to perform such work. Any amount so expended
by Landlord shall be paid by Tenant promptly after demand with interest at the
prime commercial rate then being charged by Bank of America NT & SA plus two
percent (2%) per annum, from the date of such work, but not to exceed the
maximum rate then allowed by law. Landlord shall have no liability to Tenant for
any damage, inconvenience, or interference with the use of the Premises by
Tenant as a result of performing any such work.
c. Compliance with law. Landlord and Tenant shall each do all
acts required to comply with all applicable laws, ordinances, and rules of any
public authority relating to their respective maintenance obligations as set
forth herein.
d. Waiver by Tenant. Tenant expressly waives the benefits of any
statute now or hereafter in effect which would otherwise afford the Tenant the
right to make repairs at Landlord's expense.
e. Load and the Equipment Limits. Tenant shall not place a load
upon any floor of the Premises which exceeds the load per square foot which such
floor was designated to carry, as determined by Landlord or Landlord's
structural engineer. The cost of any such determination made by Landlord's
structural engineer shall be paid for by Tenant upon demand. Tenant shall not
install business machines or mechanical equipment which cause noise or vibration
to such a degree as to be objectionable to Landlord or other Building tenants.
f. Except as otherwise expressly provided in this Lease, Landlord
shall have no liability to Tenant nor shall Tenant's obligations under this
Lease be reduced or abated in any manner whatsoever by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or permitted
by this Lease or by any other tenant's lease or required by law to make in or to
any portion of the Project, Building or the Premises. Landlord shall
nevertheless use reasonable efforts to minimize any interference with Tenant's
business in the Premises.
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g. Tenant shall give Landlord prompt notice of any damage to or
defective condition in any part or appurtenance of the Building's mechanical,
electrical, plumbing, HVAC or other systems serving, located in, or passing
through the Premises.
h. Upon the expiration or earlier termination of this Lease,
Tenant shall return the Premises to Landlord clean and in the same condition as
on the date Tenant took possession, except for normal wear and tear. Any damage
to the Premises, including any structural damage, resulting from Tenant's use or
from the removal of Tenant's fixtures, furnishings and equipment pursuant to
Section 13b shall be repaired by Tenant at Tenant's expense.
12. ALTERATIONS AND ADDITIONS.
a. Tenant shall not make any additional, alterations or
improvements to the Premises without obtaining the prior written consent of
Landlord. Landlord's consent may be conditioned on Tenant's removing any such
additions, alterations, or improvements upon the expiration of the Term and
restoring the Premises to the same condition as on the date Tenant took
possession. All work with respect to any addition, alteration or improvement
shall be done in a good and workmanlike manner by properly qualified and
licensed personnel approved by Landlord, and such work shall be diligently
prosecuted to completion. Landlord may, at Landlord's option, require that any
such work be performed by Landlord's contractor, in which case the cost of such
work shall be paid for before commencement of the work. Tenant shall Pay to
Landlord upon completion of any such work by Landlord's contractor, an
administrative fee of five percent (5%) of the cost of the work.
b. Tenant shall pay the costs of any work done on the Premises
pursuant to Section 12a, and shall keep the Premises, Building and Project free
and clear of liens of any kind. Tenant shall indemnify, defend against and keep
Landlord free and harmless from all liability, loss, damage, costs, attorneys'
fees and any other expense incurred on account of claims by any person
performing work or furnishing materials or supplies for Tenant or any person
claiming under Tenant.
Tenant shall keep Tenant's leasehold interest, and any additions or improvements
which are or become the property of Landlord under this Lease, free and clear of
all attachment or judgment liens. Before the actual commencement of any work for
which a claim or lien may be filed, Tenant shall give Landlord notice of the
intended commencement date a sufficient time before that date to enable Landlord
to post notices of non-responsibility or any other notices which Landlord deems
necessary for the proper protection of Landlord's interest in the Premises,
Building or the Project, and Landlord shall have the right to enter the Premises
and post such notices at any reasonable time.
c. Landlord may require, at Landlord's sole option, that Tenant
provide to Landlord, at Tenant's expense, a lien and completion bond in an
amount equal to at least one and one-half (1 1/2) times the total estimated cost
of my additions, alterations, or improvements to be made in or to the Premises,
to protect Landlord against any liability for mechanic's and materialmen's liens
and to insure timely completion of the work. Nothing contained in this Section
12c shall relieve Tenant of its obligation under Section 12b to keep the
Premises, Building and Project free of all liens.
d. Unless their removal is required by Landlord as provided in
Section 12a, all additions, alterations and improvements made to the Premises
shall become the property of Landlord and be surrendered with the Premises upon
the expiration of the Term; provided, however, Tenant's equipment, machinery and
trade fixtures which can be removed without damage to the Premises, or which
said damage will be repaired at Tenant's expense, shall remain the property of
Tenant and may be removed, subject to the provisions of Section 13b.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.
a. All fixtures, equipment, improvements and appurtenances
attached to or built into the Premises at the commencement of or during the
Term, whether or not by or at the expense of Tenant ("Leasehold Improvements"),
shall be and remain a part of the Premises, shall be the property of Landlord
and shall not be removed by Tenant, except as expressly provided in Section 13b.
b. All movable partitions, business and trade fixtures, machinery
and equipment, communications equipment and office equipment located in the
Premises and acquired by or for the account of Tenant, without expense to
Landlord, which can be removed without structural damage to the Building, or
which said damage will be repaired at Tenant's expense and all furniture,
furnishings and other articles of movable personal property owned by Tenant and
located in the Premises (collectively "Tenant's Property") shall be and shall
remain the property of Tenant and may be removed by Tenant at any time during
the Term; provided that if any of Tenant's Property is removed, Tenant shall
promptly repair any damage to the Premises or to the Building resulting from
such removal.
14. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations attached hereto as Exhibit
"D" and with such reasonable modifications thereof and additions thereto as
Landlord may from time to time make. Landlord shall not be responsible for any
violation of said rules and regulations by other tenants or occupants of the
Building or Project.
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15. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights, exercisable without liability to Tenant
for (a) damage or injury to property, person or business, (b) causing an actual
or constructive eviction from the Premises, or (c) disturbing Tenant's use or
possession of the Premises:
a. To name the Building and Project and to change the name or
street address of the Building or Project;
b. To install and maintain all signs on the exterior and interior
of the Building and Project;
c. To have pass keys to the Premises and all doors within the
Premises, excluding Tenant's vaults and safes;
d. At any time during the Term, and on reasonable prior notice to
Tenant, to inspect the Premises, and to show the Premises to any prospective
purchaser or mortgagee of the Project, or to any assignee of any mortgage on the
Project, or to others having an interest in the Project or Landlord, and during
the last six months of the Term, to show the Premises to prospective tenants
thereof; and
e. To enter the Premises for the purpose of making inspections,
repairs, alterations, additions or improvements to the Premises or the Building
(including, without limitation, checking, calibrating, adjusting or balancing
controls and other - of the HVAC system), and to take all steps as may be
necessary or desirable for the safety, protection, maintenance, or preservation
of the Premise or the Building or Landlord's interest therein, or as may be
necessary or desirable for the operation or improvement of the Building or in
order to comply with laws, orders or requirements of governmental or other
authority. Landlord agrees to use its best efforts (except in an emergency) to
minimize interference with Tenant's business in the Premises in the course of
any such entry.
16. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises shall
be permitted, except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of
Landlord, assign or hypothecate this Lease or any interest herein or sublet the
Premises or any part thereof, or permit the use of the Premises by any party
other than Tenant. Any of the foregoing acts without such consent shall be void
and shall, at the option of Landlord, terminate this lease. This lease shall
not, nor shall any interest of Tenant herein, be assignable by operation of law
without the written consent of Landlord.
b. If at any time or from time to time during the Term Tenant
desires to assign this Lease or sublet all or any part of the Premises, Tenant
shall give notice to Landlord setting forth the terms and provisions of the
proposed assignment or sublease, and the identity of the proposed assignee or
subtenant. Tenant shall promptly supply Landlord with such information
concerning the business background and financial condition of such proposed
assignee or subtenant as Landlord may reasonably request. Landlord shall have
the option, exercisable by notice given to Tenant within twenty (20) days after
Tenant's notice is given, either to sublet such space from Tenant at the rental
and on the other terms set forth in this Lease for the term set forth in
Tenant's notice, or, in the case of an assignment, to terminate this Lease. If
Landlord does not exercise such option, Tenant may assign the Lease or sublet
such space to such proposed assignee or subtenant on the following further
conditions;
(1) Landlord shall have the right to approve such proposed
assignee or subtenant, which approval shall not be unreasonably withheld;
(2) The assignment or sublease shall be on the same terms set
forth in the notice given to Landlord;
(3) No assignment or sublease shall be valid and no assignee or
sublessee shall take possession of the Premises until an executed counterpart of
such assignment or sublease has been delivered to Landlord;
(4) No assignee or sublessee shall have a further right to assign
or sublet except on the terms herein contained; and
(5) Any sums or other economic consideration received by Tenant as
a result of such assignment or subletting, however denominated under this
assignment or sublease, which exceed, in the aggregate, (i) the total sums which
Tenant is obligated to pay Landlord under this lease (prorated to reflect
obligations allocable to any portion of the Premises subleased), plus (ii) any
real estate brokerage commissions or fees payable in connection with such
assignment or subletting, shall be paid to Landlord as additional rent under
this Lease without affecting or reducing any other obligations of Tenant
hereunder.
c. Notwithstanding the provisions of paragraphs a and b above,
Tenant may assign this lease or sublet the Premises or any portion thereof,
without Landlord's consent and without extending any recapture or termination
option to Landlord, to any corporation which controls, is controlled by or is
under common control with Tenant, or to any corporation resulting from a merger
or consolidation with Tenant, or to any person or entity which acquires all the
assets of Tenant's business as a going concern, provided that (i) the assignee
or sublessee assumes, in full, the obligations of Tenant under this Lease, (ii)
Tenant remains fully liable under this lease, and (iii) the use of the Premises
under Article 8 remains unchanged.
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d. If Tenant assigns the Lease or sublets the Premises or requests the
consent of Landlord to any assignment or subletting or if Tenant requests the
consent of Landlord for any act that Tenant proposes to do, then Tenant shall,
upon demand, pay Landlord an administrative fee of One Hundred Fifty and
No/100ths ($150.00) plus any attorneys' fees reasonably incurred by Landlord in
connection with such act or request.
17. HOLDING OVER.
If after expiration of the Term, Tenant remains in possession of the Premises
with Landlord's permission (express or implied), Tenant shall become a tenant
from month to month only, upon all the provisions of this lease (except as to
term and Base Rent), but the "Monthly Installments of Base Rent" payable by
Tenant shall be increased to one hundred fifty percent (150%) of the Monthly
Installments of Base Rent payable by Tenant at the expiration of the Term. Such
monthly rent shall be payable in advance on or before the first day of each
month. If either party desires to terminate such month to month tenancy, it
shall give the other party not less than thirty (30) days advance written notice
of the date of termination.
18. SURRENDER OF PREMISES
a. Tenant shall peaceably surrender the Premises to Landlord on
the Expiration Date, in broom-clean condition and in as good condition as when
Tenant took possession, except for (i) reasonable wear and tear, (ii) loss by
fire or other casualty, and (iii) loss by condemnation. Tenant shall, on
Landlord's request, remove Tenant's property on or before the Expiration Date
and promptly repair all damage to the Premises or Building caused by such
removal.
b. If Tenant abandons or surrenders the Premises, or is
dispossessed by process of law or otherwise, any of Tenant's Property left on
the Premises shall be deemed to be abandoned, and, at Landlord's option, title
shall pass to Landlord under this lease as by a bill of sale. If Landlord elects
to remove all or any part of such Tenant's Property, the cost of removal,
including repairing any damage to the Premises or Building cause by such
removal, shall be paid by Tenant. On the Expiration Date Tenant shall surrender
all keys to the Premises.
19. DESTRUCTION OR DAMAGE.
a. If the Premises or the portion of the Building necessary for
Tenant's occupancy is damaged by fire, earthquake, act of God, the elements of
other casualty, Landlord shall, subject to the provisions of this Article,
promptly repair the damage, if such repair can, in Landlord's opinion, be
completed within ninety (90) days. If Landlord determines that repairs can be
completed within ninety (90) days, this lease shall remain in full force and
effect, except that if such damage is not the result of the negligence or
willful misconduct of Tenant or Tenant's agents, employees, contractors,
licensees or invitees, the Base Rent shall be abated to the extent Tenant's use
of the Premises is impaired, commencing with the date of damage and continuing
until completion of the repairs required of Landlord under Section 19d.
b. If in Landlord's opinion, such repairs to the Premises or
portion of the Building necessary for Tenant's occupancy cannot be completed
within ninety (90) days, Landlord may elect, upon notice to Tenant given within
thirty (30) days after the date of such fire or other casualty, to repair such
damage, in which event this lease shall continue in full force and effect, but
the Base Rent shall be partially abated as provided as provided in Section 19L.
If Landlord does not so elect to make such repairs, this lease shall terminate
as of the date of such fire or other casualty.
c. If any other portion of the Building is totally destroyed or
damaged to the extent that in Landlord's opinion repair thereof cannot be
completed within ninety (90) days, Landlord may elect upon notice to Tenant
given within thirty (30) days after the date of such fire or other casualty, to
repair such damage, in which event this lease shall continue in full force and
effect, but the Base Rent shall be partially abated as provided in Section 19a.
If Landlord does not elect to make such repairs, this lease shall terminate as
of the date of such fire or other casualty.
d. If the Premises are to be repaired under this Article,
Landlord shall repair at its cost any injury or damage to the Building and
Building Standard Work in the Premises. Tenant shall be responsible at its sole
cost and expense for the repair, restoration and replacement of any other
Leasehold Improvements and Tenant's Property. Landlord shall not be liable for
any loss of business, inconvenience or annoyance arising from any repair or
restoration of any portion of the Premises, Building or Project as a result of
any damage from fire or other casualty.
e. This lease shall be considered an express agreement governing
any case of damage to or destruction of the Premises, Building or Project by
fire or other casualty, and any present or future law which purpose is to govern
the rights of Landlord and Tenant in such circumstances in the absence of
express agreement, shall have no application.
20. EMINENT DOMAIN.
a. If the whole of the building or premises is lawfully taken by
condemnation or in any other manner for any public or quasi public purpose, this
lease shall terminate as of the date of such taking, and Rent shall be prorated
to such date. If less than the whole of the Building or Premises is so taken,
this lease shall be unaffected by such taking, provided that (i)Tenant shall
have the right to terminate this lease by notice to Landlord
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given within ninety (90) days after the date of such taking if twenty percent
(20%) or more of the Premises is taken and the remaining area of the Premises is
not reasonably sufficient for Tenant to continue operation of its business, and
(ii) Landlord shall have the right to terminate this lease by notice to Tenant
given within ninety (90) days after the date of such taking. If either Landlord
or Tenant so elect to terminate this lease, the lease shall terminate on the
thirtieth (30th) day after either such notice. The Rent shall be prorated to the
date of termination. If this lease continues in force upon such partial taking,
the Base Rent and Tenant's Proportionate Share shall be equitably adjusted
according to the remaining Rentable Area of the Premises and Project.
b. In the event of any taking, partial or whole, all of the
proceeds of any award, judgment or settlement payable by the condemning
authority shall be the exclusive property of Landlord, and Tenant hereby assigns
to Landlord all of its right, title and interest in any award, judgment or
settlement from the condemning authority. Tenant, however, shall have the right,
to the extent that Landlord's award is not reduced or prejudiced, to claim from
the condemning authority (but not from Landlord) such compensation as may be
recoverable by Tenant in its own right for relocation expenses and damage to
Tenant's personal property.
c. In the event of a partial taking of the Premises which does
not result in a termination of this lease, Landlord shall restore the remaining
portion of the Premises as nearly as practicable to its condition prior to the
condemnation or taking, but only to the extent of Building Standard Work. Tenant
shall be responsible at its sole cost and expense for the repair, restoration
and replacement of any other leasehold Improvements and Tenant's Property.
21. INDEMNIFICATION
a. Tenant shall indemnify and hold Landlord harmless against and
from liability and claims of any kind for loss or damage to property of Tenant
or any other person, or for any injury to or death of any person, arising out
of: (1) Tenant's use and occupancy of the premises, or any work, activity or
other things allowed or suffered by Tenant to be done in, on or about the
Premises; (2) any breach or default by Tenant of any of Tenant's obligations
under this lease; or (3) any negligent or otherwise tortuous act or omission of
Tenant, its agents, employees, invitees or contractors. Tenant shall at Tenant's
expense, and by counsel satisfactory to Landlord, defend Landlord in any action
or proceeding arising from any such claim and shall indemnify Landlord against
all costs, attorneys' fees, expert witness fees and any other expense incurred
in such action or proceeding. As a material part of the consideration for
Landlords execution of this Lease, Tenant hereby assumes all risk of damage or
injury to any person or property in, on or about the Premises from any cause,
except for Landlord's gross negligence or willful misconduct.
b. Landlord shall not be liable for injury or damage which my be
sustained by the person or property of Tenant, its employees, invitees or
customers, or any other person in or about the Premises, caused by or resulting
from fire, steam, electricity, gas, water or rain which may leak or flow from or
into any part of the Premises, or from the breakage, leakage, obstruction or
other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, whether such damage or injury results from
conditions arising upon the Premises or upon other portions of the Building or
Project or from other sources. Landlord shall not be liable for any damages
arising from any act or omission of any other tenant of the Building or Project.
c. Tenant shall, prior to hiring any movers, contractors,
subcontractors and installation technicians, refer to Landlords approved list
for hire. This provision shall apply to all work performed in the Building or
Project including moving to or from the Building or Project, as well as
installation of telephones, cable, computer equipment, facsimile equipment,
photocopy equipment, telephone, telegraph equipment, electrical devices and
attachments and installations of any nature affecting floors, walls, woodwork,
trim, windows, ceiling, equipment, electrical wiring or any other physical
portion of the Building or Project. Should Tenant insist on hiring a business
that is not on the Landlords approved list, then Tenant shall be liable for any
and all damage to the Building or Project caused by such employment. In any
event, Tenant shall be liable for any and all damages caused by such employment.
22. TENANT'S INSURANCE.
a. All insurance required to be carried by Tenant hereunder shall
be issued by responsible insurance companies acceptable to Landlord and
Landlord's lender and qualified to do business in the State. Each policy shall
name Landlord, and at Landlord's request any mortgagee of Landlord, as an
additional insured, as their respective interests may appear. Each policy shall
contain (I) a cross-liability endorsement, (ii) a provision that such policy and
the coverage evidenced thereby shall be primary and non-contributing with
respect to any policies carried by Landlord and that any coverage carried by
Landlord shall be excess insurance, and (iii) a waiver by the insurer of any
right of subrogation against Landlord, its agents, employees and
representatives, which arises or might arise by reason of any payment under such
policy or by reason of any act or omission of Landlord, its agents, employees or
representatives. A copy of each paid up policy (authenticated by the insurer) or
certificate of the insurer evidencing the existence and amount of each insurance
policy required hereunder shall be delivered to Landlord before the date Tenant
is first given the right of possession of the Premises and thereafter within
thirty (30) days after any demand by Landlord therefor. Landlord may, at any
time and from time to time, inspect and/or copy any insurance policies required
to be maintained by Tenant hereunder. No such policy shall be cancelable except
after twenty (20) days written notice to Landlord and Landlord's lender. Tenant
shall furnish Landlord with renewals or "binders" of any such policy at least
ten (10) days prior to the expiration thereof. Tenant agrees that if Tenant does
not take out and maintain such insurance, Landlord may (but shall not be
required to) procure said insurance on Tenant's behalf and charge the Tenant the
premiums together with a twenty-five percent (25%) handling charge, payable upon
demand. Tenant shall have the right to provide such insurance coverage pursuant
to
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blanket policies obtained by the Tenant, provided such blanket policies
expressly afford coverage to the Premises, Landlord, Landlord's mortgagee and
Tenant as required by this Lease.
b. Beginning on the date Tenant is given access to the Premises
for any purpose and continuing until expiration of the Term, Tenant shall
procure, pay for and maintain in effect policies of casualty insurance covering
(i) all leasehold Improvements (including any alterations, additions or
improvements as may be made by Tenant pursuant to the provisions of Article 12
hereof), and (ii) trade fixtures, merchandise and other personal property from
time to time in, on or about the Premises, in an amount not less than one
hundred percent (100%) of their actual replacement cost from time to time,
providing protection against any peril included within the classification "Fire
and Extended Coverage" together with insurance against sprinkler damage,
vandalism and malicious mischief. The proceeds of such insurance shall be used
for the repair or replacement, at Tenants discretion, of the property so
insured. Upon termination of this Lease following a casualty as set forth
herein, the proceeds under (i) shall be paid to Landlord, and the proceeds under
(ii) above shall be paid to Tenant.
c. Beginning on the date Tenant is given access to the Premises
for any purpose and continuing until expiration of the Term, Tenant shall
procure, pay for and maintain in effect workers' compensation insurance as
required by law and comprehensive public liability and property damage insurance
with respect to the construction of improvements on the Premises, the use,
operation or condition of the Premises and the operations of Tenant in, on or
about the Premises, providing personal injury and broad form property damage
coverage for not less than One Million Dollars ($1,000,000.00) combined single
limit for bodily injury, death and property damage liability.
d. Not less than every three (3) years during the Term, Landlord
and Tenant shall mutually agree to increases in all of Tenant's insurance policy
limits for all insurance to be carried by Tenant as set forth in this Article.
In the event Landlord and Tenant cannot mutually agree upon the amounts of said
increases, then Tenant agrees that all insurance policy limits as set forth in
this Article shall be adjusted for increases in the cost of living in the same
manner as is set forth in Section 5.2 hereof for the adjustment of the Base
Rent.
23. WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waive all rights of recovery against the other
and against the officers, employees, agents and representatives of the other, on
account of loss by or damage to the waiving party of its property or the
property of others under its control, to the extent that such loss or damage is
insured against under any fire and extended coverage insurance policy which
either may have in force at the time of the loss or damage. Tenant shall, upon
obtaining the policies of insurance required under this Lease, give notice to
its insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
24. SUBORDINATION AND ATTORNMENT.
Upon written request of Landlord, or any first mortgagee or first deed of trust
beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in writing,
subordinate its rights under this Lease to the lien of any first mortgage or
first deed of trust, or to the interest of any lease in which Landlord is
lessee, and to all advances made or hereafter to be made thereunder. However,
before signing any subordination agreement, Tenant shall have the right to
obtain from any lender or lessor or Landlord requesting such subordination, an
agreement in writing providing that, as long as Tenant is not in default
hereunder, this Lease shall remain in effect for the full Term. The holder of
any security interest may, upon written notice to Tenant, elect to have this
lease prior to its security interest regardless of the time of the granting or
recording of such security interest.
In the event of any foreclosure sale, transfer in lieu of foreclosure or
termination of the lease in which Landlord is lessee, Tenant shall attorn to the
purchaser, transferee or lessor as the case may be, and recognize that party as
Landlord under this Lease, provided such party acquires and accepts the Premises
subject to this Lease.
25. TENANT ESTOPPEL CERTIFICATES.
Within ten (10) days after written request from Landlord, Tenant shall execute
and deliver to Landlord or Landlord's designee, a written statement certifying
(a) that this Lease is unmodified and in full force and effect, or is in full
force and effect as modified and stating the modifications; (b) the amount of
Base Rent and the date to which Base Rent and additional rent has been paid in
advance; (c) the amount of any security deposited with Landlord; and (d) that
Landlord is not in default hereunder or, if Landlord is claimed to be in
default, stating the nature of any claimed default. Any such statement may be
relied upon by a purchaser, assignee or lender. Tenant's failure to execute and
deliver such statement within the time required shall at Landlord's election be
a default under this lease and shall also be conclusive upon Tenant that: (1)
this Lease is in full force and effect and has not been modified except as
represented by Landlord; (2) there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counter-claim or deduction
against Rent; and (3) not more than one month's Rent has been paid in advance.
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26. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord, Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises, Building, Project or Lease occurring after
the consummation of such sale or transfer, providing the purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease If any security deposit or prepaid Rent has been paid by Tenant, Landlord
may transfer the security deposit or prepaid Rent to Landlord's successor and
upon such transfer, Landlord shall be relieved of any and all further liability
with respect thereto.
27. DEFAULT.
27.1 Tenant's Default. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
a. If Tenant abandons or vacates the Premises; or
b. If Tenant fails to pay any Rent or any other charges required
to be paid by Tenant under this Lease and such failure continues for five (5)
days after such payment is due and payable; or
c. If Tenant falis to promptly and fully perform any other
covenant, condition or agreement contained in this Lease and such failure
continues for thirty (30) days after written notice thereof from Landlord to
Tenant; or
d. If a writ of attachment or execution is levied on this Lease
or on any of Tenant's Property; or
e. If Tenant makes a general assignment for the benefit of
creditors, or provides for an arrangement, composition, extension or adjustment
with its creditors; or
f. If Tenant files a voluntary petition for relief or if a
petition against Tenant in a proceeding under the federal bankruptcy laws or
other insolvency laws is filed and not withdrawn or dismissed within forty five
(45) days thereafter, or if under the provisions of any law providing for
reorganization or winding up of corporations, any court of competent
jurisdiction assumes jurisdiction, custody or control of Tenant or any
substantial part of its property and such jurisdiction, custody or control
remains in force unrelinquished, unstayed or unterminated for a period of forty
five (45) days; or
g. If in any proceeding or action in which Tenant is a party, a
trustee, receiver, agent or custodian is appointed to take charge of the
Premises or Tenant's Property (or has the authority to do so) for the purpose of
enforcing a lien against the Premises or Tenant's Property; or
h. If Tenant is a partnership or consists of more than one (1)
person or entity, if any partner of the partnership or other person or entity
involved in any of the acts or events described in subparagraphs d through g
above.
27.2 Remedies. In the event of Tenant's default hereunder, then in addition to
any other rights or remedies Landlord may have under any law, Landlord shall
have the right, at Landlord's option, without further notice or demand of any
kind to do the following:
a. Terminate this Lease and Tenant's right to possession of the
Premises and re-enter the Premises and take possession thereof, and Tenant shall
have no further claim to the Premises or under this Lease; or
b. Continue this Lease in effect, re-enter and occupy the
premises for the account of Tenant, and collect any unpaid Rent or other charges
which have or thereafter become due and payable; or
c. Re-enter the Premises under the provisions of subparagraph b,
and thereafter elect to terminate this Lease and Tenant's right to possession of
the Premises.
If Landlord re-enters the Premises under the provisions of subparagraphs b or c
above, Landlord shall not be deemed to have treated this Lease or the obligation
of Tenant to pay any Rent or other charges thereafter accruing, unless Landlord
notifies Tenant in writing of Landlord's election to terminate this Lease. In
the event of any re-entry or retaking of possession by Landlord, Landlord shall
have the right, but not the obligation, to remove all or any part of Tenant's
Property in the Premises and to place such property in storage at a public
warehouse at the expense and risk of Tenant. If Landlord elects to relet the
Premises for the account of Tenant, the rent received by Landlord from such
reletting shall be applied as follows: first, to the payment of any indebtedness
other than Rent due hereunder from Tenant to Landlord; second, to the payment of
any costs of such reletting; third, to the payment of the cost of any
commercially reasonable alterations, or repairs to the Premises; fourth, to the
payment of Rent due and unpaid hereunder; and the balance, if any, shall be held
by Landlord and applied in payment of future Rent as it becomes due. If that
portion of rent received from the reletting which is applied against the Rent
Due hereunder is less than the amount of the Rent due, Tenant shall pay the
deficiency to Landlord promptly upon demand by Landlord. Such deficiency shall
be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as
determined, any costs and expenses incurred by Landlord in connection with such
reletting or in making alterations and repairs to the Premises, which are not
covered by the rent received for the reletting.
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Should Landlord elect to terminate this Lease under the provisions of
subparagraph a or c above, Landlord may recover as damages from Tenant the
following:
1. Past Rent. The worth at the time of the award of any unpaid
Rent which had been earned at the time of termination; plus
2. Rent Prior to Award. The worth at the time of the award of the
amount by which the unpaid Rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss that Tenant
proves could have been reasonably avoided; plus
3. Rent After Award. The worth at the time of the award of the
amount by which the unpaid Rent for the balance of the Term after the time of
award exceeds the amount of such rental loss that Tenant proves could be
reasonably avoided; plus
4. Proximately Cause Damages. Any other amount necessary to
consummate Landlord or all detriment proximately caused by Tenant's failure to
perform its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom, including, but not limited to, any
costs or expenses (including attorneys' fees), incurred by Landlord in (a)
retaking possession of the Premises, b) maintaining the Premises after Tenant's
default, (c) preparing the Premises for reletting to a new tenant, including any
repairs or alterations, and (d) reletting the Premises, including broker's
commissions.
"The worth at the time of the award" as used in subparagraphs 1 and 2 above, is
to be computed by allowing interest at the rate of ten percent (10%) per annum.
The worth at the time of the "award" as used in subparagraph 3 above, is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank situated nearest to the Premises at the time of the award plus one percent
(1%).
The waiver by Landlord of any breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such term, covenant or condition of any
subsequent breach of the same or any other term, covenant or condition.
Acceptance of Rent by Landlord subsequent to any breach hereof shall not be
deemed a waiver of any preceding breach other than the failure to pay the
particular Rent so accepted, regardless of Landlord's knowledge of any breach at
the time of such acceptance of Rent Landlord shall not be deemed to have waived
any term, covenant or condition unless Landlord gives Tenant written notice of
such waiver.
27.3 Landlord's Default. If Landlord fails to perform any covenant, condition or
agreement contained in this Lease within thirty (30) days after receipt of
written notice from Tenant specifying such default, or if such default cannot
reasonably be cured within thirty (30) days, if Landlord fails to commence to
cure within that thirty (30) day period, then Landlord shall be liable to Tenant
for any damages sustained by Tenant as a result of Landlord's breach; provided,
however, it is expressly understood and agreed that if Tenant obtains a money
judgment against Landlord resulting from any default or other claim arising
under this Lease, that judgment shall be satisfied only out of the rents,
issues, profits, and other income actually received on account of Landlord's
right, title and interest in the Building or Project, and no other real,
personal or mixed property of Landlord (or of any of the partners which comprise
Landlord, if any) wherever situated, shall be subject to levy to satisfy such
judgment. If, after notice to Landlord of default, Landlord (or any first
mortgagee or first deed of trust beneficiary of Landlord) fails to cure the
default as provided herein, then Tenant shall have the right to cure that
default at Landlord's expense. Tenant shall not have the right to terminate this
Lease or to withhold, reduce or offset any amount against any payments of Rent
or any other charges due and payable under this Lease except as otherwise
specifically provided herein.
28. BROKERAGE FEES.
Tenant warrants and represents that it has not dealt with any real estate broker
or agent in connection with this Lease or its negotiation except Broker and
Sales Agent. Tenant shall indemnify and hold Landlord harmless from any cost,
expense or liability (including costs of suit and reasonable attorney fees) for
any compensation, commission or fees claimed by any other real estate broker or
agent in connection with this Lease or its negotiation by reason of any act of
Tenant.
29. NOTICES.
All notices, approvals and demands permitted or required to be given under this
Lease shall be in writing and deemed duly serviced or given if personally
delivered or sent by certified or registered U.S. mail, postage prepaid, and
addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to
the Building manager, and (b) if to Tenant, to Tenant's Mailing Address;
provided, however, notice to Tenant shall be deemed duly served or given if
delivered or mailed to Tenant at the Premises. Landlord and Tenant may from time
to time by notice to the other designate another place for receipt of future
notices.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the event of imposition of federal, state or local government controls,
rules, regulations, or restrictions on the use or consumption of energy or other
utilities during the Term, both Landlord and Tenant shall be bound thereby. In
the event of a difference in interpretation by Landlord and Tenant of any such
controls, the interpretation of Landlord shall prevail, and Landlord shall have
the right to enforce compliance therewith, including the right of entry into the
Premises to effect compliance.
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31. RELOCATION OF PREMISES.
Landlord shall have the right to relocate the Premises to another part of the
Building in accordance with the following:
a. The new premises shall be substantially the same in size, dimensions,
configuration, decor and nature as the Premises described in this Lease, and if
the relocation occurs after the Commencement Date, shall be placed in that
condition by Landlord at its cost.
b. Landlord shall give Tenant at least thirty (30) days written notice of
Landlord's intention to relocate the Premises.
c. As nearly as practicable, the physical relocation of the Premises shall
take place on a weekend and shall be completed before the following Monday. If
the physical relocation has not been completed in that time, Base Rent shall
abate in full from the time the physical relocation commences to the time it is
completed. Upon completion of such relocation, the new premises shall become the
""Premises" under this Lease.
d. All reasonable costs incurred by Tenant as a result of the relocation
shall be paid by Landlord.
e. If the new premises are smaller than the Premises as it existed before
the relocation, Base Rent shall be reduced proportionately.
f. The parties hereto shall immediately execute an amendment to this Lease
setting forth the relocation of the Premises and their reduction of Base Rent,
if any.
32. QUIET ENJOYMENT.
Tenant, upon paying the Rent and performing all of its obligations under this
Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of
this Lease and to any mortgage, lease, or other agreement to which this Issues
may be subordinate.
33. OBSERVANCE OF LAW.
Tenant shall not use the Premises or permit anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated. Tenant shall, at its sole cost and expense, promptly comply with
all laws, statutes, ordinances and government rules, regulations or requirements
now in force or which may hereafter be in force, and with the requirements of
any board of fire insurance underwriters or other similar bodies now or
hereafter constituted, relating to, or affecting the condition, use or occupancy
of the Premises, excluding structural changes not related to or affected by
Tenant's improvements or acts. The judgment of any court of competent
jurisdiction or the admission of Tenant in any action against Tenant, whether
Landlord is a party thereto or not, that Tenant has violated any law, ordinance
or governmental rule regulation or requirement, shall be conclusive of that fact
as between Landlord and Tenant.
34. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by Landlord or Tenant
which is due to strikes, labor disputes, inability to obtain labor, materials,
equipment or reasonable substitutes therefor, acts of God, governmental
restrictions or regulations or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other cause
beyond the reasonable control of the party obligated to perform hereunder, shall
excuse performance of the work by that party for a period equal to the duration
of that prevention, delay or stoppage. Nothing in this Article 34 shall excuse
or delay Tenant's obligation to pay Rent or other charges under this Lease.
35. CURING TENANT'S DEFAULTS.
If Tenant defaults in the performance of any of its obligations under this
Landlord may (but shall not be obligated to) without waiving such default,
perform the same for the account at the expense of Tenant. Tenant shall pay
Landlord all costs of such performance promptly upon receipt of a bill therefor.
36. SIGN CONTROL.
Tenant shall not affix, paint, erect or inscribe any sign, projection, awning,
signal or advertisement of any kind to any part of the Premises, Building or
Project, including without limitation, the inside or outside of windows, or
doors, without the written consent of Landlord. Landlord shall have the right to
remove any signs or other matter, installed without Landlord's permission,
without being liable to Tenant by reason of such removal, and to charge the cost
of removal to Tenant as additional rent hereunder, payable within ten (10) days
of written demand by Landlord.
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37. MISCELLANEOUS.
a. Accord and Satisfaction; Allocation of Payment. No payment by Tenant or
receipt by Landlord of a lesser amount than the Rent provided for in this Lease
shall be deemed to be other than on account of the earliest due Rent, nor shall
any endorsement or statement on any check or letter accompanying any check or
payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of the Rent or pursue any other remedy provided for in this Lease
connection with the foregoing, Landlord shall have the absolute right in its
sole discretion to apply any payment received from Tenant to any account or
other payment of Tenant then not current and due or delinquent.
b. Addenda. If any provision contained in an addendum to this Lease is
inconsistent with any other provision the provision contained in the addendum
shall control, unless otherwise provided in the addendum.
c. Attorneys' Fees. If any action or proceeding is brought by either party
against the other pertaining to or arising out of this Lease, the finally
prevailing party shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees, incurred on account of such action or proceeding.
d. Captions, Articles and Section numbers. The captions appearing within
the body of this Lease have been inserted as a matter of convenience and for
reference only and in no way define, limit or enlarge the scope or meaning of
this Lease. All references to Article and Section numbers refer to Articles and
Sections in this Lease.
e. Changes Requested by Lender, Neither Landlord nor Tenant shall
unreasonably withhold its consent to changes or amendments to this Lease
requested by the lender on Landlord's interest, so long as these changes do not
alter the basic business terms of this Lease or otherwise materially diminish
any rights or materially increase any obligations of the party from whom consent
to such change or amendment is requested.
f. Choice of Law. This lease shall be construed and endorsed in accordance
with the laws of the State of Nevada.
g. Consent. Notwithstanding anything contained in this Lease to the
contrary, Tenant shall have no claim, and hereby waives the right to any claim
against Landlord for money damages by reason of any refusal, withholding or
delaying by Landlord of any consent, approval or statement of satisfaction, and
in such event, Tenant's only remedies therefor shall be an action for specific
performance, injunction or declaratory judgment to enforce any right to such
consent, etc.
h. Corporate Authority. If Tenant is a corporation, each individual
signing this Lease on behalf of Tenant represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation, and
that this Lease is binding on Tenant in accordance with its terms. Tenant shall,
at Landlord's request, deliver a certified copy of a resolution of its board of
directors authorizing such execution.
i. Counterparts. This Lease may be executed in multiple counterparts, all
of which shall constitute one and the same Lease.
j. Execution of Lease; No Option. The submission of this Lease to Tenant
shall be for examination purposes only, and does not and shall not constitute a
reservation of or option for Tenant to lease, or otherwise create any interest
of Tenant in the Premises or any other premises within the Building or Project.
Execution of this Lease by Tenant and its return to Landlord shall not be
binding on Landlord notwithstanding any time interval, until Landlord has in
fact signed and delivered this Lease to Tenant.
k. Furnishing of Financial Statements; Tenant's Representations. In order
to induce Landlord to enter into this Lease Tenant agrees that it shall promptly
furnished Landlord, from time to time, upon Landlord's written request, with
financial statements reflecting Tenant's current financial condition. Tenant
represents and warrants that all financial statements, records and information
furnished by Tenant to Landlord in connection with this Lease are true, correct
and complete in all respects.
l. Further Assurance. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
m. Mortgagee Protection. Tenant agrees to send by certified or registered
mail any first mortgagee or first deed of trust beneficiary of Landlord whose
address has been furnished to Tenant, a copy of any notice of default served by
Tenant on Landlord. If Landlord fails to cure such default within the time
provided for in this Lease, such mortgagee or beneficiary shall have an
additional thirty (30) days to cure such default; provided that if such defau1t
cannot reasonably be cured within that thirty (30) day period, then such
mortgagee or beneficiary shall have such additional time to cure the default as
is reasonably necessary under the circumstances.
n. Prior Agreements; Amendments. This Lease contains all of the agreements
of the parties with respect to any matter covered or mentioned in this Lease,
and no prior agreement or understanding pertaining to any such matter shall be
effective for any purpose. No provisions of this Lease may be amended or added
to except by an agreement in writing signed by the parties or their respective
successors in interest.
o. Recording. Tenant shall not record this Lease without the prior written
consent of Landlord. Tenant, upon the request of Landlord, shall execute and
acknowledge a "short form" memorandum of this Lease for recording purposes.
16
<PAGE> 17
p. Severability. A final determination by a court of competent
jurisdiction that any provision of this Lease is invalid shall not affect the
validity of any other provision, and any provision so determined to be invalid
shall, to the extent possible, be construed to accomplish its intended effect.
q. Successors and Assigns. This Lease shall apply to and bind the heirs,
personal representatives, and permitted successors and assigns of the parties.
r. Time of the Essence. Time is of the essence of this Lease.
s. Both parties expressly and explicitly agree that they have reviewed all
of the lease agreement including but not limited to attached addenda and
exhibits to their satisfaction prior to the execution of this lease agreement.
Both parties have had the opportunity have legal counsel review this lease
agreement and if either party chooses not to seek advice of counsel then said
decision will be made with knowing and willing consent.
t. Waiver. No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant shall impair such right or remedy or be
construed as a waiver of such default. The receipt and acceptance by Landlord of
delinquent Rent shall not constitute a waiver of any other default; it shall
constitute only a waiver of timely payment for the particular Rent payment
involved.
No act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term. Only a written notice from
Landlord to Tenant shall constitute acceptance of the surrender of the Premises
and accomplish a termination of the lease.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent for approval shall not be deemed to waive or render unnecessary
Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of the
Lease.
The parties hereto have executed this Lease as of the dates set forth below.
Landlord: CHEYENNE INVESTMENTS L.L.C. Tenant: MGC COMMUNICATIONS INC.,
A Nevada Limited Liability Company A Nevada Corp.
By: /s/ George K. Connor By: /s/ Nield J. Montgomery
------------------------------------ -------------------------------
Manager Nield J. Montgomery,
President & CEO
Date: 7/15/97 Date: 7/18/97
---------------------------------- -------------------------------
By:
------------------------------------
Manager
Date:
----------------------------------
17
<PAGE> 18
"EXHIBIT "A"
PLEASE REFER TO FULLY EXECUTED SPACE PLAN
18
<PAGE> 19
"EXHIBIT "B"
PLEASE REFER TO FULLY EXECUTED SITE PLAN
19
<PAGE> 20
EXHIBIT "C"
Building Standard Work Letter
and/or
Construction Drawings
If applicable, please refer to mutually-agreed to and signed construction
drawings, which by their reference herewith are made a part this Lease
Agreement.
Landlord agrees to do building standard tenant improvements to Tenant's new
suite, based upon the building standard allowance of $ 25.00 per square foot,
and in accordance to tenant improvement working drawings prepared by Landlord's
architect, and signed and approved by both Landlord and Tenant which by its
reference herewith shall become a part of this Lease document.
If Tenant requires any changes to the final mutually approved plans, whether
such change constitutes an addition or deletion, then Tenant shall be solely
responsible for any and all costs related to such changes and Tenant shall pay
such costs in advance. All tenant improvement work shall cease until such
additional costs are paid in lull. Additionally, Tenant shall be responsible for
the time delay associated with such changes, if applicable.
If Tenant requires any changes, additions or deletions that are above building
standard, Tenant shall be solely responsible for any and all costs related to
such changes. Tenant shall pay such costs in advance and all above building
standard improvement work shall cease until such additional costs are paid in
full. Additionally, Tenant shall be responsible for the time delay associated
with such changes.
The building standard allowance as referenced shall he applied to, but not be
limited in application to the following costs:
- - Cost of space planning and permittable working drawings
- - Concrete floor removal and Plumbing
- - Carpentry and wall blocking
- - Doors, frames and interior hardware
- - Drywall partitions and studs (9' or 10, Ht)
- - Acoustical Ceiling tiles 2' x 2' and grid
- - Carpet (no pad) and carpet base
- - Paint on walls
- - Plumbing connections and fees
- - Fire Protection
- - HVAC drops (supplies and returns)
- - Electrical light fixtures 2' x 4'
- - Single pole switches
- - Wall receptacles
The initialization below shall represent the understating and acceptance of the
foregoing paragraphs.
20
<PAGE> 21
EXHIBIT "D"
Rules and Regulations
1. Landlord agrees to furnish Tenant two keys to the Premises without
charge. Additional keys will be furnished at a nominal charge.
2. Tenant will refer all moving companies, contractors, subcontractors,
contractor's representatives and installation technicians that are to
render any services for the Tenant on or to the building or Project to
the Landlord for Landlords approval and supervision before performance
of any contractual service. This provision shall apply to all
relocation moves whether to or from the Building or Project as well as
installation of telephones, computer equipment, cable equipment,
facsimile and photocopying equipment, telegraph equipment, electrical
devices and attachments and installations of any nature affecting
floors, walls, woodwork, trim, windows, ceilings, equipment, electrical
wiring or any other physical portion of the Building or Project. Should
Tenant insist on hiring a contractor, subcontractor, contractors
representative or installation technician that is not on the Landlords
approved list, Tenant shall be responsible for any and all damages
incurred to the Building or Project by that party.
3. No Tenant shall at any time occupy any part of the Building or Project
as sleeping or lodging quarters.
4. Tenant shall not place, install or operate on Premises or in any part
of the Building or Project, any engine, stove, or machinery (with the
exception of microwave ovens and Generator), or conduct mechanical
operations or cook, thereon or 'herein, or place or use in or about
Premises any explosives, gasoline, kerosene, oil, acids, caustics, or
any other inflammable, explosive, or hazardous material without prior
written consent of Landlord.
5. Landlord will not be responsible for lost or stolen personal property,
equipment, money or jewelry from Tenant's area or public rooms
regardless of whether such loss occurs when area is locked against
entry or not.
6. No birds, animals or pets of any kind shall be brought into or kept in
or about the Building or Project.
7. Landlord will not permit entrance to Tenant's offices by use of passkey
controlled by Landlord, by any person at any time without written
permission by Tenant, except employees, contractors, or service
personnel directly supervised or employed by Landlord.
8. None of the entries, passages, doors, elevators, hallways or stairways
shall be blocked or obstructed, or any rubbish, litter, trash, or
material of any nature placed, emptied, or thrown into these areas, nor
shall such areas be used at any time except for ingress or egress by
Tenant, Tenant's agents, employees or invitees.
9. The water closets and other water fixtures shall not be used for any
purpose other than those for which they were constructed. No person
shall waste water by interfering with the faucets or otherwise.
10. No person shall disturb the occupants of the Building or Project by the
use of any musical instruments, the making of raucous noises, or other
unreasonable use.
11. Nothing shall be thrown out of the windows of the Building or Project,
or down the stairways or other passages.
12. Tenant shall not store any materials, equipment, products, etc.,
outside the Premises as shown on the plans attached hereto.
13. Tenant shall not erect any sign or other insignia upon or in any part
of the Building or Project, or other portion of the Premises without
prior written consent of the Landlord.
14. Tenant shall comply with all local and federal codes and ordinances. In
the event of fire or code problems, Tenant shall comply with said
requirements.
15. Tenant and its agents, employees and invitees shall observe and comply
with the driving and parking signs and markers on the Project grounds
and surrounding areas.
16. Corridor and passage doors when not in use shall be kept closed.
17. All deliveries of other than hand-carried items must be made via the
service entrances and service elevators. Any deliveries of any
abnormally large, bulky or voluminous nature, such as furniture, office
machinery, etc., can be made only after obtaining approval from the
Landlord and at those times specified by the Landlord.
18. Directories will be placed by the Landlord, at Landlord's expense, in
the Building and no other directories shall be permitted.
21
<PAGE> 22
19. No signs, draperies, window coverings, decorations, hangings or
obstructions of any type shall be placed on any skylights or many doors
or windows which are visible from outside the Premises without the
prior written consent of the Landlord.
20. The Landlord reserves the right to rescind any of these
rules and make such other and further rules and regulations as in the
judgment of Landlord shall from lime to time be needed for safely,
protection, care and cleanliness of the Project, the operation
thereof, the preservation of good order therein, and the protection
and comfort of its tenants, their agents, employees and invitees,
including but not limited to, rules and regulations regarding hours of
access to the Building or Project, which rules when made and notice
thereof given to a tenant shall be binding upon him in like manner as
if originally herein prescribed. In the event of any conflict,
inconsistency or other difference between the terms and provisions of
these rules and regulations and any lease now or hereafter in effect
between Landlord and any tenant in the Building, Landlord shall have
the right to rely on the term or provision in either such lease or
such Rules and Regulations which is most restrictive on such tenant
and most favorable to Landlord.
22
<PAGE> 23
ADDENDUM I
DATE: JULY 01, 1997
LANDLORD: CHEYENNE INVESTMENTS, L.L.C.
TENANT: MGC COMMUNICATIONS INC., A Nevada Corporation
For good and valuable consideration, the receipt of which is hereby
acknowledged, Landlord and Tenant agree that the original Lease agreement dated
July 1, 1997 be amended as follows:
1. Concessions: As consideration for Tenant's performance of all obligations to
be performed by Tenant under the Lease, Landlord hereby excuses Tenant base rent
for three (3) months, of the term of this Lease; provided, Tenant shall not be
in default hereunder. Should Tenant at any time during the term hereof be in
default under the Lease, then the total sum of such base rent so conditionally
excused shall become immediately due and payable by Tenant to Landlord. If at
the date of expiration of the term of this Lease, including any option period
and/or any holdover period, Tenant is not in default hereunder, Landlord shall
waive any payment of such base rent so excused.
All other terms, conditions and covenants of the original Lease Agreement and
subsequent amendments remain the same and in full force and effect.
Landlord: CHEYENNE INVESTMENTS, L.L.C.
By: /s/ George K. Connor Mgr.
----------------------------------
George K. Connor
Title: Manager
Date: 7/15/97
----------------------------------
By:
----------------------------------
Title:
----------------------------------
Date:
----------------------------------
Tenant: MGC COMMUNICATIONS, INC., A Nevada Corporation
By: /S/ Nield J. Montgomery
----------------------------------
Nield J. Montgomery
Title: President & CEO
Date: 7/17/97
----------------------------------
By:
----------------------------------
Title:
----------------------------------
Date:
----------------------------------
24
<PAGE> 1
EXHIBIT 12.1
Computation of Ratio of Earnings to Fixed Charges
The ratio of earnings to fixed charges is calculated by dividing earnings
(loss) before income taxes, plus fixed charges excluding capitalized interest
by fixed charges. For the year ended December 31, 1996 and the six months ended
June 30, 1997, the Company incurred net losses and had no fixed charges.
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
MGC Communications, Inc.:
We consent to the use of our report dated August 18, 1997 related to the
financial statements of MGC Communications, Inc. as of December 31, 1996 and
1995 and for the year and period ended December 31, 1996 as applicable, included
herein and to the reference to our firm under the headings "Experts", "Summary
Financial Data" and "Selected Historical Financial Data" in the prospectus.
KPMG PEAT MARWICK LLP
Las Vegas, Nevada
October 28, 1997
<PAGE> 1
EXHIBIT 25.1
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)
-----------
MARINE MIDLAND BANK
(Exact name of trustee as specified in its charter)
New York 16-1057879
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
140 Broadway, New York, N.Y. 10005-1180
(212) 658-1000 (Zip Code)
(Address of principal executive offices)
Charles E. Bauer
Vice President
Marine Midland Bank
140 Broadway
New York, New York 10005-1180
Tel: (212) 658-1792
(Name, address and telephone number of agent for service)
MGC COMMUNICATIONS, INC.
(Exact name of obligor as specified in its charter)
Nevada 88-0360042
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3165 Palms Centre Drive
Las Vegas, NV 89103
(702) 310-1000 (Zip Code)
(Address of principal executive offices)
13% SENIOR SECURED NOTES DUE 2004
(Title of Indenture Securities)
<PAGE> 2
General
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory
authority to which it is subject.
State of New York Banking Department.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System,
Washington, D.C.
(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 each
such affiliation.
None
<PAGE> 3
Item 16. List of Exhibits.
<TABLE>
<CAPTION>
Exhibit
<S> <C> <C> <C>
T1A(i) * - Copy of the Organization Certificate of
Marine Midland Bank.
T1A(ii) * - Certificate of the State of New York
Banking Department dated December 31,
1993 as to the authority of Marine
Midland Bank to commence business.
T1A(iii) - Not applicable.
T1A(iv) * - Copy of the existing By-Laws of Marine
Midland Bank as adopted on January 20,
1994.
T1A(v) - Not applicable.
T1A(vi) * - Consent of Marine Midland Bank required
by Section 321(b) of the Trust Indenture
Act of 1939.
T1A(vii) - Copy of the latest report of condition
of the trustee (June 30, 1997), published
pursuant to law or the requirement of its
supervisory or examining authority.
T1A(viii) - Not applicable.
T1A(ix) - Not applicable.
</TABLE>
* Exhibits previously filed with the Securities and Exchange
Commission with Registration No. 33-53693 and incorporated
herein by reference thereto.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
Marine Midland Bank, a banking corporation and trust company organized under
the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York and State of New York on the 23rd day
of September, 1997.
MARINE MIDLAND BANK
By: /s/ Frank Godino
---------------------------
Frank Godino
Asst. Vice President
<PAGE> 5
EXHIBIT T1A (VII)
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Expires March 31, 1999
- -------------------------------------------------------------------------------
[1]
THIS FINANCIAL INFORMATION HAS NOT BEEN REVIEWED, OR CONFIRMED
FOR ACCURACY OR RELEVANCE, BY THE FEDERAL RESERVE SYSTEM. Please refer to
page i, Table
of Contents,
for the required
disclosure of
estimated
burden.
- -------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH DOMESTIC AND
FOREIGN OFFICES--FFIEC 031
REPORT AT THE CLOSE OF BUSINESS JUNE 30, 1997
This report is required by law; 12 U.S.C. ss.324 (State member
banks); 12 U.S.C. ss. 1817 (State nonmember banks); and 12
U.S.C. ss.161 (National banks).
(950630)
- -----------
(RCRI 9999)
This report form is to be filed by banks with branches and
consolidated subsidiaries in U.S. territories and possessions,
Edge or Agreement subsidiaries, foreign branches, consoli-
dated foreign subsidiaries, or International Banking Facilities.
- -------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed
by an authorized officer and the Report of Condition must be
attested to by not less than two directors (trustees) for State
nonmember banks and three directors for State member and
National Banks.
I, Gerald A. Ronning, Executive VP & Controller
- -----------------------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition and Income
(including the supporting schedules) have been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and are
true to the best of my knowledge and believe.
/s/ Gerald A. Ronning
--------------------------------------------
Signature of Officer Authorized to Sign Report
10/16/97
- --------------------------------------
Date of Signature
The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in some
cases differ from generally accepted accounting principles.
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it
has been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
/s/ James H. Cleave
- --------------------------------------
Director (Trustee)
/s/ Bernard J. Kennedy
- --------------------------------------
Director (Trustee)
/s/ Malcolm Burnett
- --------------------------------------
Director (Trustee)
- -------------------------------------------------------------------------------
FOR BANKS SUBMITTING HARD COPY REPORT FORMS:
STATE MEMBER BANK: Return the original and one copy to the
appropriate Federal Reserve District Bank.
STATE NONMEMBER BANKS: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return
address envelope, return the original only to the FDIC, c/o Quality Data
Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114.
NATIONAL BANKS: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite
204, Crofton, MD 21114.
- -------------------------------------------------------------------------------
FDIC Certificate Number 0 0 5 8 9
--- --- --- --- ---
(RCRI 9030)
<PAGE> 6
NOTICE
This form is intended to assist institutions with state publication
requirements. It has not been approved by any state banking authorities. Refer
to your appropriate state banking authorities for your state publication
requirements.
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the
Marine Midland Bank of Buffalo
Name of Bank City
in the state of New York, at the close of business
June 30, 1997
ASSETS
Thousands
of dollars
<TABLE>
<S> <C>
Cash and balances due from depository
institutions:
Noninterest-bearing balances
currency and coin................................. $ 1,044,050
Interest-bearing balances ........................ 2,065,434
Held-to-maturity securities....................... 0
Available-for-sale securities..................... 3,576,879
Federal funds sold and securities purchased
under agreements to resell........................ 3,311,653
Loans and lease financing receivables:
Loans and leases net of unearned income........... 20,801,413
LESS: Allowance for loan and lease losses......... 429,338
LESS: Allocated transfer risk reserve............. 0
Loans and lease, net of unearned
income, allowance, and reserve.................... 20,372,075
Trading assets.................................... 982,806
Premises and fixed assets (including
capitalized leases)............................... 221,952
Other real estate owned.............................. 8,293
Investments in unconsolidated
subsidiaries and associated companies................ 0
Customers' liability to this bank on
acceptances outstanding.............................. 26,490
Intangible assets.................................... 495,034
Other assets......................................... 530,288
Total assets......................................... 32,634,954
LIABILITIES
Deposits:
In domestic offices............................... 20,705,098
Noninterest-bearing............................... 4,382,353
</TABLE>
<PAGE> 7
Interest-bearing.............................. 16,322,745
In foreign offices, Edge, and Agreement
subsidiaries, and IBFs........................... 3,458,100
Noninterest-bearing........................... 0
Interest-bearing.............................. 3,458,100
Federal funds sold and securities purchased
under agreements to resell.................... 3,784,599
Demand notes issued to the U.S. Treasury......... 300,000
Trading Liabilities.............................. 169,194
Other borrowed money:
With a remaining maturity of one year
or less....................................... 878,716
With a remaining maturity of more than
one year through three years.................. 133,670
With a remaining maturity of more than
three years................................... 112,907
Bank's liability on acceptances
executed and outstanding......................... 26,490
Subordinated notes and debentures................ 497,648
Other liabilities................................ 336,900
Total liabilities................................ 30,403,322
Limited-life preferred stock and
related surplus.................................. 0
EQUITY CAPITAL
Perpetual preferred stock and related
surplus.......................................... 0
Common Stock..................................... 205,000
Surplus.......................................... 1,983,530
Undivided profits and capital reserves........... 38,878
Net unrealized holding gains (losses)
on available-for-sale securities................. 4,224
Cumulative foreign currency translation
adjustments...................................... 0
Total equity capital............................. 2,231,632
Total liabilities, limited-life
preferred stock, and equity capital.............. 32,634,954
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996, AND FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE 6 MONTHS ENDED JUNE 30, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM S-4 WHICH INCLUDES THE
FINANCIAL STATEMENTS IN THEIR ENTIRETY.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 7,896,847 7,859,638
<SECURITIES> 0 0
<RECEIVABLES> 314 308,347
<ALLOWANCES> 0 43,062
<INVENTORY> 0 0
<CURRENT-ASSETS> 9,083,068 8,349,853
<PP&E> 3,293,196 10,262,355
<DEPRECIATION> 43,410 459,949
<TOTAL-ASSETS> 12,338,532 18,184,180
<CURRENT-LIABILITIES> 1,546,890 5,827,116
<BONDS> 0 0
0 0
0 0
<COMMON> 11,960 14,141
<OTHER-SE> 10,779,682 12,342,923
<TOTAL-LIABILITY-AND-EQUITY> 12,338,532 18,184,180
<SALES> 0 0
<TOTAL-REVENUES> 751 863,676
<CGS> 0 0
<TOTAL-COSTS> 304,936 1,360,005
<OTHER-EXPENSES> 1,250,295 2,409,411
<LOSS-PROVISION> 0 161,650
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,491,358) (2,796,578)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,491,358) (2,796,578)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,491,358) (2,796,578)
<EPS-PRIMARY> (1.27) (.20)
<EPS-DILUTED> (1.27) (.20)
</TABLE>
